Avoid the Crypto “No News Zone of Death”

Avoid the Crypto “No News Zone of Death”

When I began investing, I often bought stocks of small companies, especially start-ups. In the cryptocurrency universe I see a lot of similarities as those start-ups.

What I realized about myself is that I like starting companies, not running them. So, when I buy stocks I usually buy them of small companies. Sometimes I even start the company and take it public. I confess I have no desire to start my own Rich Dad crypto coin. I just don’t know enough about the crypto world. That’s why I trust my trusted advisors and experts. Jeff Wang, the expert I go to with all things crypto, may understand it, but I certainly have a lot of learning to do before I go out and create a coin.

Fortunes are made in new stock issues, and I love the game. Many people are afraid of small-cap companies and call them risky, and they are. But that risk is diminished if you love what the investment is, understand it, and know the game. With small companies, my investment strategy is to exit the stock within a year. I hate locking my money for very long. I want to keep it available for the next opportunity that presents itself. From what Jeff has been teaching me, this is a common strategy for crypto trading, as well. But you must understand the risks and rewards of such actions.

What I use to grow my personal wealth

I’ve used two main vehicles to achieve financial growth: real estate and small-cap stocks. I use real estate as my foundation. Day in and day out, my properties provide cash flow and occasional spurts of growth in value. The small-cap stocks are used for fast growth.

In the beginning of my investing career, I would buy high-risk, speculative private companies that are just about to go public on a stock exchange in the United States or Canada.

An example of how fast gains can be made are 100,000 shares purchased for 25 cents each before the company goes public. Six months later, the company is listed, and the 100,000 shares now are worth $2 each. If the company is well managed, the price keeps going up taking the stock price up to $20 or more per share. There are years when our $25,000 has gone to a million in less than a year.

I cannot tell you to follow the lessons from my small-cap stock experiences into the world of crypto investing. But, I see a lot of similarities between the two. Jeff Wang can explain more about the crypto world’s mirroring of the small-cap stock world.

Are you gambling or investing?

It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal and praying. The idea in anything is to use your technical knowledge, wisdom, and love of the game to cut the odds down, to lower the risk. Of course, there is always risk. It is financial intelligence that improves the odds. Thus, what is risky for one person is less risky to someone else. That is the primary reason I constantly encourage people to invest more in their financial education than in stocks, real estate, or other markets. The smarter you are, the better chance you have of beating the odds.

Note: That is why I always recommend finding the right teacher before taking action.

The stock plays I personally invested in were extremely high-risk for most people and absolutely not recommended. I have been playing that game since 1979 and have paid more than my share in dues. But if you understand why investments such as these are high-risk for most people, you may be able to set your life up differently, so that the ability to take $25,000 and turn it into $1 million in a year is low risk for you.

As I stated earlier, nothing I have written is a recommendation. It is only used as an example of what is simple and possible.

When the student is ready, the teacher will appear

In this blog I have stated quite a few times that you need a good teacher to get started. Jeff is my cryptocurrency teacher. If you’d like him to be your teacher, you can get our Rich Dad Cryptocurrency Newsletter. Either way, you should listen to what Jeff has to say below.

Jeff Wang

Every few months, I like to dedicate a few trading observations that I think are worth pointing out in detail. One of these observations is the period of time when a cryptocurrency project comes out and goes silent.
This can be in the form of many things:
  • When the creating team offers no blog updates and creates an impression of a lack of transparency
  • The project’s Twitter handle goes quiet
  • Community members stop answering questions in the telegram and discord chats showing a decline in interest.
This could be several reasons a project goes silent. They may be working on the product itself. This takes a lot of time and energy and often the silence is from the project team being so focused on their project.
It is also very possible that at the time they have nothing new to report. They could be working on the project but have not finished anything yet and so there is nothing to communicate outward.
Perhaps the project does not have the team or time to maintain a media presence.
Or possibly the worst possibility, the project team simply ran away with the funds. Obviously, the running away of the funds scares people.
Basically, what we see happening is the price of projects pump on the excitement and news releases. Once the initial “high” passes, a trickle down in price occurs. This downward slope will usually continue until the next update (or social media push by others). We recently saw Elon Musk create a media push/frenzy when he posted his love of the dogecoin. The price shot up with the initial excitement and then declined shortly after.
This consistent pattern of the “pump” followed by the dump is because people look at their holdings all the time, and when they see a stale project, they’ll swap their funds elsewhere.
Basically, crypto investors do not hold for the long haul (Bitcoin investors excluded). They actively trade their crypto positions as a swing trader which is very similar to a stock market day trader. This behavior by most crypto investors often leads to an almost linear bleeding chart with the price continuously heading lower.

Note: Investopedia defines swing trading as a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities.
The other reality, of course, is if someone holds a huge percentage of the project, they’ll need to sell it slowly or risk causing a flash crash on the price.
This trickle down in price is what I’ll call the “no news zone of death”, where no news becomes hazardous to the project’s value. Often a project will do a few things to stay relevant and prevent the projects bleeding out:
  • Partnership updates are common. A coin may often partner with another project to create a buzz and stay in the news and minds of the crypto investors
  • Projects will trickle some of the novel concepts their coin is trying to solve (or just random tweets and telegram announcements)
  • Hold interviews and “Ask Me Anything sessions” are a popular and effective way to stay relevant
  • Staggering their exchange listings
There are more of these strategies, but these explain a lot of price behavior for projects that are new and start trickling down as well as the behaviors of the project team to prevent the downward pull. Typically, a swing trader wants to capture gains at these big news moments (because a premium is present).
On the flip side, the no news moments present good (but risky) buying opportunities. If you know that news is coming out on the horizon, but the chart is caught in the zone of death, it’s a great risk reward play to buy something that has zero activity because it has huge upside when news finally hits. This is often called “value buying”. However, and be warned, it doesn’t work if the project has gone radio silent because the developers have abandoned the project.
Possible actions: In summary, swing traders can sell just after a major news event hits. Buy and hold traders should tough through the zone of death, and value buyers should look for projects that have news coming up but are in the zone of death, basically your buy low, sell high strategy. Good luck out there!

Conclusion

Thank you, Jeff, for another informative blog.

I want to stress once again before I end this blog. Get educated! Do not delegate your financial future to someone else. If you want to learn about stocks, see my advisor Andy Tanner. If you want to learn about real estate listen to my advisor Ken McElroy and take my Rich Dad Real Estate course, “Real Estate BluePrint”. And finally, if you want to learn about cryptocurrency investing get my Rich Dad Cryptocurrency Newsletter.

Original publish date: May 03, 2021