This is not investment advice. Nobody knows what the hell is going on in cryptocurrency, and I'm just giving you my opinion and observations. Disclosure: I hold the coins that I say nice things about and don't hold the coins that I hate on, as one would expect. I was just thinking today that in November my prediction for the new year was Bitcoin $10k.  I also said that I was out of predictions, that the market was becoming completely irrational. And so it was. It turns out we were in a bubble, that the breakout from 10,000 to 19,000 was the very last part of the run-up, and now we are riding the trip down the other side. It's also funny that I have been publicly calling for a huge crash since I sold my Bitcoin at 5500, and I kept a bunch of money on the sidelines waiting for it to happen, and it finally happened right after I gave up on the idea. Things are looking pretty rough.  There just aren't very many safe havens at all.  This seems to be a market wide downturn.  As I'll discuss in a minute, I think the downturn is just emotional and doesn't affect the fundamentals. At the moment, we seem to be deep in despair, but perhaps not quite at capitulation. Several people have told me they believe we will touch 5000. I'm not sure, but I wouldn't be surprised if we did briefly.

Reassess your risk tolerance

First off, I hope everyone is all right. I hope you heeded the warnings to only invest what you could afford to lose.  I publicly said a few months ago that everyone should consider having up to 5% of their portfolio in cryptocurrency.  That's quite small, and worst-case scenario you would be looking at a 3 or 4% loss in net worth which is about a weeks worth of volatility in the stock market. For many people, this was the first experience of going through a cryptocurrency crash ( something that has happened over and over since I got started in early 2015).  I promise that this is not the last, but it's also not the end. If you have had trouble sleeping during this downturn, then you have too much riding in cryptocurrency.  For example, I sold about 5% of my holdings at the top because I didn't have enough money to pay my taxes from last year out of the dollars I was holding.  And just yesterday, I made the decision to sell 1/3 of my EOS holdings at a 15x return.  That's well beyond every expectation that I had, and I think we should be realistic and thankful when great opportunities happen like that.  (A poor decision of mine was to let my SALT holding ride.  I had originally intended to sell if it doubled over my investment to $10, and I let it go up through $15, and now it's $4.25)  Even though it was a relatively small amount of money, I let market mania get to me.

What can we learn?

There is a lot to separate out, but here's what I see at first pass.

Different categories of coins are behaving differently

It's becoming clear that the run-up was due to a massive entrance of retail investors that didn't know what they were doing. The coins that experienced the largest run-up -  Ripple, Cardano, Tron, Doge, etc, - are now experiencing the largest dive.  Tron, for example is down 86% from the peak, diving 18% just today.  It's my opinion that these are just gambling coins. There are no real technical fundamentals behind them, but it seems that these are custom built to take advantage of the mania of crowds. I'm going to call these the gambling coins because nobody cares what the fundamentals are.  I would love to say that people have learned their lesson, but I'm not sure that's true, so when things turn around I wouldn't be surprised to see these coins have the largest percentage gain.  I still think you should stay the hell out, unless you are spending your lottery ticket money. We seem to be settling in on a group of coins which might be considered "blue-chip" coins:  BTC, ETH, Stellar, and some coins which could potentially be blue-chip coins (EOS). Without a doubt, you weathered the storm better if your portfolio was filled with blue-chip coins than speculative gambling coins. And finally, the smaller coins seem to be getting lost in the noise. I have been a fan of Civic for quite a while, and it is back down to its post ICO bounce.  While I hate losing all of this money on paper, I think there's a real company in a real product and a real plan, so I don't worry about it.

Everything is still tied to Bitcoin

Because everything is priced in Bitcoin, everything goes up and down with the price of Bitcoin. That may not last through 2018. The UK's Royal Mint has launched a cryptocurrency backed 100% by gold and there will be several other gold or commodity backed cryptocurrencies this year.  There are other projects claiming to create "Stablecoins", for trading use, but I don't really believe in them. Finally, Tether, the first stable coin is in the midst of rumors that it is insolvent. As much as having a coin tied to the US dollar is useful, I would very much recommend that nobody hold Tether or use Bitfinex until we can figure out whether they are solvent.

We are moving from speculation to implementation

Phase 1 was governed by complete speculation.  Nothing actually worked, and people were betting that things would eventually work and be big.  Bitcoin and Ethereum dealt with scaling problems, most of the big infrastructure plays have yet to be released, and the only working decentralized application was internet cat breeding. The truth is, everything was overvalued from a fundamentals standpoint, which I said back in November. Phase 2 will be the beginning of actual things being done on the blockchain. The Bitcoin lightning network is an alpha stage and will be released before summer, and I think it will be huge.  Ethereum will make or break its scaling plans this year with Casper and Proof of Stake.  Several Ethereum competitors will launch, including EOS, Stellar, Nano, NEO, etc.  Actual decentralized apps will launch. Infrastructure will improve immensely. Several new exchanges will open, regulation will be worked out, KYC will be much smoother, and we will start to see actual decentralized exchanges become useful.

Take profits

That's the big lesson.  Decide what your profit-taking strategy is going to be beforehand and stick to it. Maybe you sell 20% for every doubling in price, or whatever, but taking a little off the table at a time really helps with your mental health when things head the other direction.

Looking forward

All is not lost. We are still in the beginning. Blockchain and cryptocurrency is world changing and we are only getting started. The current market valuation is around $300 billion, and there's just no way that it's less than 1 trillion by 2019.  I am very excited by projects like Blockstack, Urbit, Filecoin, 0x, Civic, and OMG. Here is what I'm doing:

1. Take care of your immediate needs: Can you afford to live and pay your taxes this year? If not, just cut your losses.
2. If you have money on the sidelines, and feel that your risk tolerance can handle it, now is the time to be buying...using dollar cost averaging if you don't want to risk missing the bottom.
3. Focus on high quality coins with a good plan and a good team.  Stop investing in stuff that your buddy told you he got a tip from his driver who heard from his shoeshine guy that everybody is investing in Ripple.  Try not to invest anything that runs advertisements on social media.
4. If you can't write a half page of convincing arguments as to why you should invest in a coin, don't.
5. If you don't have time or the interest to do research, then focus on the blue-chip coins, but at least take some time to familiarize yourself with how they work.
6. Invest for a medium term or long term horizon. Stop expecting 10X returns in a month.  Of course, you may get lucky, but keep in mind even the best-performing alternative assets are up like 30% in a year.  If you invested in cryptocurrency a year ago, you are doing way better than 30%.
7. Never panic sell during a crash. Don't trade on market sentiment.  Sell only if the fundamentals have changed.

We will not be inundated with bad news forever. This is how the bottom feels, and as soon as you get familiar with the feeling and are able to move past it, you will be prepared to make money in cryptocurrency.