RE: Crypto Investing: Think Long-Term
In my brief forays into the stock market, definitely one of the things I learned was trading on margin is tough. It's nice in that you get a solid multiplier for your efforts, but it's far more dangerous, in that you can get completely blown out of the market, and driven to zero, if you're not careful.
In my opinion, trading on margin is Beast Mode, and you should not do it unless you're prepared to lose everything.
If you want to be in the market and can stomach 'mere' 2x-4x-8x gains? Then simply buying your currency of choice makes the most sense. There's no margin calls to deal with. You own your currency, and its value may fluctuate - but you will still have it.
I think with Steem, if you're actually putting real money into it, it could make sense to hedge your own bet by buying SBD's as well. If the market goes down and your STEEM loses a ton of value, at least your SBD's will end up maintaining their dollar-amount. And if you're going long term, you can sell your SBD's on a downswing to keep driving your position upward - if you're long-term long on cryptocurrency.
I haven't figure out if I am yet :)
Thanks for commenting, Brady. Have you read my posts on BitShares? I link to them in the margin call HERO one. It's interesting because your own collateral via many multiples is used, so it's somewhat different than traditional margin setups where it's true debt. Also, the historical long-term trend of fiat verses cryptocurrency has been very, very good. So, on a long enough timescale, if you're betting against fiat, it's (so far) been a pretty safe bet (though a very volatile one).
If you can get a margin call, I'm pretty sure you are, in some way, dealing in debt. You borrow something and promise to pay it back later. That borrowing is done against a certain amount of collateral. That's debt. If the thing you're going to pay back later loses value in the interim, you buy the thing back off the market at the new lower price, and hand it over - at a profit! If the thing you're going to pay back later rises in value, at a certain point your liability will exceed the amount of collateral you have on hand, and you get automatically liquidated.
I won't pretend to understand any of that variable multiplier and collateral ratios and other such madness; I don't really know what it means. But I'm pretty sure about the first thing.
And, sure, on a long enough timescale, maybe Crypto beats fiat. I mean, hell, I'm here, right?! :)
But margin-trading isn't long-term. One tiny bump one way or another and you can get wiped out. Or make a mint. It's collateralized debt, no matter how you mark it.
On the stock side, the people who work in derivatives markets like that tend to be very short-term day-trader types. Or, they're people who have set up side-hedges to cover themselves if something goes very, very wrong.
(There's actually some really interesting stuff you can do, where you buy something you believe in, and hold it. And then you get some kind of derivative-style bet against it, and hold that too (up to a point). If your main bet pays off, you get margin called on your secondary bet, but if your main bet was good enough, you're still in profit. If your main bet tanks - horrifically - then you at least get a consolation prize on your secondary bet - and it's fine, you still hold your main bet (for now, unless you panic and sell it)).
So for you - and what I can figure that your positions are - I would dump a big chunk of money into good ole' BTC (or STEEM, or whatever currency floats your boat. Or a nice 'basket' of them). And then I would dump a smaller chunk of money - your hedge - into a short against it (SBD maybe? Or some other BitShares thing I don't know about yet?). You just have to work out a spreadsheet of your potential gains to potential losses, or whatever. And you'd have to remember; if your main 'position' goes well, you will lose your hedge. And that's fine, that means you've done well! I think the other thing to note is that you want those accounts to be separate; so that your main asset doesn't get lumped in with the collateral you have on your short. You want the short to liquidate itself (going to zero) when its collateral is spent, not have it keep going and run against your main bet!!!
DISCLAIMER - not financial advice. I don't know what I'm doing. I have never done the thing I just talked about.
I think I read something on Wikipedia once about 'bracketing options' - that might have more details if that's something you're worried about.
Yes, I'll concede it is indeed debt, but so are the pieces of paper with dead people on them in everyone's wallet. Fiat is a certificate of debt with no collateral other than taxes and economic productivity of a nation state (which, you know, I love to consider theft or, at the least, a version of extortion).
In this case, the collateral system really matters. Whereas derivatives traders are often trading with only a fraction of real value backing their positions, BitShares takes the opposite approach with over collateralization. It does so knowing that BitShares itself is a risky, volatile asset. The key being even if the margin is called, no one is hurt accept the person who took out the debt position. Everyone else gets exactly the value they are owed.
I like the idea of betting against yourself to some degree, but isn't that also just like doing the same thing at a smaller scale?
So if create 10k bitUSD out of nothing, buy BitShares with it and hope for the best, betting against myself would be to also buy up some bitUSD. How much? 2k? 5k? If I was to do that, I might as well just create 8k or 5k bitUSD to begin with. The key, I think, comes down to how much collateral you have and how much you are willing to lose.
But yes, selling the bitUSD for just BitShares may not be as good of a move as selling it for multiple cryptocurrencies (which I've also done in the past). With what we saw this past week or so, it wouldn't have mattered much though as everything went down.
I'm glad you're here, Brady. I hope you enjoy playing around with this economic sandbox which runs on smart contracts with no violence. :)