Buy (or Hodl) Through Crypto Winter

Buy (or Hodl) Through Crypto Winter
By Adam Sharp
Date January 3, 2019

As you know, 2018 was a rough year for crypto markets. But I’m quite optimistic about 2019. We have a number of catalysts that could catapult the market higher in the near term. And the long-term case for cryptocurrency has never been stronger.

This year’s first piece of encouraging news is a big one. Bakkt, a new crypto firm launched by the New York Stock Exchange’s parent company, just announced a $182 million round of funding.

Bakkt is being built to provide institutional investors with access to cryptocurrency markets. Bakkt will offer trading, custody (storage), payment solutions and more.

Needless to say, $182 million is a huge round of funding for such a young company. Leading private investment firms participated in this round, including Protocol Ventures, PayU, Microsoft’s venture capital arm (M12), Horizons Ventures, Pantera Capital and Mike Novogratz’s Galaxy Digital.

Here’s an excerpt from TechCrunch’s coverage (emphasis mine):

The crash caused many to dismiss bitcoin and its underlying technology, while others remained committed to the tech and its potential for complete financial disruption. A project like Bakkt, created in-house at a respected financial institution with support from noteworthy businesses, is a logical bet for crypto and traditional private investors alike.

Clearly, 2018’s dismal price performance has not dampened cryptocurrency enthusiasm among institutional investors.

Seeing these savvy investors placing a large bet on crypto during this downturn is certainly encouraging. But it shouldn’t be surprising.

Last June, I wrote about Andreessen Horowitz’s new $300 million crypto fund and how it plans to invest aggressively regardless of market conditions. Andreessen Horowitz (a16z) is one of the best venture capital firms in the world. And I believe it is taking the right approach to crypto.

Let’s review some of what a16z discussed when it launched the fund. In essence, this is how the “smart money” thinks about crypto.

  • “We are long-term, patient investors. We’ve been investing in crypto assets for 5+ years. We’ve never sold any of those investments, and don’t plan to any time soon. We structured the a16z crypto fund to be able to hold investments for 10+ years.”
  • “We have an ‘all weather’ fund. We plan to invest consistently over time, regardless of market conditions. If there is another ‘crypto winter,’ we’ll keep investing aggressively.”

And here’s what I wrote last year regarding a16z’s strategy:

This is the best way to invest in crypto (and many other assets). In the venture capital world, it’s known as being “patient capital.” It means being willing to wait and endure the ups and downs. To hold despite volatility. And to avoid the temptation to exit early.

In order to hit a home run on any investment, you’ll probably have to weather several cycles of ups and downs. Every time you trade in and out of the market, it increases your investment risk.

If you’re confident about the long-term value of an asset, you must stay disciplined and not sell (unless you need the money badly or could use it to pay off significant debt).

Investing with a patient capital perspective is also tax-efficient. Even if you trade in and out of the market successfully, the short-term capital gains will eat up a big chunk of your profits.

Since we do appear to be experiencing a “crypto winter,” my advice remains the same: hold or buy. And if you’ve been dollar-cost averaging (buying into the market over time), don’t stop now. These are the times that you can significantly bring down your cost basis.

Good investing,

Adam Sharp
Co-Founder, First Stage Investor

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