How to Survive a Crypto Bull Run
“It’s super exciting right now. Prices will likely never be as low as they were just a few months ago. The more I analyse the trends, the more I am confident that I know where Bitcoin is going. The news consistently speaks of institutional investment, and it’s clear to me that people are waking up and getting into Bitcoin for good. A supply shock is just around the corner. Not to mention the halving that just happened, which isn’t even priced in yet.”
A pretty bullish statement. That was me, in 2017.
If you’re new to crypto, having first bought in the past 2 years, it’s also you right now (January 2021).
It is exciting, that we can all agree on. Unfortunately, none of the other statements in that paragraph is true, no matter how badly we want to believe them. I know, that sucks, and it’s probably not even going to sink in if you’re already caught up in the bull run.
A quick google search will tell you what happened in the years that followed the 2017 crypto boom, where the same rhetoric was believed by myself, and the vast majority of the crypto world.
But this time is different, isn’t it?
We will never see the price this low again
During the last bull run, this was one of the most popular phrases. It was true for every single crypto asset. The idea that the sheer volume of capital inflow is proof that the world has woken up to the potential of X coin, and is, therefore, proof of its price longevity. This leads to the conclusion that the price can't fall as spectacularly as it rose.
I fell for this rhetoric hard 3 years ago.
Take Bitcoin. The price levels that it seemed to smash through with ease was dizzying. For what seemed like forever, the price was steadily fluctuating between $500 and $1,000 leading up to 2017. Numbers like $2,000 and $3,000 were astronomical, but they came. Then $5,000 came, then $6,000, $7,000, $10,000, $15,000?!
I thought, “This is it! The institutions are here and they’re gobbling up every psychologically significant price point. I should have bought more when it hovered around $3,000 because we’re never going to get that low again! Damnit, missed opportunity. I had better buy some more before it goes past $20,000. I’ll “buy the dips”.”
The price did just about reach $20,000, but what happened in the months that followed needs no explanation, or perhaps they do. The only important thing is that we did see $3,000~ again.
I monitor and research every day to identify buying opportunities
This is a statement I heard recently from a close friend of mine, one that I personally introduced to Bitcoin not long ago. After initially scoffing at the obnoxiousness of it, it made me realize that he is exactly where I was in 2017. I can’t begrudge him for that.
In June 2019, the price of Bitcoin was seeing some resurgence. It was around this time that my friend had asked me about Bitcoin, what it was, how it worked and how to get it. I explained its value proposition, a rough technical explanation and gave a short history of what had happened over the past few years. He was keen, at the end of the day bought in for the same reason I and anyone else buys into crypto: to make money.
Unfortunately, this conversation occurred during what was a relative high in price (roughly $12,000~) when compared to the years that preceded it. Shortly after, the price retracted, where it languished for around a year, until mid-2020. During that year, we barely spoke about Bitcoin. It was, by anyone’s metric at that time, a bad short-term investment since he’d lost about half his money. Nevertheless, he stayed in, left to the back of his mind, and no words were uttered on the subject.
Fast forward to Q3 2020… COVID-19 had shut the world down, the DeFi summer was in full swing, and people were starting to get into Bitcoin again as a hedge against inflation. The price started creeping back up to my friend’s aforementioned entry point of $12,000, where it hovered for a while, then increased into the mid-teen thousands. Fervour kicked in, emotions heightened, the excitement was back and all anyone wanted to do was read crypto news, watch crypto youtube, and routinely check graphs.
All of a sudden, Bitcoin was no longer left dormant in the back of my friend’s mind, understandably. The previous Bitcoin all-time high was fast approaching, and “hopium” was starting to saturate the crypto space. $20,000, Bitcoin’s previous all-time high, was passed. Next was $21,000, then $22,000, 23k, 24k, 25k, 26k. Psychologically significant price barriers were gobbled up with ease. (This sounds suspiciously familiar)
It was at this point, in response to some cautionary advice, at the height of the fervour, whilst setting new all-time highs and blasting through huge price barriers, that the phrase “I monitor and research every day to identify buying opportunities” was uttered to me. Not during the lows, but during the highest highs that Bitcoin has ever seen. This was the alarm that prompted me to write this article, as it was like listening to myself from 3 years ago.
The Devil on our shoulder
It’s easy to get caught into the intoxicating nature of it because it plays to our vices so perfectly well. The ultimate sense of satisfaction you receive on being justified for a decision you made is like no other. You put money in, the number went up. Boom, dopamine. The brain wants what the brain wants. The next big number comes up and Boom! Dopamine again. Keep them coming.
As with all vices, they lead to unhealthy habits. This cycle of dopamine leads to spending hours looking at graphs waiting for that green jump we crave. I did this so much in 2017 (when the number was going up. I didn’t like watching when it was going down). It’s the equivalent of scrolling through Instagram and watching funny videos, beach pics and cats doing things. The one tantalizing exception is that, in crypto, your money is on the line.
