“You’re Not Ready”: A Crypto-Savvy Investment Advisor on How to Dodge The Crypto Rally’s Biggest Trap
04.04.2019

The crypto-bulls are back, baby!

For the moment, anyway. The market price of bitcoin has climbed about 20 percent in the last week. Other digital tokens have pumped even harder—Bitcoin Cash was at one point up 50 percent in a day. Coming after nearly a year-and-a-half of sliding or flat prices, the surge (regardless of what triggered it) has generated understandable euphoria among cryptocurrency believers.

But if you’re a long-term crypto investor, that euphoria can also be a dangerous financial pitfall.

“I got this text from a client yesterday,” Tyrone Ross tells me. “‘Am I crazy to want to keep buying BTC and ZEC with the recent run-up? Typically I don’t think about it, but it went up so fast.’”

Ross, a financial advisor and managing partner at NobleBridge Wealth Management, is a rare bird: a licensed investment advisor who helps clients plan for their long-term future, and is happy to include cryptocurrency in that conversation.

“My clients are young, they’re high earners, they’re tech natives. They really have no interest in the stock market. They own crypto. It’s not completely over the moon for them to understand how blockchain works, or having a currency native to the internet.”

"My clients are young, they’re high earners, they’re tech natives. They really have no interest in the stock market. They own crypto."

Yet his tech-savvy, ZEC-thirsty client was about to fall victim to a psychological trap as old as investing itself. “Crypto wasn’t moving in 2017. You didn’t care. We’re in this bear market, then it moves all of a sudden, and suddenly it’s like: What am I missing?”

And there it is—Fear of Missing Out, or FOMO for short. Ross doesn’t invoke the term, but it’s absolutely what he’s talking about. His client was poised to “FOMO in,” or rush to buy an asset as it spikes. “The minute the market moves, animal spirits are back. We have Parabolic Travis backoh my goodness. And that’s fine, for people who are trading, who want to get in and get out. But I’m here for the technology. This is a longer-term thing.” (Note: FOMO can be deadly for active traders, too. It’s one reason most of them lose money in the long term.)

Talking people down from reactive impulses is one of the most important parts of Ross’s job. “My mentor always told me: ‘You will never be able to control the market. What you need to help people control is their emotions.’”

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To show just how illogical the rush to buy into a rally is, Ross points to his clients’ comparative calm during Crypto Winter. “Last year, with the price going down 80 percent, I didn’t get any text messages. No panic.” In other words, his clients were more than happy to take temporary paper losses on their holdings, because their positions are based on long-term faith in digital assets. But when that potential becomes reality, the investments they didn’t make somehow become more painful. “The price goes up and it’s like, crap, what do I do? Do I buy more?”

The key to avoiding that sort of impulsive thinking, according to Ross, is having a clear and unwavering rationale for your investments—what’s known as an ‘investment thesis.’ “Getting people to really give valid reasons why they own an asset is really important. And I think if we were to go through the crypto community, even those who are supposed experts . . . a lot of people can’t do that.”

“You’ve gotta have a better thesis around Zcash than just, 'billionaires are gonna hide money in it.'”

The logic is in no way new to the crypto space, but Ross says many of his clients are young, less-experienced investors who have to be walked through the process of rational investing. “As a traditional financial advisor, what you’re trying to get them to understand is: 1) You bought the asset. Why? 2) What’s your risk tolerance? 3) What’s your time horizon? 4) What is the money for? 5) What price did you buy at, and what price will you sell at?”

Those questions should be answered early, and the answers should be detailed. “You’ve gotta have a better thesis around Zcash than just, ‘billionaires are gonna hide money in it,’” says Ross. “At least talk to me about zero knowledge proofs, or something.” The answers should also be made calmly, not when a big spike is making your heart race. And they shouldn’t change when the market fluctuates.

So long, FOMO.

Of course, that’s the FOMO of a crypto insider, but a rally also inevitably attracts some investors who hadn’t considered crypto before. Ross puts those newcomers through some rigorous paces before he gives them the go-ahead to buy in.

“If it’s someone really new to the space, I recommend Chris Burniske’s CryptoAssets. I’ll send them to Jameson Lopp’s [page]. I want people to at least read about it, and come back to me with questions before we do anything. I’ll answer their questions.” If they still don’t have a good command of the long-term case for blockchain and crypto, Ross is blunt: “I’ll tell them straight out, you’re not ready.”

Ross thinks the absence of that kind of rational advice was part of what led to the 2017 crypto-bubble and subsequent collapse. Ironically, financial advisors’ fear of saying anything at all about crypto may have made individuals more reckless, and the broader market more fragile.

“My pet peeve is all these people talking about institutions. Retail led the last rally. Coinbase had more accounts than Charles Schwab. [And] a lot of the people who got smoked were retail investors.”

“So we need to make sure the fence is around retail investors, so they get quality advice. Hopefully, in the next run-up, people realize there are financial advisors who want to help. You can’t just tell them it’s fake. It’s not going to be acceptable. Advisors need to be ready.”