The Number One Reason
In all my years of business, I have seen businesses and even business empires fall due to one common cause, greed! You can easily identify if you suffer from the same problem. Did you set aside cash/stablecoins during 2021 and early 2022? When prices began to drop did you rush to buy what you perceived to be bargains, or did you exercise patience? You can be sure that you would be in a tight spot right now if you owned a business and were exercising bad risk management. I wonder how many have actually sat down and structured their risk management and strategic approach to the Crypto Market. Simply buying something and hoping for it to go up is as close to gambling as you can find in the world of investments. Furthermore, exhausting all of one’s available funds is definitely the behavior of a gambler.
Business Owners With The Wrong Mindset
Likewise, in business, strict risk management needs to be adhered to. However, it seems as if most Crypto exchanges are only paying attention to one side of the coin. Splashing out on massive advertising campaigns and hiring sprees so deep into a bull market is rather foolish, to say the least. It can be equated to advertising an event that has already begun. Did Coinbase and others not factor in the harsh conditions of an upcoming bear market? Let’s be honest, Coinbase has been around and what we are currently witnessing is the result of unbridled zeal. Not only that but also very poor risk management from a company that really should know better.
Binance & FTX Walk A Different Path
Both CZ from Binance, as well as Sam Bankman-Fried of FTX, have publicly discussed how they chose not to give in to the pressure from VCs and others to overplay their financial hand. Both CZ and Sam chose to take the more conservative approach and ignore the external voices. After all, how can anyone outside of the company know what’s best for the business?
This is where CZ and Sam played it cool and simply focused on what they believed to be best. Once again hindsight has vindicated the actions of the wise. Steady organic growth is always the best and most trusted method. Unfortunately, not everyone has the patience and self-discipline to pull it off.
Binance and FTX continue to grow where it counts because they focus on what really counts. I don’t think FTX has had any issues during these turbulent times. I know Binance experienced a brief issue with BTC withdrawals. I must admit, FTX really has a great platform, from a trader’s perspective. The UI is extremely user-friendly and the majority of withdrawal fees are wavered, apart from ETH and ERC20 withdrawals. It’s good to see even a few industry leaders playing the long game and protecting their companies. Unfortunately, we are likely to see a number of Crypto companies collapse before this bear market is over.
A Great Strategy
Dollar-cost averaging has been proven to be one of the best and safest strategies for long-term investors. Over time the diligent investor sees returns. Diligence requires a consistent investment strategy. Investors who invest on a weekly or monthly basis generally perform really well over the long run. However, this is a strategy that has its roots in traditional markets. You generally don’t see drops of 95% in traditional markets. Up until very recently, traditional stocks generally didn’t experience the volatility they are currently experiencing. They too may have to revise their approach. Dollar-cost averaging is a great approach for a bull market, or even a sideways market.
There Are Better Ways
I remember taking a lot of flak for shorting from $29K. I got the typical, “you are a bit late” and “you are going to get caught on the wrong side of a short”. Although BTC had already dropped to $25K and since rebounded to $32K, there was a clear short indicator. You don’t short because the market drops but rather because you can see confluence that it will drop. Shorting from $32K was almost a guaranteed trade, provided you have some knowledge and trading experience. I ceased accumulation or dollar-cost averaging the moment the LUNA bomb went off. From the moment BTC breached the $26K/$25k level, the drop to $20K was pretty much guaranteed.
So Which Is Better?
Those that continued to dollar-cost average from $32K are currently not looking so good. If they were buying alts they are definitely regretting it now. Not everyone is open to the idea of shorting and that’s fine but not trading is also a trade. I mentioned to my readers a couple of times that I had ceased accumulation and was allocating passive income into USD. Usually, this capital would be utilized to accumulate alts. However, why on earth would I do that if there is basically a guarantee of capitulation? Would it have not been better to sit on your hands and hold USD? As I mentioned, the signs were pretty clear that the market would suffer further losses, especially alts.
