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Galaxy Digital CEO points out the 3 major fatal mistakes commonly made in trading during bear markets

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Galaxy Digital CEO points out the 3 major fatal mistakes commonly made in trading during bear markets

The CEO and founder of Galaxy Digital, a digital currency investment bank known as the Goldman Sachs of the cryptocurrency world, Michael Novogratz, highlighted three common mistakes that traders often make during an interview this week. Among them, trying to catch the bottom, focusing on short-term strategies, and ignoring macroeconomic conditions are the most common and costly errors.

3 Common Mistakes Traders Make

Michael Novogratz, former partner at Goldman Sachs, focused on forex trading and emerging market research early in his career. In an interview with Anthony Pompliano, founder of Morgan Creek Capital, Novogratz discussed the current chaos in the financial markets due to the coronavirus outbreak and the Federal Reserve's response to the economic downturn.

With the increasing correlation between the performance of Bitcoin and other cryptocurrencies with stocks and other assets, Pompliano asked Novagratz about the common mistakes traders make in the current market and how to avoid them. Novogratz pointed out that the common trading mistakes can be categorized into three main types:

1. The biggest mistake people make is that when the market collapses, everyone thinks it will quickly recover and rush to buy the dip, but the reality often turns out worse than imagined. Novogratz advised, "Hey, when you think about buying the dip, wait for a while, come back in a week," as markets tend to worsen once in a bear market, which can last for a while.

2. Whether the fundamentals of the investment are improving or deteriorating? If you can recognize early on that the fundamentals of an asset are improving, it usually signals the beginning of the next uptrend. Choose assets that are transitioning to a more optimistic fundamental outlook.

3. This doesn't mean you can't buy assets that are being sold off, but when market conditions are so bad, what you should really buy are assets that you can hold for the long term.

Loss of Confidence in Bitcoin

What exactly are long-term hold assets? Novotgratz used his holding of Churchill Downs Incorporated stock as an example. The company, which started as a racetrack in Louisville, Kentucky, has grown into a publicly traded company with multiple racetracks, casinos, and a leading online betting platform in various states across the U.S. Novotgratz mentioned that the stock dropped from $160 to $80 in the past six weeks. However, even with the cancellation of the Kentucky Derby (an event that generates $100 million annually for the company), it is still a $5 billion company, with the current valuation almost halved. With thorough research, undervalued companies can be found, and these stocks do not need to be sold even if their value rises in the short term.

But what about Bitcoin? Novotgratz stated:

"I think we won't see accelerated development in Bitcoin unless there is monetary tightening (halving of block rewards)."

Last week, when Bitcoin dropped to $5,301, Novogratz tweeted expressing wavering confidence in cryptocurrencies.

In fact, Novotgratz has tried to warn cryptocurrency investors that macroeconomic risks like the coronavirus crisis could be very unfavorable for Bitcoin, as in such situations, most investors tend to liquidate all assets, including cryptocurrencies.

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