Why You Should Only Invest in Coins With Liquidity (Op-ED)
Do not buy gems.
Yeah, I said it. All those so-called ‘gems’ on KuCoin or some other fringe exchange — don’t touch those.
Those are the coins that will get you fucked up.
I don’t care about the whitepaper, how rare it is, what influencer on Twitter told you that its the most awesomest thing that you’ve ever come across in your life — do not touch it.
Instead, invest in coins with liquidity.
There are a few reasons why:
- Derivatives options. You’ll never find an exchange (reliable) that will allow you to short $BAT, but there are plenty (that are legitimate) that will allow you to short Ethereum and Ripple. That’s good. That gives us more options.
- You’ll never find a legitimate crypto exchange that does not have Ethereum or Ripple (these are just the examples that I’m using, so bare with me). Therefore, you can rest assured that there are always sizable markets for these coins — which means liquidating them down will never be a problem.
What I said in #2 is the key.
Here’s the thing.
It doesn’t matter if your coin is up 100% on the books, what matters is the answer to this question:
‘Are there enough people out there willing to buy my bags at its listed price?’
If you aren’t following me — check out this example on liquidity:
Let’s say we have CryptoMedCoin. You buy $3,000 worth of this coin at the price of $3/each we’ll say; so you have 1,000 CryptoMedCoins. A couple of days pass and you check the exchange again and you notice that CryptoMedCoin is going for $5/coin. That’s a solid profit there, right? With 1,000 coins and the price now elevated to $5/coin, you can make $2,000 in theory if you sell everything now.
So you decide, ‘Hey, this profit looks pretty solid. I think I’ll go ahead and cash out right about now’
There’s a Problem With Our Profit-Taking Plan
There are only enough buy orders to sell 600 coins at the price of $5.
Below that, there are about 200 bids at $4/coin and then the rest of the bids are at $3/coin.
Assuming you did a market sale at that very point in time, you’d be forced to sell your stack for $4.4k total.
Now, that’s still a nice profit, don’t get me wrong. But its well below your mark of $5k (approx. $600 short actually). This is a pretty huge variance between your expected profit and your actual take-home profit. (25% difference; $1600 vs. $2k)
Such a variance in numbers could lead you to think you’re further up on your portfolio than what you actually are. This, in turn, may result in you making some decisions on the market or even in your personal life on the basis of false information.
Want to Know How We Can Avoid That Problem?
Trade coins with liquidity. Make sure that you aren’t fucking around with a bunch of random little foreign shitcoins on some God forsaken exchange that’s in a language you probably don’t even understand.
That’s the quickest way to get screwed in crypto. I don’t care what you see other influencers post, they are more than likely just trying to shill out ref links to you and they want to market the exchange by making you think its the greatest thing since sliced bread.
We’ll wrap up this market analysis with that, for the time being. However, there is much more on the horizon coming soon for followers of Zerononcense.
Until then, safe trading!