The Key to One of My Best Trades EVER

|October 10, 2023
Golden Bitcoin lies on the banknotes.

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I bought a $1.1 million house in Los Angeles this year.

I’m one of the few people in my age bracket who can afford a home in our area of the city.

How did I get so lucky? Well, for one, I started my own business, an independent investment research company called TikStocks, which has over 500,000 followers on social media.

And I’ve had a lot of success in the markets, particularly with cryptocurrencies, a sector I’ve invested in since 2017.

But unlike many people who invested during the crypto boom times, I kept a lot of the gains I saw (hence the house).

Let me show you how I did it.

Dipping My Toe in the Crypto Waters

I first heard of Bitcoin back in 2014. An equity research firm I was working for as a junior analyst had me dig deep into the technology and prepare a report for a client.

It quickly became clear to me that Bitcoin was some sort of “digital gold.”

But Bitcoin was difficult to buy back then. Anyone who wanted to buy Bitcoin or any other cryptocurrency had to connect their bank account to shady exchanges.

So while I saw potential in this new asset class, I waited on the sidelines until mid-2017. That was when I found an exchange called Coinbase that made it easy to buy Bitcoin.

And that’s exactly what I did, purchasing $500 worth of Bitcoin at a spot price of roughly $9,400.

While I didn’t know it at the time, this purchase would take me on a wild emotional and financial ride over the next four years.

A Lesson in “HODLing”

Bitcoin continued to surge through the remainder of 2017. From the point when I made my $500 buy that summer, it more than doubled.

But what goes up must come down. After peaking at $19,650 in December 2017, Bitcoin rapidly lost value. In fact, by the end of 2018, Bitcoin had crashed 81%.

Losing money is demoralizing for any investor. Nevertheless, since I had experience with investing and kept a long-term view, I decided to “HODL” (a term crypto investors use that means “hold on for dear life”) my Bitcoin positions.

Here’s why…

I knew that Bitcoin’s net unrealized profit/loss (NUPL) was near cycle lows. This metric shows the difference between the relative unrealized profit and the relative unrealized loss for all Bitcoin in existence.

When Bitcoin’s unrealized profits are high, this implies that Bitcoin investors are greedy. This makes sense. The more unrealized profit there is in Bitcoin, the more likely it is that investors will take profit on their positions.

Back in late 2018, NUPL was near a cycle low…

Net Unrealized profit/loss vs Bitcoin

That meant it was a great time to buy, so I decided to HODL my position and add more.

By early 2020, I held two Bitcoin, with an average cost of $8,000.

Then, a few months later, the floodgates opened.

Off to the Races

In March 2020, the S&P 500 fell 36% as the global economy braced for lockdown.

Investors lost their appetite for risk in a big way, and Bitcoin’s price fell more than 50% in a matter of days.

While I saw my largest holding get cut in half, I reminded myself that nothing about my thesis had changed. I continued to hold my position.

This strategy would pay off…

By the end of the year, Bitcoin had hit a new all-time high of $30,000.

In early 2021, my two Bitcoin were worth $120,000. But the NUPL was near a cycle high.

The NUPL index had flipped. Investors were sitting on more unrealized Bitcoin profits than at any point in history. As a rule of thumb, anytime more than 75% of Bitcoin are in profit (i.e., NUPL is over 75%), it’s usually a good time to sell.

And that’s exactly what I did. While I didn’t sell right at the top, I unloaded most of my holdings…

And started looking for a house.

Keep Doing What Works

Here’s what NUPL is telling us today…

Bitcoin tanked 65% in 2022 thanks to the Fed’s hiking campaign and the collapse of FTX. The NUPL index went back into the “capitulation zone.”

So, as any good high-risk, high-reward investor would do, I bought back in. While I’m currently sitting on a gain of “only” 50% since reopening my position, I’m confident this investment will pay off again.

When it comes to high-risk, high-reward investing, you need to take Smart Risks.

Following the NUPL index has been one of the smartest risks I’ve taken in my career.

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Robert Ross
Robert Ross

Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Manward Financial Digest and Manward Letter.