Longer Term Speculation on Ethereum

Balancing the Longer and Shorter-Term Views with Investments

For instance, with the stock market, we know that the long-term trend is upward, but if we are mired in a bear market, the present circumstances do not support this trend, at least currently. Many investors simply choose to ignore the present and nearer term circumstances, as they are not focused on either, but they still serve to influence the performance of an investment.

A bear market for instance might not have us wanting to change our long-term outlook, but it still affects it to some degree, and while we may end up still being bullish on it when we account for what may be going on right now, if we just ignore all of this we not only add to the risk of our positions, we will miss opportunities to improve our returns and better manage our risk if these opportunities present themselves.

While looking to balance these views does impart more complexity in our investment decisions then simply deciding not to do anything or decide anything and just hold on to the investment, if our goal is to help ourselves here, to manage our investments in even a reasonable fashion, this will require at least some amount of reasoning.

We would never just open a business with a certain business plan and never choose to adapt it to business conditions, and while the idea may have been a good one initially and following it without making any adjustments to how the business is performing may end up keeping ourselves in business over time, this does not mean that this is an appropriate way to run a business.

Therefore, it is important to both assess the desirability of an investment at the outset, at the time of investing, and also keep an eye on how things are progressing with it as time passes, so that if any decisions need to be made about it, we will at least be making an effort to assess and decide as warranted.

This is especially important with an investment such as ethereum, whose future is much cloudier, and if we seek to decide whether it is a good investment right now based just upon its history, we really aren’t going with much. No matter how good our insights may be about it, we’re still going to need to be prepared for the event that our views aren’t as accurate as we hoped, and have a plan to both determine when this is not the case and have a plan to act if and when this happens.

Ethereum and Managing Longer-Term Investment Perspectives

If we just relied on the history of an investment, no one would have invested in ethereum or other cybercurrencies during their massive run-ups in value. While having a good history to rely on is generally a real benefit, we don’t always need this.

We do need something to rely on, and those who saw ethereum start going up in price in the past, seeing its growing popularity in the present and recent past, actually did have quite a bit to rely on in wanting to get in on this action.

It wasn’t so much the promise of ethereum’s functionality that drove this, and while that may have contributed somewhat to the bullish outlook that so many people have and many still have, this was clearly a momentum driven move. Momentum does drive prices quite a bit anyway, where higher prices drive even higher ones and lower prices drive it even lower, but in this case, this was an extreme version of upward momentum, creating what could rightly be described as a buying frenzy.

Along the way, many people predicted that this would all come crashing down, and to a degree it has, although those who didn’t get in too late for this big move and still held it through the correction phase have still realized phenomenal returns overall.

Even with ethereum giving back 75% of its gains, those who got in back in 2016 still have a hefty 1000% gain to show for their patience, although we may still see this amount of patience as very excessive when something declines that much and the decline was such an obvious one.

A long-term view does require that we be pretty patient though, but this is a perfect example of how not paying attention to shorter time frames has its cost, and with ethereum being so volatile, these costs can be pretty high indeed.

Therein lies the biggest challenge in taking a long-term view of an investment so extremely volatile like ethereum, which is how we’re going to manage its performance on a shorter-term basis, where decisions that face investors when they see big moves against them will be more commonplace and more challenging to predict.

Whatever our view, there will or at least should always be a threshold that we may exceed which may have us rethinking our strategy. A good example of this would be those who did enter ethereum at a very good price and had to face the decision of if and when to liquidate their positions after its price started to fall dramatically in early 2018.

Whenever we invest in anything, we ideally would have an exit strategy that is based upon criteria that is actually related to the investment, rather than just going with things that have no real connection to the desirability to be in an investment such as fixed points in time such as in retirement.

While the amount of time we have left to invest or when we may need the money do matter of course, none of this relates to investment performance, which always needs to at least be a primary consideration in all of our investment decisions along with whatever practical considerations may be present.

Ethereum’s Suitability as a Longer-Term Investment

We may be able to come up with a good plan when it comes to managing such extremely volatile investments with a longer-term view, even though this will of course be more challenging to do. With stocks, for instance, we may use criteria such as longer-term technical indicators to manage this, and we can look upon the past to look to come up with a plan that has worked pretty well in the past, but with ethereum, we don’t really have the benefit of such a history.

We have established a ceiling though with ethereum, and although we may see it break through that ceiling one day, we may not see this for quite a while, given that it was driven by a degree of buying fever that we don’t normally see with anything.

The fact that there was no ceiling at the time no doubt influenced its rise, whereas now we do have one and these things do serve to be limiting factors as we approach them again and at least some investors may become more hesitant and see this as price resistance.

There is also so much we don’t know about where the price of ethereum may go, but we do know one thing, and that its price is almost exclusively momentum driven. Short-term momentum can be predicted with reasonable accuracy, with enough to allow us to make profitable decisions, but longer-term momentum forecasts are much more difficult to make, especially with the very limited data that we have with ethereum.

Therefore, while trading ethereum is certainly not without its challenges, due to its high degree of volatility, at least we can see the direction that it is moving in within these shorter time frames and actually can have a considerable amount of data to use if we trade this short term.

The shorter our time frame, the less of a time period of data we need, for instance if we are swing trading and holding positions for a few days to a couple of weeks, it’s much easier to be clearer on where we are at than if we’re looking at a time frame of several years, where we’ll essentially be breaking new ground as we watch how the longer-term outlook for ethereum unfold.

Such a long-term view, where we set aside shorter-term variance in order to give ethereum the room it requires to stay focused on this longer-term perspective is really not that appropriate for an investment with the potential to move so much, from both an efficiency standpoint and a risk one.

Seeking efficiency would have us wanting to exit more quickly than a long-term view would allow, for example selling when the price drops a lot, and this view would also require us to take on too much risk with an investment that is already very risky even with shorter-term time frames.

The longer our investment time frame, the more risk we have to take on, as longer-term investments simply require more room to breathe. The riskier an investment, the less room we can afford to give it without taking on excessive risk, and when we put this all together, we end up seeing that ethereum is clearly not suitable for positions that require a long-term perspective and long-term room.

This does not mean that ethereum doesn’t have good potential as an investment, and that we are just limited to trading it on shorter-term time frames in order to profit while managing our risk appropriately.

We may be able to come up with strategies that do look to extend our risk while still keeping it reasonable, although this is going to require a fair bit of skill to do so, and the longer our view with ethereum, the more challenging it will be to manage.

Principles that apply to all investments, such as avoid buying it when it is going down and defining the amount of risk that we are prepared to take by setting maximum loss levels will certainly apply here, and are actually even more important given the higher risk involved.

Should we decide to invest in ethereum, we need to ensure that our position sizing is small enough to keep us comfortable with allowing our strategy to play out, and we especially need to take care to let the performance of the investment guide us along the way and not simply rely on hope or other beliefs that have no real connection to results.