Revising The Dollar-Cost Approach
Once a bear market is confirmed it is wise to redirect funds to stablecoins or cash. Hold these allocations until there is at least more chance of upside. You don’t have to perfectly time the bottom but it is extremely beneficial to avoid the worst of the collapse. For many, this is their first rodeo. Experience trumps opinion and even knowledge. Take it from those who have been here before. When a bear market hits, sit on your hands and wait for the worst to pass. Discounts at the offset of a bear market soon become floating losses and in many cases, realized losses.
Even Cycles Have Cycles
The initial stage of any bear market is usually the most deceptive. Oftentimes the market only realizes that a bear market is in play once it has already started. Denial is usually the most common response, which ultimately allows the bear to get its claws in on an unsuspecting victim. Once the claws are in, the market gets dragged down leaving behind it a trail of blood. This is pretty much how bear markets usually play out. However, the worst part of a bear market takes place when a bottom is reached. This is by no means the end of the bear market, it simply means that a lot of the major pain has now been absorbed.
A Further Concern
Even though at this point BTC hits its lowest level in the journey, it does not necessarily imply that alts follow a similar outcome. From here the bear market pushes on and altcoin investors often lose patience. This can mean that alts can continue to edge lower, despite BTC having cemented a bottom. This can also be a bit of a mixed bag in that some may remain relatively stable, while others continue to lose ground over time. Selecting the right alts can be rather challenging, which is why many turn to BTC for shelter even after a bottom is in. Investors then begin to observe the performance of alts before reallocating capital.
Signs Of An Approaching Bottom
In a similar way that investors choose to be in disbelief at the offset of a bear market, they continue to act in a contrary manner. Investors often shift into an overwhelmingly bearish view just before the market is about to bottom. The moral of the story here is that the market is always late. Frontrunning is the only way to truly position yourself effectively in any market.
The winter ahead may indeed be long and cold but it is beginning to look as if we are fast approaching a bottom, which will likely be retested. However, a lot relies on the FED at this point and how they choose to address the overwhelming issue of inflation going forward. Very uncertain times ahead.
It’s A Bit Late Now
There are many who have been taken by surprise by this bear market and are now trying to put together a strategy for survival. Anyone who knows anything about financial markets will tell you that you have to front-run market trends. There are often jokes made about new retail investors who chase the market as it reaches euphoric highs. They buy the peak and bleed all the way down, finally to capitulate at the bottom. However, not preparing for a bear market is exactly the same mindset. Trying to muster up a strategy at this point is also chasing the market. On the other hand, someone who prepares for a bear market is frontrunning the market.
Buying The Dip In A Bear Market Is Pure Foolishness
As mentioned in a recent post, buying the dip is a bull market strategy. In a bear market, you short the pumps. It’s that simple! Timing exact bottoms is difficult but timing approximate levels is not impossible, provided you have an understanding of technical analysis and markets in general. As mentioned in my post from May, I expect BTC to bottom in the $18K to $19K region. However, as a whole, the entire zone of $22K to $19K would be considered “acceptable”. In other words, you may not be able to discern a bottom but you can definitely avoid buying at $32, $29K, and so on. I am actually quite surprised at how many have actually been buying at these levels. When ETH was above $2200 I offloaded more because I was expecting a lot more downside.
My First & Foremost Preparation Measure
I have been building passive income models over the years and although they produce continuously, I set out with the intention to maximize bear markets. You need to consider that 2022 and 2023 are not going to be great years for Crypto. We may bottom soon but a bear market and a market bottom are two different things. Some tend to think that once the bottom is in we simply shift bullish. The bottom simply reveals that the worst is over. Having these models in place is like having access to free money to buy Crypto.
Many of these mechanisms are dollar-based, making them even more effective in a bear market. So, while prices are in the dust I will have the capital to accumulate throughout this period and beyond. This strategy is extremely beneficial, especially if we see ETH at like $900 and a $20 Solana.
