In case you missed it, this is what the Dogecoin 1 year price chart looks like.
In the span of about a month, it went from 0.05 to 0.4, an 8x return.
Which has made some people, very rich.
I came across one such example on CNBC. It’s an amazing story of a guy who put in his life savings, and 5x-ed his money in about 2 months, turning him into an overnight millionaire.
I’ve extracted the CNBC article below, and added in my reactions as well.
Glauber Contessoto says that on April 15 at 6:00 p.m. PDT, he became a dogecoin millionaire.
After learning about the meme cryptocurrency on Reddit, Contessoto says he invested over $180,000 in dogecoin on Feb. 5, when it was priced at about 4.5 cents.
Contessoto was intrigued by dogecoin for a few reasons.
For one, he loved the Reddit community surrounding the digital coin, as its base had grown substantially since dogecoin’s creation as a joke in 2013. He also appreciated that it was inspired by the Shiba Inu “Doge” meme, he says.
And like many holders of dogecoin, “a reason why I put my savings into dogecoin is Elon Musk,” who has repeatedly tweeted about the cryptocurrency. Though it’s unclear if Musk’s tweets in support of the coin have been serious, “I think the guy is a genius,” Contessoto says. Contessoto thought that it could help him build “generational wealth” to pass on to his future family. “I grew up really poor,” he says, “so this is a huge deal for me.”
Contessoto (who works at a music company in Los Angeles) says he didn’t have disposable income to buy dogecoin, so he took a huge risk. Contessoto not only used all his savings, but he also sold all the stock he owned, including shares of Tesla and Uber, and invested on margin by borrowing money from Robinhood via the app, he says.
First, for overall context, Elon Musk has been tweeting about Dogecoin, which does partly explain this crazy run-up in price.
One example below:
Second, the part about using all his savings, selling all his stocks, and investing on margin is really crazy, but also very brave.
There are 2 broad ways to investing your money. (1) Spread out your risk and diversify or (2) make a big, concentrated bet.
This guy here obviously picked the latter.
Unless your initial capital is $1 million or more, it is very difficult to change your life overnight from traditional stock market investing. 10% on $1 million is $100,000. This is a long game to achieve your financial goals.
Whereas this guy made $800,000 in 2 months, on a $200,000 capital.
However, personally to me, such bets do kinda cross the line from investing into gambling.
The equivalent is taking your life savings, and going to a casino to bet it all on a hand of blackjack.
Sure, if you count the cards, you can increase your chance of winning the hand to maybe 60%.
But that’s still a 40% chance of losing all your life savings, and having to start from scratch.
It means that if you do this 100 times, you lose all your life savings 40 times, and you become a millionaire 60 times.
Those are not the kind of odds I personally would go for.
It’s much better to create scenarios where out of 100 tries, I get rich in 98 of them 😉
That requires a different approach – managing downside risk, increasing probability of success, and increasing the number of hands you play to get the odds in your favour.
Back to the gambling example, it’s why the professional gamblers win over many games. That way, you can ensure skill will prevail over luck.
Back to the CNBC article, it mentions that his friends were very doubtful & experts are prescribing caution:
His friends were critical of the meme cryptocurrency and warned him to be careful.
For instance, Mike Novogratz, a crypto bull and founder and CEO of Galaxy Digital, told CNBC’s “Squawk Box” on Tuesday that bitcoin is “a well-thought-out, well-distributed store of value that’s lasted for 12 years and is growing in adoption, where dogecoin literally has two guys that own 30% of the entire supply.” Bitcoin also has an extensive and well-funded ecosystem that does not exist with dogecoin, he said.
In addition, dogecoin does not have a supply cap like bitcoin does, all of this making it a much more risky investment, according to experts.
BTW – we share commentary on financial markets every week, so do sign up for our mailing list, its absolutely free (goes out every Sunday).
Kind of agree with the friend and “experts” on this one.
It’s *probably* a pump and dump scheme, but hey, the dude 5x-ed his money.
There’s a lot of money that can be made in late stage bull markets when the mood goes exuberant, but the key is knowing how to lock in your profits and get out in time.
The Crypto Experts who reacted negatively is the part that really amuses me.
