Crypto Market Triggers Alarm Bells – Time To Short?

What’s The General Mood?

Looking at what analysts and others are currently suggesting only serves to provide more confusion. Some are extremely bearish, while others are fairly bullish. Analyzing this behavior does however offer more value than the predictions being made. If you have been through a few Crypto cycles before you will know that there is one very clear indicator that a bottom is approaching and that is complete desperation. At this point, altcoins are usually so far down that investors literally feel sick. Hope has been ravaged and portfolios obliterated. The fact that many are still bullish tells me that maximum pain is still much further down.

The Greatest Misconception

Many still can’t understand the reasoning behind holding stablecoins and cash in a Crypto portfolio. The common response is always wondering how money is made holding stablecoins. If your portfolio is only designed to profit it’s simultaneously designed to fail somewhere down the line. People who don’t understand what is going on in such a scenario are one-dimensional investors. These are also the ones who get wiped out in a market crash. There is absolutely zero risk management, I mean how can there be if such a question is posed. I am not going to go into further detail apart from mentioning the obvious. Those who rebalanced their portfolios above $50K are doing a lot better than those who hold zero stablecoins or cash.

Let’s Look At The Basic Math

As mentioned, I am currently sitting at just over 40% in stablecoins and cash. I am positioned in such a way that I am able to operate no matter which way the market decides to go. Forget about gains for a second and focus on loss. This may be a shocker to those who have never done the math. If you are fully exposed and your coin drops 90%, which is still fairly modest in a bear market, you lose your muscle completely. Let’s use $100 as an example. The all-in investor will see his holding drop to $10 in a 90% drop. The investor holding a 50% allocation in stablecoins will see his portfolio drop to $5 in coin allocation plus another $50 in stablecoin allocation.

You Might Want to reconsider

This means that the all-in investor has to experience 1000% growth in order to regain his $100 valuation. The investor who hedged his portfolio only has to realize a return of 82% in order to regain his $100 valuation. Can you even compare the two? That’s how you make money holding stablecoins! Not to mention that you can earn interest on top of that while you wait. One-dimensional strategies are weak and much like gambling. A portfolio that is not carrying any “Dry Powder” is handicapped in my opinion.

Am I Shorting?

Despite already having a good hedge in place I am very slowly beginning to build a short position in order to further cover my “long” portfolio. This will however be very marginal and reserved. My decision to include a small short is that I don’t see how we can avoid further downside. As mentioned before, even if BTC moves to $38K in the short-term it can still suffer further losses in the medium term. Either way, I have a number of planned moves for certain levels and certain market conditions that will trigger prepared strategic responses. You know the old saying, “failing to prepare is preparing to fail”.

Wishing you all well as we make our way through this challenge, simultaneously remembering that fortunes are made at the greatest point of pain!

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