[MUSIC] A new year
can be the perfect time to reassess
spending habits and set new financial goals.
But that task becomes a little challenging if
equity and crypto prices are falling all around you.
Bitcoin, Ethereum, Solana, and Cardano are
now all down 34 percent to
60 percent off their all-time highs.
After a brutal sell-off on January 10th,
the crypto market has since stabilized.
Industry watchers know that crypto
can soar or plunge in a flash,
despite how good the short-term prospects appear.
Hi, I'm Kate, from The Motley Fool.
I spoke with Daniel Foelber about the three steps
to take if the crypto sell-off isn't over.
I think the first thing is you want to try
and achieve your desired crypto allocation.
Allocation is one of those things
that we don't talk about enough in my opinion.
We talk about selecting good cryptos to invest in.
But allocation can very quickly exaggerate
gains on the upside and also exaggerate losses.
I think that it's important to reassess
your crypto portfolio and make sure that
you're allocated the proper percentage
that you want to be.
For most investors that are
just getting their feet wet in the industry,
it's probably less than five percent
and maybe just one percent,
two percent into crypto.
Probably the big ones like Bitcoin and Ethereum.
Brothers that are maybe younger,
have longer investment time horizon
are higher-risk tolerance.
Maybe they'll go higher 10-20 percent.
But if you find yourself 30 percent
plus invested in crypto and the market
is crashing all around you,
you can accidentally have
a lot worse performance than you even meant to.
That is truly a terrible feeling
and you want to try to avoid that as much as possible.
Okay. Let's say that we've adapted our allocation.
What's the next step to mentally prepare
for a rough time in the crypto market?
Peter Lynch one of
my favorite investors of all-time always said
it's important to know what you own and why you own it.
I think if you can't explain to a friend why you own
a stock for especially a [inaudible] like investment
like an altcoin in crypto,
then that's a red flag
because what's to stop you from not selling
it if the valuation exceeds
the fundamentals or panic
selling it when everything's crashing around you.
The easiest way to simply avoid
that I think especially for investors
into crypto is just to stick with
the two industry leaders, Bitcoin and Ethereum.
They both have solid fundamentals
and they're going to
benefit from the tailwinds of the industry.
If crypto truly crashes,
then there's a good chance that a lot of
the altcoins will go down
more than, they're not blue-chip,
cryptos that's reserved for stocks,
but they are certainly seen as
the more stable cryptos that
have persevered through different crashes.
I also think that people
typically love Bitcoin and Ethereum together.
But to me, the investment thesis
for each of them is completely different.
I think that Bitcoin it's intended to be stagy and
boring and have this fixed supply
of 21 million fungible tokens.
It's really just seen as a store value and hedge against
inflation that's arguably better than gold for long term.
In the U.S. it's a little bit
hard to see the true utility of
Bitcoin because we have arguably
the best fiat currency in the world, in the US dollar.
But in other countries
where their economies are more unstable,
Bitcoin can be one of the best stores of value,
especially because opening US dollar denominated
checking account is pretty
impossible in a lot of those places.
Bitcoin is the safeguard of wealth that,
because it has a fixed supply,
because of that scarcity,
I think it has intrinsic value for that reason.
Ethereum is totally different.
It's more dynamic. Its value is derived
from what can be built on its platform.
So Bitcoin is more of what it can
safeguard and Ethereum is
more of what it can do
all the apps and projects that can be built on it.
I would definitely categorize Bitcoin as
more of a value play and
Ethereum as more of a growth play.
But again, I think just sticking
with those two industry leaders is
the best way to know where you're
getting into in case the market keeps crashing.
It seems like a lot of this
is focusing on a long-term perspective,
knowing your investments and why you invested in them.
What would be the third and final step in preparation?
I think what can happen,
especially during a rapid sell-off,
the old saying is market goes
up before the net goes down and it goes down
faster than it goes up
is you can quickly find yourself wanting to take action,
wanting to do something like the old human impulse of
when you're scared is fight or
flight, like you want to act.
But reality, the best decision is usually to do nothing.
In fact, if you would have bought the S&P
500 at the peak on October 9th,
2007, right before the financial crisis and just held it,
you would be up 200 percent through the end of 2021.
But if you would've sold it at the worst time
which is March 2009,
you would have lost over 55 percent.
History tells us that being
passive is usually the best choice.
But you also want to
map out what you would do in different scenarios.
The crypto market as
a whole crash 10 percent, what will you do?
Twenty-five percent, what will you do?
Fifty percent, what would you do? That way you the
game plan going into it,
you can reduce randomness of making an impulse decision.
Also just the mental side of investing,
which is super important.
I think we're all human, is
it will make you feel better,
make you feel more control of what you're
doing and just help you endure through that crash.
The US stock market and crypto so far have
been incredible long-term investments and
really the price of admission to tap into
those long-term gains is still making the volatility,
is getting through the downturn.
That's just what it takes,
and the better you can prepare for that,
the better chance you'll have to just stay the course.
What you're trying to say is take emotion out of it,
trust why you bought into an investment,
and remember that investing is a long-term process?
Yeah, the investment thesis for stocks and I
think even more so for Bitcoin and Ethereum,
is just decades from now.
We're still at the point where projects are being
built on a blockchain are
really being used for the common person.
They are still these vague ideas of what could be.
A lot of economies to want
really using Bitcoins to its full utility.
Those are baseball game.
We're probably still in the late first inning,
maybe early second inning.
It's just this ultra long-term time horizon where on
a chart it can just look insane in the short-term.
But I think that
blockchain technology is really a game changer.
I think that there is a lot of other
projects that are doing
interesting things too like Cardano and Solana.
It's just important to focus on what you can control,
which is basically your allocation
and what ratings you want to
have and the decision to dollar cost average over time,
what percentage that is and
just keep up-to-date with how projects are developing,
what regulatory policies get
implemented and things like that.
But just remembering why you
bought the asset in the first place.
Why you're there, and why you got into it.
If it's a trade to make a quick buck,
then you're probably doing it for the wrong reasons.
But if you really know
the long-term thesis of something like
Bitcoin and you're comfortable owning it for decades
and probably dollar-cost averaging
even more of our time,
then I think that's just going to be
another exercise you can
do to help yourself through a sell-off. [MUSIC]