There's no doubt, crypto can be a rollercoaster, but what happened to my (crypto-based) passive opportunities when the 2021 Black Wednesday crypto crash hit in May 2021?
tl,dnr: They did awesome – click here to scroll.
Firstly, diversifying your income streams is one of the best methods to mitigate risk.
Yes, it doesn't sound so sexy or exciting. And yes, people do get extremely wealthy by going ‘all in' on one thing and being fortunate enough to hit the nail on the head, but for this to happen, a lot of luck is involved (no matter what they say!), and for every success story you hear of, there will likely be hundreds of fails.
Diversification isn't always fun (but sometimes it is!)
Back in February, when crypto was going through the roof, there were definitely times I thought ‘for feck sake – why did I not keep everything in straight crypto?' For those who don't know, I sold a large majority of my crypto late December 2020 and placed it in Hyperfund and Yieldnodes.
However, never was I more grateful than on Black Wednesday #thankfeck.
That's one thing you'll need to deal with if you do start investing in crypto; learning how to deal with feelings of ‘if only'.
The best way to do this is to have a well-reasoned plan you can refer back to.
For me, I wanted diversification within my ‘crypto portfolio' and something to help smooth out the volatility. So all was good.
What happened on crypto's Black Wednesday?
For the majority of the world it was just a normal day.
For crypto holders, it was Black Wednesday. And it was horrible!
Bitcoin fell by around 40% between Wednesday 11th May 2021 and Wednesday 12th May. From around $57,000 to $37,000 give-or-take. Ethereum also got hammered from $4,300 to $2,400 and it was catastrophic for most other ‘alt coins' aka ‘alts'. Many experienced 30+% drops in a single day and people got closed out of the crypto exchanges amidst the mayhem.
There was one big exception; $MATIC / Polygon – my hero! Polygon saw an increase of around $1.00 to $2.40. Thankfully, it was my 3rd biggest holding. Whilst it by no means saved me from loss in terms of my direct crypto investments, it certainly saved me from an extreme loss.
NB; remember folks; losses only become losses when you sell 😉
However, seeing Van Life Income wasn't even going live until end of June (I'm writing this on the 29th June and it's still not properly live!), there wasn't really a rush to document the performance of my crypto-related passive income streams. And, several weeks later ‘the bounce' still hasn't yet happened — if anything, it got worse for a few more weeks…. Bitcoin dipped below $30,000 and alts followed.
It's now been around 7 weeks since that dreaded first Wednesday.
During this time, Bitcoin managed to fall even further, dipping below $30,000 at one point and causing more suffering for altcoins. So I thought it a good time to provide some insight on the effect it had on my crypto passive income streams.
First a quick headsup/explainer for those readers who are maybe not so into crypto….
Why did the Black Wednesday crypto crash happen?
I'll never be able to provide reason to this in a short paragraph, nor provide insight on the theories of manipulation by crypto whales to reduce price and buyback low.
However, multiple things came together, including an extremely high rate of growth for several months prior.
Bitcoin had doubled in price since January (with most of that growth taking place in February), and Ethereum more than quadrupled.
This was partially due to press and public euphoria, much of which was led by the vocal and influential Mr Elon Musk and his Tesla uptake of BTC leading to some of the highest levels of ‘greed' we've seen in the fear and greed index — hitting 95 in February (measured out of 100 – ie. EXTREME GREED). The above widget displays the current, live rating.
Later, our Elon then posted a lot of negative content about Bitcoin. This, plus several other factors created the perfect storm and triggered the price of Bitcoin to start falling rapidly.
After Black Wednesday, during May and June the fear and greed index — hit 10 multiple times! 😱 EXTREME FEAR.
See image below from FXStreet that shows the cycle of trading psychology and if you'd like to learn more, read the article here.
And a sudden, extreme drop in price can have a catastrophic knock-on effect…
Like dominos, things start to fall.
If significant, a rapid tumble in price can cause liquidation and automated selling within exchanges and other platforms. The reason is that many traders use leverage and/or loans get liquidated automatically when the price drops.
Liquidation basically means their collateral (eg Bitcoin) gets sold automatically to de-risk the potential loss for the exchange.
So the price falls further.
Which triggers more liquidation (and thus more selling).
And so the price falls even further.
Which triggers yet more liquidation (and thus more selling)…and…well; you get the picture!
This cycle repeats itself many times within seconds: and so we have Crypo's very own ‘Black Wednesday‘; 11th May 2021.
Of course, the press eat it up.
And soon the small guys / passive holders also catch on – mainly Joe Public aka ‘retail invstors'.
Joe Public becomes fearful, starts to panic, and they sell too.
And so do their friends…
And so it continues, until the majority who are leveraged / have loans are liquidated out and by which stage, most of Joe Public has sold (very often at a loss). 😢
….then, the theory goes that crypto whales and institutions come in and mop up their cheap Bitcoin (et al).
Anyway, how were my crypto-based ‘passive income' streams affected by the crash?
Both continued to deliver as per their terms.
HyperFund kept pooping out their rewards as usual and YieldNodes monthly return dropped below the recent average, as would be expected (however they still deserve a gold medal for performance).
For HyperFund, it was as if nothing ever happened. Seriously; you buy a membership (or two!) and it poops out Hyper Rewards like a trooper; 0.5% per day, regular as clockwork. 🚽 #toilethumor
YieldNodes also continued as per their terms. And yes, their profits did drop in May which meant the monthly return was below their average 11%. However it came in at a healthy 7.9% for May and [June to follow]. June = 9.1%.
Yes folks, consider this; Yield nodes managed to deliver a positive return of almost +8% in a month, when Bitcoin went down by more than -40% at one point (and many altcoins down a lot more!). 👏👏👏 #bravo Yield Nodes #bravo!
Both HyperFund and YieldNodes delivered exactly expected as per their terms. 😃
And, whilst back in February, when crypto was going through the roof, I may have been thinking #FFS – why did I not keep everything in straight-up crypto? This recent past I have very much been thinking #thankfeck everything wasn't in straight-up crypto! (yes, my ‘straight up' crypto investments took a bit of a hammering, bless them!).