My Second Measure
I chose to rebalance my portfolio in May of 2021, which has turned out to be a great move. Some probably considered my move premature but hindsight has validated it. It was at this point that I shifted almost half of my portfolio into stablecoins. I am still holding cash and stables and choose to only deploy this capital once extreme lows are reached. Not all will be deployed as I have a standing rule of maintaining a stablecoin allocation. What appears to be a great move now, seemed quite foolish when it was initially executed. However, it was merely the discipline of having a plan and staying with it. Most people in Crypto have no experience in markets or trading prior to Crypto. They don’t know anything about risk management, profit-taking, and exit points. This is ultimately the reason for “casualties” in a bear market. Even the knowledgeable and skilled trader will have his work cut out for him, so you can imagine what fate befalls the newcomer.
My third measure is more of a response, unlike the first two measures which are more preparatory in nature. Once metrics and analysis confirm beyond a shadow of a doubt that there is still significant downside ahead I cease accumulation and begin shorting the market. This is what I am busy with currently. Aggressive bearish price action might help to create a small relief rally but I would still be looking to short. I will most likely short a relief rally at this point as it remains in line with my own thesis. At the end of the day, I have put in the time to do my own research. I am not going to be making decisions based on a random view or comment that I may encounter somewhere online.
Planning your approach and strategy is actually imperative to success. It doesn’t have to be perfect but it definitely has to be in place. You need to have a “protocol” in place. You need a reference point and reaction measures already in place. Without this, you are like a leaf in the market’s wind.
It’s No Secret
I had actually wanted to write about exchanges surviving a bear market some time ago but never got around to it. The funny thing is that oftentimes exchanges and similar-styled Crypto businesses often manage to survive the majority of a bear market. What you often find is that exchanges begin shutting down just as the Crypto winter begins to thaw out. This is sad but simultaneously also an indicator that the end is in sight. In the last bear market, we saw smaller exchanges like TradeSatoshi and others shutting down during the final stage of the bear market. These were great little exchanges that offered some great trading opportunities due to a number of factors. However, these were small exchanges and it makes sense how eventually they would have to capitulate.
Companies like Coinbase and Celsius are on another level entirely. Rumors of insolvency are most likely over-exaggerated and even if there is an element of truth to them there are ways they can avoid destruction. You also have to consider that as the industry matures traditional traders and investors begin looking for weaknesses they can exploit. It is public knowledge that Coinbase and Celsius in particular were targeted by short sellers for obvious reasons. Trading activity declines significantly in a bear market and in Celsius’ case, hodlers require capital. Many also choose to sell their holdings with the intention of repurchasing them at a later stage. These factors all contribute to a general decline in productivity and volume. No matter the sector, all companies suffer in a bear market.
More Than A Token
A company like Celsius is not just a Crypto project. Celsius is a registered entity with staff and mining operations. The company recently invested $100 million into Crypto mining and is continuously looking for attractive growth opportunities. A company requires a certain level of productivity to remain relevant. It is important to note that there is a lot at stake and extreme measures will be taken, if necessary. The FUD together with the short-selling has created an opportunity of great proportion in my view.
A Risk Worth Taking?
So, the question one needs to ask is, how do I take advantage of this opportunity? You can always simply pick up the Celsius token or choose to earn CEL on some of your existing assets. Holding stablecoins or altcoins with Celsius enables community members to earn rewards in CEL. With the price of CEL being down so heavily users can receive up to ten times the amount of CEL tokens as they would have received at ATH levels. In this way, investors are able to utilize existing assets in order to earn an altcoin that will most likely rebound very strongly once the bear market subsides. It is also important to note that CEL was one of the best altcoin performers in 2020 and 2021! Obviously, there is always risk involved but the risk/reward ratio appears relatively favorable in my opinion.
