Cryptocurrencies are all the rage at the moment, and more and more people are starting to invest and trade this asset. 

Although it is a market full of opportunities (also for those of us who engage in systematic trading) cryptocurrencies face several pitfalls. These include the illusion of easy gain, which attracts large numbers of people and prompts them to engage in investment or trading activities without having the proper awareness and knowledge.

In this interview with Debora Rosciani, journalist and Radio 24 (IlSole24ore Group) host, Andrea Unger offers some important guidelines on how to approach crypto while avoiding any of these pitfalls.

Here are some topics discussed during the interview:

- Where the idea that it's possible to get rich quickly with cryptos comes from (and is it true?)

- Analogies with the "Forex fad": the illusion of low capital

- The approach of those who choose cryptos: investment or lottery ticket?

Enjoy the video 😎 

Transcription

Debora

Is it true that you can get rich easily with crypto? We'll talk about this with Andrea Unger, the only 4-time world trading champion.

Welcome back! Today we're going to be talking about cryptocurrencies. Cryptocurrencies represent a major trend and innovation, leading central banks to also work on their own digital currencies. We're talking about a highly engaging technology and an investment category in which we're wondering how much and in which manner we should invest.

When we talk about crypto perhaps not everyone has a clear idea of the financial structure behind this sector. Too many people think that it's an investment instrument identical to all the others.

I'd like to share with you a recent statement by Fabio Panetta, a member of the Executive Board of the European Central Bank, who said, "Crypto-assets don't just represent a high-risk speculative investment. They even pose a genuine threat to financial stability. So, we must take action to bring crypto-assets back into a clear regulatory framework that today is still missing." So, this appears to be an outright attack, if we can call it that, towards the 10,000 crypto assets currently in circulation and have a total value of $1.3 trillion.

But they lack the fundamentals. They're frequently used for illicit purposes, have high volatility in terms of price, and in many cases, Panetta said, are subject to embezzlement. So, we need to clarify what kind of market we're talking about and especially today we're talking about crypto trading. And obviously, we’re going to be doing that with Andrea Unger, the only one to have won the world trading championship four times in the Futures category. Andrea, welcome back!

Andrea

Hello Debora! Good morning everyone!

Debora

So, the purpose of our webinar is to explain to our audience that cryptos allow for diversification but we need to be very clear about some aspects.

At this moment, moreover, crypto has captured the attention of investors who were previously interested in other markets, such as for example Forex. Today they're shifting towards this world.

So, the first question that I need to ask you Andrea is this: why do people believe that you can easily get rich with cryptocurrencies. Above all, to the best of your knowledge, has anyone been successful in doing so?

Andrea

Yes, someone has succeeded in becoming rich and this is part of the reality that leads one to believe in the possibility of turning whatever one touches into gold. Those who have succeeded, however, found themselves in a very particular context. They found themselves in possession of an obscure entity at that time, I’m referring to Bitcoin in this case, which then you know, did what it did.

I still remember certain discussions... I don't remember the year but you can reconstruct it by going back and looking at the historical Bitcoin prices. There was a discussion on an Italian Finance Forum about Bitcoin having reached $30. And they were talking about the advisability of shorting it, meaning selling it short, because it was already in the middle of a bubble according to that interpretation.

And the person who said that wasn't a fool. He was a person who surely had a certain level of competence in the financial world. According to him, reaching 30$ was already an absurd level for what was the reality of Bitcoin.

Some people mocked him and, in that case, whoever mocked him was right because today Bitcoin is worth more than 1000 times as much but it was also way much higher. So, it's clear that those who dared to invest at that time on Bitcoin, or even later on Ethereum, and forget about what they did, because that's where the key is, can certainly pop the champagne today.

But who would have done that? Seriously, from the standpoint of incompetent people in the sector or, in general, of people who approach something out of greed, let's face it, is it reasonable to think of putting €100, €1000, or €10,000 on an investment class and then forgetting about it while waiting for who knows what?

Because frankly, I'd challenge anyone to put €100, €1000 or €10,000, depending on their capitalization, on something, and if they find themselves tripling or quadrupling this investment after a few months, not to take it all home. I mean it's humanly normal, in my opinion, at a certain point to take the money and run, in other words, to close.

