I wonder if you have ever thought about this question: why do people lose more money in a bull market than in a bear market?
It’s like I bought atom for $15,000 and held it until now, and lost more than 90%. Here is the record at that time: https://x.com/Seanzhao1105/status/1814237471737249959
My feeling at the time was that I felt that everyone was talking about how great arc20 was and how it could change the world, etc. Then I watched the price go up little by little, and I finally couldn’t help it. I was afraid of missing out, so I took over at the top of the mountain with a high gas price.
The reason why I wanted to write an article about risk is because I have been reading recently. After reading it, I have a different understanding of risk, especially since I started IEO in 2019 and participated in many projects. Now I have some new feelings about the concept of "controlling risks".
After I read the books and recalled this experience again, I had a deeper understanding of "the formation of risks", "identifying risks" and "controlling risks" - the formation of risks is accompanied by high prices, optimistic emotions and public consensus.
However, the risk we understand may be that an asset has a large fluctuation range, which is not a risk. Just like Bitcoin has fallen so much in the past, not many people think it is risky - the real risk is the possibility of loss.
Now that we understand these two points, let’s think about why the risks are greatest in a bull market.
I have also experienced several bull market cycles myself, starting from DeFi, NFT, inscriptions, etc. I have discovered a phenomenon that everyone can actually make money in the bull market, even a lot of money, but there are basically few people who can hold on to it in the end.
Some people make money from defi mining coins, some make money from nft, and some make money from inscriptions, but most people do not hold on to their wealth when their assets reach new highs, resulting in a sharp decline in assets, and I am the same.
Now most people are thinking, how can I seize the big opportunity? Then there is the single project a8. I don’t know if there are such people around you. Many people have received a8’s income from airdrop projects, but in the end, what they pocketed is actually far less than a8.
Just like I guess there are still people holding airdropped stark and zk or arb vc coins. I am not saying they are bad, but "what you can earn and what you can keep are two different concepts."
I myself have had the experience of a substantial increase in assets, but I did not control the drawdown well. In the end, I found that everyone can seize opportunities in the bull market. Really, I think about several narratives. In fact, the probability of you completely missing a narrative is relatively low. After all, everyone is discussing it, just how much you earn. Even if you did not get ordi in the inscription bull market, you can always get the opportunity of sats. At that time, there were so many inscriptions, or so many airdrop projects, or maybe a certain altcoin, such as blur dydx uni, etc. Everyone who participated in the market could make money in the bull market. However, looking back, how many people can control the risk of "possible drawdown after a substantial increase in assets"? I didn't see many myself.
This is the trend chart of dydx. You can see that it has been close to zero since its release.
This is the trend chart of blur, which is similar
Let’s think about it carefully. People who have truly experienced a bull market should know, are you really afraid of not making money in a bull market?
Of course, some people make more money than others, but it should not be difficult to make money. The proportion of people who make money should be much greater than those who can keep the money. So, assuming there is another bull market in the issuance of new assets, I believe that most people can still make money as long as you dare to rush. However, this type of people often find it difficult to hold on to their money in the end.
Back to the topic, why is the risk of a bull market high? There are several reasons:
1. Optimistic mood
Asset prices continue to rise, and then people continue to join the buying and getting on the bus, resulting in more and more people taking a certain risk. Finally, as more and more people get on the bus, the return on taking this risk is constantly decreasing. In a bull market, everyone seems to be lost in a grand carnival party until the music stops and they realize that they have no seats.
2. Risk of portfolio drawdown
Again, I believe that everyone can make money in a bull market, but few can hold on to it in the end. So when assets continue to break new highs, it is necessary to control the risk of asset drawdown. The specific manifestation of risk control is "giving up part of the profit," and it is possible that this part may be a huge profit.
To put it simply, it means selling a part on the left side. Of course, some right-side traders may choose to look at the K-line. I am not good at this part, but since I learned it from the ideas of investment masters, then I believe it. After all, he is a master. Some people may think that they should not sell so much if they had known earlier, or they should sell it later, but in the end they often don’t sell anything. Don’t ask me how I know, I have had this experience myself.
So giving up profits in a bull market may be a lesson that my family, including me, need to practice.
3. Exit strategy for new asset issuance
I don’t know if you have any observations about the issuance of new assets. After most new assets are issued, the time when liquidity is best is also the best time to exit. This is the case for most of the time.
Because new assets will face such a problem, that is, after the price drops, there will be no liquidity. Even if you hold a lot, you cannot sell it if you want to. The narrative is the same for all new assets, including NFT.
Moreover, as time goes by, new assets are actually limited-time cash machines, and they basically return to zero in the end. When I have the premise that "this asset will eventually return to zero", it is not that difficult to sell it. After all, there are really few assets that can change the world. The risk control strategy is to give up part of the income in exchange for security, or at least withdraw part of it to control the risk of asset withdrawal.
4. The risk of completely avoiding risk
This is also a very important concept I have learned, which is that "risk control does not mean risk avoidance."
Most projects require us to take risks to obtain them, but if we completely avoid risks, we may also avoid profits, which just proves the saying "profits and losses come from the same source". This also leads to the next topic.
Five: Risk of missing out
Yes, risk is not just the possibility of loss, but also the risk of missing opportunities. However, this part is often not something to pay attention to in the middle of a bull market, but something that should be paid attention to at this stage, or even earlier, when the market is sluggish. After all, the largest bull market is the bull market in the issuance of new assets. This type of bull market has the possibility of going against fate. When you are in such a bull market, you may need to explore more and participate in new things.
Therefore, "risk control is not the same as risk avoidance". If you do not take any risk at all, you will miss a lot. This is something that everyone needs to think about or balance.
The investment master's philosophy is to keep up with the market average in a bull market and outperform the market in a bear market, using a strategy of lower volatility to obtain higher returns. This strategy is actually very suitable for friends in the currency circle and is worthy of our serious consideration.
The above are my summary of some of the risks that may arise in the upcoming market. I also learned them slowly by reading books and combining them with my own experience. I find them very useful, so I share them with everyone.
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