Coinbase is a listed company and therefore implies the purchasing of shares. I am not too keen on traditional stocks at the moment but it is also an option. Remember, FTX offer tokenized shares that can be traded 24/7 for those not actually wanting to open a traditional account with a platform like Robinhood. These industry leaders have an extremely strong chance of bouncing back. I executed a similar strategy in the crash of 2008 when stocks got pummeled. Old Mutual got absolutely decimated and I immediately saw an opportunity. I knew that as an industry leader, Old Mutual would somehow survive or be bailed out if necessary.
A Level Of Safety
Investing in an industry leader has the greatest chance of recovery and ultimately securing gains. Sure, a smaller project will likely offer a better yield, provided it recovers. The “99% of altcoins will die” narrative is nonsense in my opinion but there will be a lot of projects that simply don’t make it! Consider your investment decisions and do your own research. This is by no means investment advice. Celsius has an ongoing promotion, simply deposit $400 or more and receive $50 in free BTC. Deposits need to be held with Celsius for a minimum of 30 days to qualify for the $50 bonus. Use the code: 188954e8a2 to qualify for $50 in Free Bitcoin!
One needs to have different levels of investment exposure in terms of risk. The majority should be in the safest possible allocation with diminishing amounts as risk increases. Please seek the assistance of a financial advisor in regards to your Crypto investments if needed. This is not financial advice.
I Am Quite Surprised
I must be honest, I did not envision this day coming, or at least not so soon! One of the reasons is that by not allowing direct withdrawals to non-custodial wallets, the platform and the government benefit. People earning “PayPal cash” are either forced to hold their Crypto assets on the platform or withdraw their cash and purchase the assets elsewhere. Furthermore, previously being unable to send Crypto outside of the PayPal infrastructure forced Crypto holders to initiate a tax event. If you cannot send it out then you have to sell it. Well, it appears that this has now changed. The following excerpt is taken from the PayPal Newsroom and was published on the 7th of June.
Allowing PayPal customers the flexibility to move their crypto assets (Bitcoin, Ethereum, Bitcoin Cash, or Litecoin) into, outside of, and within our PayPal platform reflects the continuing evolution of our best-in-class platform and enables customers to interact with the broader crypto ecosystem. Customers who transfer their crypto into PayPal can extend the utility of their crypto by spending using our Checkout with Crypto product at millions of merchants.
I am not too familiar with PayPal’s fee structure when it comes to Crypto. However, this is still good news, especially for those wishing to convert their PayPal earnings into Crypto.
Convenience & Adoption
PayPal has been the primary payment method for online workers and business owners for many years now. Etsy is a good example of how shop owners have utilized PayPal as a form of payment. There is an already established army of people earning “PayPal cash” and now they have full access to the Crypto economy. Being able to buy and hold Crypto on a platform is only half of the story. People want to be able to move it to a private wallet and utilize it for payments. I don’t think the original PayPal offering was attractive at all. As mentioned, creating a tax event every time you want to move your capital is highly unattractive. Furthermore, if you wanted to keep your Crypto, you had to sell it first. You then had to move the cash to a bank account, fund an exchange, buy the Crypto and later send it to your own wallet. This is not user-friendly at all and most likely deterred interested parties.
A Step In The Right Direction
The recent implementation from PayPal has now removed all of this unnecessary inconvenience and PayPal users are now able to enjoy a more comprehensive Crypto service. The only thing that could perhaps be an issue is the fee structure. I can’t comment on this as this upgraded service is only available to US users at this stage. That being said, at least US users can now receive Crypto in their wallet, as well as send it out to external wallet addresses. This is definitely what you want to be seeing when it comes to third-party Crypto services. PayPal users are now much more likely to purchase a bit of Crypto from time to time. Crypto enthusiasts are now also more likely to make use of platforms that offer PayPal services. These opportunities were previously avoided due to the fact that Crypto earnings could not be withdrawn to a private wallet.
All in all, I am quite impressed by this recent development. I really didn’t see this one coming! I think it could really add a lot of transaction activity on blockchains and serve to validate the importance of Crypto. The stronger the adoption becomes, the weaker the opposing voices become.