And then automatically it's impossible to make that bang that allows you to live off the income for generations and generations. Now I'm not saying that it's impossible of course, because it really has happened to someone. But what I'd like to point out is that those people who believe they can sit in the next bubble, which will not be of Bitcoin but will be of some other currency that has come out in the meantime, have to come to terms with what would be, in case they were in the right place, their desire to close and take everything away to make sure, at the first tremor of the market, not to lose what they had earned. The illusion of gain.

And often that illusion, at that point, translates into a substantial gain, because quadrupling the capital is always a great thing, but it will hardly be something that solves his problems. Because this seems obvious.

And those who forget? Well, those who forget will wake up one fine day and say: oh, but I had this thing here, how is it going? And he finds himself with millions of dollars. But it's different there because they are more particular cases.

So it's more the dream, in my opinion, that brings people closer to this market. It's a dream that's dragged by the fact that you can start with limited capital. 

You made the analogy with the Forex of the old days. There were others as well: there were binary options, then CFDs, and so on. But what was so appealing about Forex in the end? Once upon a time, there was leverage. There were very high levels of leverage, 400 or even 1000X... So leverage allowed to move huge sums of money with limited capital.

Then they realized that this was particularly dangerous. In particular, in 2015 many people suffered significant losses when the gap between the Euro and the Swiss Franc was removed. Some brokers went broke. Some banks had major losses.

So they basically said that we're not there and then changed the rules. Today the leverage threshold on these markets is 30X, let's say, versus the 400X of the past. And this has disappointed many people, let's call them "investors", but they weren't investors. They were in fact gamblers.

Let's face it. If you expose yourself to a risk such as that to which you were exposed and which resulted in a loss, in that event there, because it's true that it happened once but it can happen again. Why should it not happen again? I don't want to spread bad luck but I say that it can happen again.

And in the same way, he becomes a gambler... But calling him "gambler" is not even right. Because if I go to the casino, I'm a gambler, I bet my fish. I know what I'm losing, it's that fish and I can't lose more than that. In that case, however, they could lose much more than what they had in the pot. And this brings you to a very uncertain condition that isn't always sustainable.

Having said that, though, low capital is exactly what attracts people. And that's for two reasons. Firstly, for the desire not to risk too much, because intrinsically I say: I have a lot of money but I put only a little there, and if I lose it, well, no problem. Second, all those who really have very little money and therefore have some limitations to get involved with big finance, they can put their small amount of money -  compared to those of the big gamblers – where it can multiply. What happens, as I said, is a totally different thing.

Debora

By the way Andrea, in this particular historical moment, we know that to produce cryptocurrency, we need to use mining, which is an energy-intensive activity, and who knows if in this energy crisis that we are now experiencing, this market will not be subject to a second thought for this reason external to the cryptocurrency itself. But that's another topic.

You mentioned Bitcoin earlier, you mentioned Ethereum, which are the queens of cryptocurrencies, certainly the most well-known ones. Fabio Panetta himself, from the ECB, mentioned how there are 10,000 of them in circulation. And so also for this reason, you have to be very careful about the one you bet on. So even on this, you need to do some training because you must also navigate in this sea of crypto assets which is so wide and so vast.

Andrea

A training that is very difficult because I challenge anyone to have a real understanding of all these 10,000 cryptocurrencies that are out there. Different types appear every day and I'm not even saying how good they are, the luck would be in betting on the right horse. Will there be another bitcoin amidst the whole sea of crypto? Probably yes, but knowing which one isn't easy. And even if you took $10,000 and invested $1 in each crypto, you would still need to find at least the one that makes 10,000X to break even, and after that, the rest... I mean, it isn't that simple.

So, training would consist in distinguishing the hoaxes from those that instead have a project behind them and could still gain value just because of the story behind them. Bitcoin has its logic, Ethereum as well. Maybe more Ethereum than Bitcoin in some ways, but they're currencies that have something inside. There are others as well.

Then there are also some that are almost a joke or a mimicry of something that only for the name they have, lead the masses to jump in. And maybe they go into the bubble because everyone wants them, so they start to go up. Everyone thinks they've found the right horse but if it's empty, the moment one of the pieces comes off it like in Jenga, the game where if you take off the wrong piece the tower comes down. The same thing happens there.

The problem for everyone, including me in this case, because it's not that I'm saying "I am clever and the others aren't"… I mean, everyone has this problem, which is that you don’t know how to react. Because you can't prepare yourself beforehand with a clear idea of what you're going to do depending on what's going to happen. The moment what looked like a promising investment turns out to be a paper-mâché castle and starts to collapse, I don't know if it's collapsing once for all or if it's going to stop collapsing and be restored. Because no one knows that. I certainly don't know that.

