Bitcoin just crashed 25%! What should you do?!?

Intro

All right boys and girls, big day today in the crypto community. As the legendary trader (/s) “Davey Day Trader Global” (#DDTG) would say:

“Emergency press conference”

TL;DR

• Large drops in bitcoin are common. This is not the end of bitcoin.
• Avoid brash decisions with investing. Have a plan beforehand and stick to it.
• Dollar-cost averaging is a great investment plan
  • Example where it beats a trader that buys at the market bottoms.

Background

Bitcoin just crashed 25% today (February 23, 2021). And some are saying “the sky is falling”, “SOS”, “mayday”, “RIP”, “I’m never going to financially recover from this”. But I’m here to tell you that if you can stay the course, not panic, and breathe, things are going to be just fine.

If this is something that you don’t think that you can handle, then maybe bitcoin’s not for you as this is actually not too far out of the ordinary for bitcoin.

I’m also here to explain that I know next to nothing about money, finances, the economy, and I’m definitely not a certified financial planner (CFP). I’m really not even certified in much of anything. In other words, please do your own research (DYOR) before investing and listening to Joe Schmoe off of YouTube (AKA: me). No offense to any Joe Schmoes out there, I’m sure you’re all very knowledgeable people. This article is just my opinion and I’m going to vent on my thoughts. Let’s go.

Target Audience

This video is mainly meant for someone who recently started investing into crypto. Although, I think even people that have been in the crypto space for a few years could probably gain something from this. With that said, I’ve been following the crypto space closely since ~2013. Here are a few good quotes that I’ve picked up over the years:

“Past performance is not an indicator of future results”

“If it ain’t broke, don’t fix it”

“History doesn’t repeat itself, but it often rhymes”

In other words, what I’m trying to say is there is no guarantee that these things will continue to happen but, for now, it seems to be a good indicator.

Large Drops in Bitcoin Are Common

The next part of this post is best with visuals, please watch the YouTube video below:

Timing the Market

I find this post on Reddit extremely fascinating. You have three traders:

• One that saves until buying at each market peak (Terrible Tiffany)
  • Buys in 1987, 1990, 2000, 2007, 2020
• One that saves until buying at the market bottom (Bottom Brittany)
  • Buys in 1988, 1990, 2002, 2009, 2020
• One that buys consistently no matter the price: “dollar-cost averaging” (Steady Sarah)

Over the last 40 years of the S&P 500 (1980-2020), assuming each investor has $200 to work with each month:

• Keeping the money under their mattress = $96k
• Savings account (3%) = $186k
• Tiffany = $664k
• Brittany = $957k
• Sarah = $1.386M

In the long term, do not keep your money under your mattress or in a savings account!

It was shocking to me that even the best trader who buys at every market bottom (Brittany) performs worse than easiest investment plan of them all (Sarah). Because Brittany spends so much time waiting for the best time to invest, even if now is a good time to buy, she avoids buying because there was previously a better time. As the market goes up, Brittany keeps waiting for a market drop, which may or may not come. Meanwhile, Sarah is investing throughout the market bottom and as the market goes up.

Moral of the story: dollar-cost averaging has great returns and an incredibly easy investment plan.