Thanks to Nathan et al for this useful post. It’s still pretty unclear what exactly happened, why it happened, what happens next, and what the implications are for FTX, Future Fund, and EA.
It is clear (as of c. 2:45 pm mountain time, Nov 8) that the FTX/Binance situation caused a sharp and dramatic drop in crypto asset prices today (ranging from −10 to −25% for major tokens).
For anybody heavily invested in crypto (like me), I would just encourage patience, a long-term perspective, and an epistemically humble, wait-and-see attitude (rather than blind panic-selling, or over-optimistic buying-the-dip). Investor psychology means many retail investors over-react to news, and sharp drops tend to be followed by recoveries.
Also, the confluence of crypto volatility and US election day makes this an especially uncertain, emotional, and worrisome time.
Overall, the FTX situation in the last couple of days may be one of the momentously negative developments for EA funding that we’ve ever seen. But, this is a complicated story, it’s still unfolding, and nobody seems to quite know what’s happening, so it’s worth following new developments, without catastrophizing too hard.
My 2 cents: Holding is status quo bias. In any situation buying OR selling is better, but you never know which. What you can manage is your risk exposure.
So I’d suggest for people who have significant parts of their wealth in crypto to sell to make sure they can’t get wiped out and for people who are under-invested by their assessment to buy.
An easy heuristic is to think about what proportion of you wealth you want to have in crypto and work towards that. I suggest buying / selling on a schedule or with limit orders to reduce variance.
Milli—Active buying and selling can make sense—but capital gains taxes make the picture a lot more complicated. For US citizens, short-term capital gains (e.g. from selling crypto that you’ve held for less than 12 months) are taxed at a MUCH higher rate (up to 37% tax rate) than long-term capital gains (e.g. from selling crypto held for more than 12 months) (up to 20% tax rate, but it really maxxes out around 15% for most middle-class investors with cap gains less than half a million $USD a year).
Anybody who’s already been actively trading crypto tokens in the last few months of this bear market might as well keep trading, e.g. selling whatever you think will drop even more. But anybody who’s been holding tokens for more than 12 months, and who’s already facing 80% losses (on paper) should NOT necessarily sell on another slight drop—because it would reset the capital gains tax clock on those assets.
Epistemic status: I’m not a financial advisor, crypto expert, or tax expert; just an amateur crypto investor; I’m just pointing out that the tax situation (in the US, but also in most other countries) complicates any simple expected-value analysis of trading advice for retail investors.
Thanks to Nathan et al for this useful post. It’s still pretty unclear what exactly happened, why it happened, what happens next, and what the implications are for FTX, Future Fund, and EA.
It is clear (as of c. 2:45 pm mountain time, Nov 8) that the FTX/Binance situation caused a sharp and dramatic drop in crypto asset prices today (ranging from −10 to −25% for major tokens).
For anybody heavily invested in crypto (like me), I would just encourage patience, a long-term perspective, and an epistemically humble, wait-and-see attitude (rather than blind panic-selling, or over-optimistic buying-the-dip). Investor psychology means many retail investors over-react to news, and sharp drops tend to be followed by recoveries.
Also, the confluence of crypto volatility and US election day makes this an especially uncertain, emotional, and worrisome time.
Overall, the FTX situation in the last couple of days may be one of the momentously negative developments for EA funding that we’ve ever seen. But, this is a complicated story, it’s still unfolding, and nobody seems to quite know what’s happening, so it’s worth following new developments, without catastrophizing too hard.
My 2 cents: Holding is status quo bias. In any situation buying OR selling is better, but you never know which. What you can manage is your risk exposure.
So I’d suggest for people who have significant parts of their wealth in crypto to sell to make sure they can’t get wiped out and for people who are under-invested by their assessment to buy.
An easy heuristic is to think about what proportion of you wealth you want to have in crypto and work towards that. I suggest buying / selling on a schedule or with limit orders to reduce variance.
Milli—Active buying and selling can make sense—but capital gains taxes make the picture a lot more complicated. For US citizens, short-term capital gains (e.g. from selling crypto that you’ve held for less than 12 months) are taxed at a MUCH higher rate (up to 37% tax rate) than long-term capital gains (e.g. from selling crypto held for more than 12 months) (up to 20% tax rate, but it really maxxes out around 15% for most middle-class investors with cap gains less than half a million $USD a year).
Anybody who’s already been actively trading crypto tokens in the last few months of this bear market might as well keep trading, e.g. selling whatever you think will drop even more. But anybody who’s been holding tokens for more than 12 months, and who’s already facing 80% losses (on paper) should NOT necessarily sell on another slight drop—because it would reset the capital gains tax clock on those assets.
Epistemic status: I’m not a financial advisor, crypto expert, or tax expert; just an amateur crypto investor; I’m just pointing out that the tax situation (in the US, but also in most other countries) complicates any simple expected-value analysis of trading advice for retail investors.