At that point, I don't know what to do. Should I wait? Should I invest even more? Should I sell everything? Well, these decisions should be made beforehand with an investment plan. The question is: do those who jump into the crypto world consider it an investment or a lottery ticket? Because if it's the lottery ticket okay, consider that money lost and see what happens.

But unfortunately, precisely because of that mirage for those who aren't extremely capitalized I mentioned before, in the end, they invest an important share of their capital in this market. An important share in terms of relevance to their lives. Because if the millionaire invests $100,000, let's say someone who has $100 million and invests $100,000, that's just 0.1% of his capital. It isn't much for him and what he has leftover, apart from that, is still plenty to live comfortably.

If a worker puts in 0.1%, the remaining 99.9 might already be on the edge of his everyday life, his family, and so on. So this kind of investment becomes a gamble, in any case, a gamble that doesn't always go in the desired direction.

To make things worse, there are those who were right in doing this, who have been very lucky. Because automatically, the friend of the friend who knows that that person has become rich, that he has gone to live in Hawaii and lives off his income, is an incentive. He says, if he's succeeded, well, then it works.

It works if you are in the right place, but the problem is being in the right place. It's the same as a lottery ticket, some people win the lottery. But you have to have the right ticket. And how do you know the right ticket beforehand?

Today in the crypto world the question mark is there and it's as big as a boulder. So that's why I'm not a crypto investor in the sense of "I study the crypto market and go put money where I think there is more potential". Yes, I try to do that but my expertise is limited by a very particular world. So, anyone who tells me something good, I'll fall for it and believe it, and I think most people do too.

So in the meantime, and in hopes of maybe finding myself in the right place, what I'll do is the only thing that I'm good at, which is trading. Trading doesn't require... I mean, it's a bit like in normal financial markets: I don't have to figure out what the company I'm trading is producing for the next trade. To me, it is enough to see how it's behaving and depending on how it's behaving, I'll decide to follow it. If I go in the right direction, I'll have my exit plan. If things go wrong, I'll have my exit plan with my bones broken, but broken in a way that can be fixed so I can start trading again.

Debora

You've already given us some indications that are very useful to address the next question, Andrea, which is the investment approach of a professional trader in this market. You were talking about the right opportunity and the right moment to seize, even when the context isn't favorable. I was reminded of what happened a few years ago when the spread between the Btp and the Bund was at 570 points. Who would ever have had the courage at that time to buy a government bond or a ten-year bond at such low prices to collect such a high yield? And yet there was someone who was naturally able to do this.

Andrea

Not me! My wife wanted to, I already had other Btp and I said no, it's too much, and in hindsight, I was clearly wrong.

Debora

Eh sure.

Wrapping up Andrea, what are we talking about when we talk about the Unger Method applied to systematic crypto trading, so let's end our talk with some so-called instructions for use.

Andrea

Well, the Unger Method is, as I've always said, a common-sense method of developing trading systems and approaching the market. I do it numerically, and when I say "numerically" you shouldn't be afraid and think, "Oh my Gosh, now he's going to bring up NASA numbers".

It's a step-by-step method that plans what needs to be done. It verifies strategies based on the past trends to hypothesize how they may perform in the future, thus studying the market trends. This is for both traditional systems and other forms of investment where there are edges to be discovered in favor of the investor that must be evaluated and then schematized, to build a plan.

So the Unger Method takes all the pieces, lines them up and decides what needs to be done. It decides this before it puts money anywhere. When it invests, it already has everything clear about what must be done, let's say.

Debora

Let's close on this conversation with Andrea Unger who has shared with us the correct spirit, the right one, the one suitable for investing in this very complex market. But it's a constantly evolving market and I think that we can say that this will certainly not be the last of our conversations on this topic. Thank you and keep up the good work!

Andrea

Thank you and goodbye everyone!

Debora

Before we say goodbye, here's a last service announcement. For all the people who'd like to delve deeper into the concepts we have explored during our conversation, you can order Andrea Unger's book, "The Unger Method," which is available on the Unger Academy website. You'll receive the book at your doorstep. It's free, and you only have to cover the shipping costs: so happy reading, everybody!

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