Woohoo, dopamine and money!
Spending hours watching daily price action distracts you from the very reason you entered the space in the first place: long term belief in the asset. “Researching every day to identify buying opportunities” is junkie speak for getting your fix, causing you to jump into the market whenever the price dips a little, to get your hit. “Buying the dip” only works until it doesn’t. At which point, its cold turkey.
Switching up the perspective
“I monitor and research every day to identify buying opportunities”
If this statement is true, ask yourself, why now? Why was “researching every day to identify buying opportunities” not the case when the prices were lower than your initial buy-in price? (An objectively better buying opportunity).
If you bought in at $12,000, and it languished far below that for a year. Surely, daily research identified those lows as the best buying opportunity, right?
Of course not. It was put it to one side, out of sight and out of mind, because no one gets a positive emotional response from looking at graphs every day when they’re telling you you’re at a loss. Long term belief in the asset, with research to identify buying opportunities, would have resulted in concluding that the best buying opportunity, was, in fact, the time when you least wanted to do the research, and least wanted to buy more.
This is purely emotional. When people say “Don’t trade on emotions”, this is what they mean.
Believing that you can “identify opportunities” by “researching” at the highest highs the asset has ever seen, and not at prices lower than you originally bought at is emotional at best, and delusional at worst. And it will only fuel the false-belief in your own abilities to predict “number go up”. The only thing you’re predicting is more dopamine.
I get it. Again, this was me in 2017. I predict a surge, make a call, put money in and am repeatedly justified in making the call. I started to believe my own hype. “Holy shit, my research is genuinely allowing me to identify opportunities”. Unfortunately, during a bull market, no one is ever wrong when they predict the number go up. And what it leads to, when the market falters (which it will), and the dopamine stops kicking, is a whole big steaming heap of bad mental health. The feeling of despair is real. The feeling of wasted time is real. The feeling of loss is real.
X-coin is the Y-coin killer
Although the industry is maturing, coins that claim to be “X-coin-but-better” always spring up during a bull run. “X-Coin is the next Bitcoin”, “Y-Coin is Ethereum but better”, “W-Coin is the XRP killer”.
(The US Government acting as the XRP killer as of this recent SEC filing)
Strangely enough, these narratives don’t seem to take hold during market downtimes. Why? Because there aren’t any suckers around to buy up the useless coins. The suckers are only here when, as stated previously, the number goes up.
There are very few cryptocurrencies with genuine use-cases, but they do exist.
(Preface to this next bit: It goes without staying that everything in the cryptocurrency industry is speculative. However, these opinions are from my perspective as a Blockchain engineer, heavily involved in the industry. This is not investment advice, but a summary of themes witnessed over the past few years.)
The Bitcoin Use Case
Bitcoin’s initial value proposition was to replace cash. Everyone should be able to buy coffees, pizzas and groceries every day with it. Is this a reality? No.
Due to transaction fees, confirmation time, bandwidth and a reluctance to alter the protocol to overcome these limitations, the “Bitcoin as digital cash” narrative doesn’t stand up. Instead, Bitcoin is now overwhelmingly used as a store of value. (The vast majority of Bitcoin whales never move their Bitcoin from their wallets.)
The “store of value” use case is a simple one. It’s digital gold. Everyone knows what gold is used for. Some claim it has some industrial use, but the overwhelming majority of its use is as a store of value. Bitcoin is the same. I don’t foresee Bitcoin’s status, as crypto’s number one store of value, ever being overtaken by another Blockchain due to countless reasons, but most importantly:
- Bitcoin will always be the oldest blockchain (assuming it keeps on running) because it was the first. The longer a blockchain operates, the more confidence we have in it.
- Having no “issuer” or “owner” means that there’s no figurehead for governments to scrutinize.
- Its supply is hard-capped (although this can be changed, it would likely cause a hard fork, creating a brand new branch of the existing chain, with the original chain continuing unchanged), so it’s provably scarce.
Any “Bitcoin Killer” has its work cut out.
The Ethereum Use Case
Early on in Bitcoin’s life, it was clear to many enthusiasts that this technology could be used for more advanced applications. Transacting value was the initial layer for Bitcoin because it was the easiest to implement. But the chain itself created a decentralized collection of computational power, spread across the globe, working towards the same outcome. Due to the limitations of the Bitcoin protocol that I mentioned earlier, harnessing this world-machine to perform tasks other than the transfer and store of value is difficult.
