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I had a reader send in this message earlier this week:
The term "generational wealth" refers to gains from an investment that’s appreciated significantly over time, providing long-term financial security for multiple generations of a family.
So for our sake, let’s say that’s turning a $5,000 investment into $5 million (or a 100,000% gain).
This is what many people think they can do with cryptocurrencies.
But I have some bad news for you…
You’re (Probably) Not That Guy, Pal
We talked a few weeks ago about “survivorship bias.”
That’s when people focus only on the success stories of a particular strategy while ignoring the higher number of stories of those who don’t succeed.
This comes up a lot in the crypto market, mainly because you usually only hear stories like this in the media when it comes to crypto:
Yet you never hear about the person who over-invested in an altcoin only to see their investment fall -99%, or the person who had their funds locked on a crypto exchange that went bust.
But these stories are far more common in the real world. You simply only hear about them when big names like Barstool Sports founder Dave Portnoy publicly makes a $40,000 investment in cryptocurrency SafeMoon…
…only for it to fall -94% from the highs a year later:
If your goal is to make “generational wealth” fast in the cryptocurrency market, you are far more likely to lose all your money. There is no magical way to get rich quick, and anyone telling you otherwise is trying to sell you something (or get engagement on their content).
But that doesn’t mean you can’t make money in crypto.
Keeping Your Expectations in Check
I’ve been investing in the cryptocurrency market since 2017.
That includes buying a position in Ripple (XRP) in December 2017 for $0.15 and selling a monthly later for a nearly 1,000% gain.
At the time, I was only dipping my toe in the cryptocurrency waters. And after the “crypto winter” in 2018 and 2019, I had accumulated over two bitcoins.
That includes this transaction on January 7th, 2020 when I bought bitcoin at $7,933.
Over the next 16 months, I saw bitcoin surge over 500%...
…and in May 2021, I sold over half of this position for a massive gain (you can read about it here).
But how did I know when to buy and when to sell?
I Have a Few Tricks Up My Sleave
While these were solid gains - +500% and +1,000% - I would not consider these as “generational wealth” events.
Yes, they helped me buy a house. But it won’t setup any future offspring for life.
So while a +100,000% gain is a pipe dream, these types of +500% to 1,000% gains are possible over a long period of time.
And I use a few methods for timing when to get in and out of crypto positions, including the net unrealized profit and loss indicator (NUPL).
NUPL is a measure of the number of bitcoin currently in profit.
And in previous cycles, it peaked when 75% of recently purchased bitcoin are in profit (i.e. people are feeling very rich)…
…and bottomed when 0% of recently purchased bitcoin are in profit (i.e. people are feeling very poor).
Next, I keep close attention to people’s Google Searches:
When tons of people are searching for bitcoin on Google, it’s usually a good sign we’re near a market peak. For instance, in the previous cycle bitcoin peaked in mid-2021 and - likely - bottomed in November 2022.
This nearly perfectly coincides with Google searches for bitcoin:
Lastly, I look closely at general sentiment. Thanks to my 500,000 social media followers I can gauge easily how people are “feeling” about the market.
Considering I had over 15 people ask about crypto on my latest post, I’d say the market is starting to heat up in the short-term.
This is a major change from only a few months ago when my comments were littered with statements like this:
But this begs the question: is now a good time to buy bitcoin?
It All Depends on One Thing
It’s always hard to give answers to the question, “is it time to buy bitcoin?”
The core issue is that everyone has different time horizons and risk tolerances. As someone who’s invested professionally for over a decade, I can handle volatility and know how to size my positions appropriately.
I also know the first rule of crypto investing: don’t invest any money you can’t afford to lose.
Because if I were a betting man, I’d say one year from now bitcoin will be higher than it is today.
That’s a key reason I hold bitcoin with about 5% of my total portfolio.
While I don’t expect to make a +100,000% generational wealth return, the prospect of making a +100% or +200% return over the next few years is within the realm of possibility.
And I don’t plan to miss out on it.
Stay safe out there,
Robert