This is where the Bitcoin hodl-ers come in with outrage that Doge is going up for no reason at all.
Not so sure if I agree with this one.
In this market, prices are going up because people think prices will go up, hence they go in before prices go up, creating a self-fulfilling cycle.
Sure, there are certain structural differences between Doge and Bitcoin, but is that really what is driving the price increase?
Or is it just investors FOMO-ing and trying to get rich quick?
Back to Contessoto’s journey to become an overnight millionaire, despite his friends’ objections, he carried on anyway:
Contessoto stuck with his investment plans and then continued to hold the cryptocurrency.
About two months later, on the night of April 15, the price of dogecoin began to surge. That week, dogecoin spiked 400%, and on April 16, it defied odds as it hit a market capitalization of $49 billion, according to CoinGecko. Dogecoin ultimately reached a record high of around 45 cents.
Contessoto realized that meant his dogecoin investment had grown to be worth over $1 million.
“It went viral,” Contessoto says.
Though this was an unusual surge for the cryptocurrency, Contessoto doesn’t intend to sell anytime soon.
“My plan is, once I hit $10 million, then I’ll take out 10%,” he says. In his opinion, “this stuff is going to continue to grow.”
Yeah so remember how we said locking in the profits and knowing when to get out is key?
This guy needs to be really careful.
When things start going up, it’s human nature to extrapolate forward, and think that prices will go up into infinity.
But markets don’t work like that.
In this kind of exuberant markets, just when everyone thinks the price can only go up, that’s exactly the time you want to start thinking about locking in profits.
There’s no need to go all in or all out.
Scale in and out of the market.
Sell 1/3 or 1/2, and leave the rest to ride the upside.
But to be fair – this kind of thinking probably doesn’t apply if you’re YOLO-ing your life savings + margin debt into a joke coin about a dog, just because a big name CEO tweeted a picture of a dog barking.
Man, what a time to be alive!
FH Reacts: Start of the bull market, or late stage?
One big question I’ve been asking myself.
Stories like this – are they something you see at the start of a bull market, or at the end of a bull market?
COVID has created a very weird cycle.
We went from “World is ending great depression v2.0” to “Exuberant, bubbly markets” in less than 12 months, which is not something we’ve seen in prior cycles.
Past cycles – we usually see the US 10s2s yield curve peak at about 2%+.
We’re at 1.5% now, which indicates about 0.5%+ more steepening ahead.
But we need to adjust numbers down from prior cycles because there’s so much more long duration debt today, and the world is very long on tech names.
Putting this altogether, it indicates that a US 10 year yield at about 2.0% – 2.1% + could be worrying for markets.
We are at 1.65% now, so there could be anywhere from 3 to 6 months left before we see yields at that level.
Would that be the end of the cycle?
Personal views on Crypto
Penned a full article on Crypto for Patrons the past week so do check it out if you’re keen.
Personal view – very bullish on blockchain technology, I think it has the potential to change the world through decentralized platforms. The past decade was about centralized platforms like the FAANG, I think the coming decade is about decentralized platforms, of which blockchain tech could play a big role.
But I think the hype may be getting ahead of itself.
It will take years for change like that to happen. These kind of shifts will require interaction with society, finance, regulations and politics, which doesn’t happen overnight.
In some ways, I see it like the Dot Com boom in 1999.
The internet did go on to change the world, but it took time.
Anyway full disclosure, I do hold a small crypto portfolio myself. I bought some back in 2017/2018 just to learn more about this asset class, and it’s been a very interesting journey.
Regardless of one’s personal views, there’s no denying that money can be made from this kind of massive volatility, as long as you know what you’re doing and you’re careful with risk management. Lots of stories of crypto hedge funds pulling in returns in excess of 100%, things unheard of in normal markets today.
If you’re keen to buy Crypto you can read more in my guide here.
Long story short – use Coinhako if you’re buying small amounts and don’t want too much hassle, Binance/Gemini if you’re buying big amounts. Don’t forget to use the referral links here if you’re signing up.
Love to hear your views about this crazy story! Comment below!
As always, this article is written on 2 May 2021 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.
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