Bear with me on the metaphor…!
The Grand National is one of the most famous horse races in the world. It’s a steeplechase which is a gruelling run across often boggy ground and in which the horses have to successfully navigate and jump over the huge fences.
There are a lot of horses that fall at these fences and lots of other horses that are pulled up during the race and most don’t complete the course.
At the start, there’s 40 horses (runners) and they all have a chance (albeit different chances) of winning the 4 mile race.
Before the race, there’s a favourite. The favourite is the horse that to the market has the best chance of winning the race.
There’s also outsiders (less fancied horses) that start the race at huge odds (say 66-1 or even 150-1).
These odds will change and fluctuate during the race. So, for example, if the favourite starts at 7-1, but falls behind during the race or starts to look a bit tired, then the odds will start to drift and get longer (maybe out to 33-1 or even 50-1). This is the market’s assessment of that horse’s chances of winning the race. Equally, if the horse starts to improve, then the odds will shorten to reflect this.
So how does this relate to the world of cryptocurrencies?
So many riders/cryptocurrencies that could win
With the Grand National, it could be the favourite. Or it could be the rank outsider. You don’t know. It’s a difficult course that throws up unlikely winners.
With cryptocurrencies, we’re in the very beginnings of the race. It could be Bitcoin or it could be a cryptocurrency that isn’t even in the top 100 by market capitalisation on coinmarketcap.com. We just don’t know.
So how do you give yourself the best chance of victory?
You’ve got to diversify
The chances of you picking a winner from so many riders/cryptocurrencies is very slim. In the same way that I wouldn’t recommend putting all your money on the 25-1 shot, I wouldn’t recommend that you put all your money into ADA. It might win but it much more likely it won’t.
If you were thinking about betting £50 on the Grand National, I would recommend splitting this into 5 different bets of £10 each.
If you’re thinking of putting £10,000 into cryptocurrencies, I’d recommend splitting this up into 5 bets of £2,000 each (you could give this a different weighting).
Stay alert and watch for unconsidered riders/cryptocurrencies that are coming up strongly
In the opening stages of the Grand National, all the riders are generally still in the race. As the race progresses though, horses that you’ve never considered get into the frame for possible victory. You can still bet on these in-play. Suddenly, their odds will drop. Get on before the odds get too short.
It’s the same with cryptocurrencies. If you see that Verge (for example) is moving up the rankings day by day. Then there’s possible good news (such as rumours that it’ll be listed on a major exchange), then you might want to buy some before the price goes crazy.
Cryptocurrencies are like a massive, exciting horserace. Bet on them just like you’d bet on a massive, unpredictable horse race like the Grand National. Give yourself the best possible chance of victory.
Let me know what you think in the comments below.