I’ve told several friends and family about crypto over the past few years. During that time I have continued to study and learn what I can from a variety of people online, and I’ve been wanting to tell y’all about it but I keep falling short on time. Meanwhile sentiments and developments in the market keep changing, especially with this recent crash. Since it’s so complicated at this point I’ll try to summarize my thoughts here where everyone can read instead of having a long conversation with a dozen people.
Of course the shortest summary is nobody knows where the price goes from here. However, before this big drop in May, myself and the majority of investors/traders thought it was safe to assume the bull run would continue at least until winter 2021 based on the previous cycles. (If you’re not aware, Bitcoin has a 4 year cycle built into it where new supply is cut in half, which eventually leads to higher prices and a speculative bull run before a crash. Because it’s the first and largest coin, the rest of the crypto market is heavily influenced by this cycle even if they have nothing to do with bitcoin).
During a bull run, 30–40% drops are expected along the way. The problem is few people anticipated a drop this big so early in the year. Coins are 50–80% down from the high depending on what you hold. During the course of this drop there’s been a lot of debating back and forth whether the run will continue or not, but last week the sentiment turned majority negative. The thing is, is the majority wrong again just like they were in May? Who knows. If May was “the top” it will have been the shortest bull run in crypto so far. But maybe there are more important factors than timing, such as getting too popular too fast, negative news, banks/wall street trading, the macro economy, and “dumb money” pumping useless coins like SHIB. If it was the top that will have been an expensive lesson to learn. Maybe the covid crash messed it all up from the beginning.
The most important thing I want to tell everyone is to consider all possibilities in relation to your personal situation and your appetite for risk. Here is one possibility, from a trader who has predicted the drop so far in BTC. He does think price will start going up in 2022.
Here are more possibilities from other traders who aren’t dumb either, just to illustrate what else can happen.
So obviously I’m very reluctant to make a hard prediction for the end of the year. There is still a possibility that we go full steam ahead to 70k or more. But currently I lean towards more dumping, so I’ve sold about 5% of what I hold. I can’t make a decision for anyone else, but if you have a big % of your money invested in crypto consider selling some (keep in mind taxes). I have held through a few downturns already and it’s mentally easier if you were able to take something off the table first. There’s also a decent chance that we pump to 45k or so before dumping (see yellow line). In that case it will be impossible to know if it’s a trend reversal or just an “exit pump”, but either way I plan to sell a little more at that level. If we hit 25k I’ll start buying back in. If that never happens, I might be mad at myself for selling this early but right now I’m willing to take that risk. If you’re financially secure and don’t want to deal with the tax reporting, maybe you’re willing to risk it for the biscuit. You might see huge gains by the end of the year, or worst case scenario you’ll have to hold 3 years for the next bull market. I am starting to see more positive sentiment today, so there’s hope.
I also want to point out the macro economy. It’s starting to appear more vulnerable, and many are losing confidence in the Fed’s ability to control it. What I notice is that there are many experts out there who sound very convincing while making entirely contradictory arguments. Some call for hyperinflation, so buy gold or value stocks. Some call for deflation, so get cash. Some want more of an even mix. I know enough to know that I’m just a guy with a full time job, I don’t have enough time to study more than these people and figure everything out, and most people should stop thinking they can. I’ve seen too many simply assume that Bitcoin will blast off because of hyperinflation so they bet their lives on it. It may have started out as an “uncorrelated asset” to stocks, or as an inflation hedge. But recent history has shown it crashes when stocks crash. If there’s a large panic, people tend to withdraw their cash wherever they can get it from, at least in the short term.
BTC, ETH, and LINK are each kings of their respective domains within crypto, and their long term prospects are good, potentially world-changing. You could see it as a bet on the future, of replacing the current financial system which has so many problems. But in a macro environment like this where even the Fed might not know what they’re doing, it’s risky to bet the farm on crypto alone when the average clueless trader considers it more like Tesla stock than gold. Like any investment there is no guarantee of any outcome.
FYI the common wisdom says BTC is the least volatile, while ETH is more volatile and LINK even more volatile. In a crash BTC dumps the least, and I expect BTC will recover first. However after the crash of 2017, LINK eventually outperformed everything in the bear, and we’re hoping it does so again whenever we do hit another bear market. I’ve also told people about various alt coins, most recently AAVE, GRT, BNT, SNX, MATIC, and so on. These are still solid projects but they are even more risky. In a bull run they have big potential, but in a bear market they’ll likely fare much worse than BTC. I still hold some but at this point they are probably a worse risk/reward than BTC, ETH, and LINK.
Sorry if your portfolio is down, mine is too. It was difficult and time-consuming to come to these conclusions and to tell you all but I think it’s better to be aware now than later.