Ethereum enables something called “smart contracts” to be deployed onto its blockchain. These are pieces of code that act only when they are interacted with, for example, when they are sent some Ether (the native asset to the Ethereum blockchain. Comparable to what a Bitcoin is on the Bitcoin blockchain). Ethereum came about after years of watching, learning and understanding the benefits and drawbacks of the Bitcoin network, then moulding the architecture so that this new chain could execute these contracts. This not only encompasses the use-case of value transfer, but also a seemingly unbound set of real-world applications.
Leveraging smart contracts, companies have begun a revolution in cutting out the middleman to make traditional industries more streamlined and available in places they weren’t before. Developing countries without access to crop insurance now have the ability to protect against natural disasters. DeFi (Decentralised Finance) contracts have enabled citizens of countries with currency hyperinflation to access stable interest rates on their savings. (The summer of 2020 saw a DeFi boom, ending the year with over $14 Billion locked in DeFi smart contracts on Ethereum alone.) A gaming and arts revolution has begun with the adoption of the ERC-721 inspired NFTs (Non-Fungible Tokens).
So, the value proposition of Ethereum is a little more complicated. Where Bitcoin is digital gold, Ethereum is a world computer… or programmable money… or maybe there isn’t a simple analogy for it yet.
What we do know for a certainty is that the vast majority of Blockchain-related innovation is happening on Ethereum. Its developer community far outweighs that of any other Blockchain development ecosystem. The tooling to create, test, and deploy Ethereum smart contracts is light-years ahead of any other Blockchain ecosystem. So much so, that the EVM (Ethereum Virtual Machine) is quickly becoming the standard for smart contract platforms, prompting new Blockchain projects to build EVM compatibility for their chains as a precursor to release. It’s much easier to onboard developers when you don’t have to teach them a brand new ecosystem. Binance Smart Chain, Matic, RSK, Moonbeam are all examples of new chains that are EVM compatible. Any smart contract that you’ve written for Ethereum can be deployed on those chains too.
Any claimed “Ethereum Killer” has a very, very steep hill to climb.
According to my technical analysis
Do not listen to anything that is prefixed with anything remotely resembling these words (except this, ironically).
TA is, for the most part, a coin flip. I’m going to get hate for that statement, but consider this: only 3% of day traders are actually profitable. Why are there so many advertisements for platforms like eToro, Plus 500, etc, then? Thinking about it, the only reason that 3% make money is that the rest of the 97% are losing it. Newbies come in during the bull market, gain a false sense of belief in their own abilities because number go up, until, all of a sudden, it doesn’t. It crashes, the top traders make the money, the suckers lose out and deterred, leave the space at a loss (until the next bull market comes around a few years later).
Let’s take traditional financial markets as an example. Being a day trader there is tough, not only because one person can’t possibly absorb all the information needed to make informed short-term decisions, but because you’re not up against other people, you’re up against bots.
Taking that same premise, and applying it to the cryptocurrency industry which is overwhelmingly populated with technical-first users, most of which are developers, and the task is even more daunting. I daren’t imagine there are any profitable human day traders in crypto right now. They’ll all be bots. (And yes, fine, during a bull run this will be disputed. I disputed this very premise in 2017 because my numbers were going up. Come 2018, I believed it.)
Getting rich quick and easy doesn’t exist. Be sensible, come to terms with your limited knowledge of psychohistory (shoutout to my boy Hari Seldon (not real)), and place your bets accordingly, if any at all.
This all seems like I’m bearish on the crypto, which I am overwhelmingly not. I’m bearish on people acting rationally. I’m concerned for people, especially those I am close to, destroying their mental health by repeating mistakes that I personally made. Mistakes that I can see playing out all over again. Is this preachy? Yep. Hypocritical? probably!
There is a chronic lack of awareness of how much lady luck plays a part in cryptocurrencies. Before you get caught up in “insider” info from anonymous Twitter personalities and faux-pundits on YouTube and crypto news sites, just know that they’re making it up. They’re throwing shit at a wall and seeing what sticks.
I have my own predictions of how crypto prices will go, what the time frames will be like, and I will act based on those. But they’ve morphed from obsessively reactionary, to occasionally curious.
The least fulfilling aspect of blockchain technology is the price of crypto. I say that with complete certainty having been an investor from the outside, and an “insider” working on the technology. The last thing the builders talk about is the price.
To anyone who’s taken the red pill already, I urge you to take a step back. We aren’t special. We’re not smarter than everyone else because we discovered this thing before others. We aren’t acting rationally on facts right now, we’re acting on emotions. Crypto News and Youtube channels are not increasing our knowledge base, they’re brainwashing us into hype mentality. Regularly checking the price of our crypto gains us nothing (unless we plan to take profits ASAP, in which case, let's get out whilst it’s good! 2X takes 20+ years in traditional finance.). It’s junkie behaviour.
I was that junkie. And I can see it happening to my friend this time around.