Some asset prices still have 2-5 times or even more upside potential before reaching their peak.
Written by: Chris Burnisks, Partner at Placeholder
Compiled by: 1912212.eth, Foresight News
If your friends contact you and ask about Bitcoin, Ethereum, and other cryptocurrencies, guiding them isn't easy given the current market conditions (BTC is nearing $100,000). This is especially true when they are inexperienced novice investors. Here are some lessons I've learned from over a decade of observation.
Ensure that the actions they take are their own responsibility. You may have more experience and knowledge, but that doesn't mean you are absolutely right. No one understands everything that happens in this market. If someone claims to know it all, they are definitely lying.
You can try to explain to them what stage of the market cycle we are currently in. For me, we have already entered this bull market cycle for 2 years. (The bottom in the chart is November 2022)
From the bottom two years ago, BTC has risen over 6 times, ETH over 4 times, and SOL over 30 times.
The painful truth is that as token prices rise, people's attention increases, and this attention later translates into purchasing power. Therefore, the more the price rises, the more attention people pay to potential returns, but in general, the later we enter the ‘attention cycle,’ the worse our position becomes.
So the best entry points are often when almost no one is paying attention, but that was 2 years ago. What happens when they are eager to buy tokens, even when the timing isn't ideal now?
Keep it simple: Personally, if they are novices, I would tend to recommend holding a certain proportion of BTC, ETH, and SOL (50/25/25%), with other risks borne by them. At the very least, if they mess up the ‘entry/exit,’ they can still maintain some capital. If they choose small-cap coins, encourage them to learn and keep it below 10% of the total allocated funds to reduce risk.
From the current entry price, if they double their investment, encourage them to take out their principal at that time, which also ensures profits. Afterwards, if their funds have tripled, they can cash out all of it, or if they want to be a bit riskier, they can cash out the already earned 2 times and maintain the remaining principal (cost), but try to make them understand the potential crazy crashes that may occur in a bear market. (If they are die-hard Bitcoin supporters who may never want to sell, that's fine, but they must be prepared to face difficulties at some point.)
Selling in a bear market is driven by panic, but exiting during a bull market becomes relatively difficult; sometimes if they feel they sold too early, they may resent you, but they will thank you later.
They also need to be careful; if they choose to take profits and then can't resist re-entering the market, reinvesting those profits, if the market continues to rise, it becomes FOMO—this thought often leads to negative outcomes.
Because if the market suddenly crashes, they may find that they owe more in taxes on realized gains than the assets they have left (this happens often).
Every sale of a crypto asset is a taxable event, even exchanges of crypto assets for other crypto assets. Once I start to cash out, I plan to put it in a traditional finance (TradFi) principal-protected interest account for 12 to 18 months—high-yield crypto stablecoin accounts do not count as cash management because these accounts still carry crypto market risk, and the leverage accumulated in a bull market can leave you with nothing. First, I will settle my tax liabilities, and only then will I start looking for new investment opportunities, which usually happens when people lose their minds out of panic, or ideally, when the market cools off and people become indifferent (this often occurs more than 12 months after the market peaks).
While the potential for Bitcoin (BTC) to avoid a severe bear market might be indicated by exchange-traded funds (ETFs) and possible sovereign purchases, every time a bull market arrives, people find various reasons to justify outrageous price targets or claim there will be no bear market.
‘Super cycles’ are, without exception, collective delusions.
I can see reasons for cycles to repeat (peaking in Q4 2025) and for cycles to extend and break the four-year pattern. While we might consolidate after the new U.S. president takes office, I do not believe in the notion of shortened cycles. This is just post-bear market trauma and PTSD at play.
That being said, structurally, anything that grows at 100 times speed is likely to experience at least an 80-90% pullback at some point—mainly due to excessive profit-taking.
If SOL rises to $800 in this cycle, it may drop to $80-160 in the future (say, in 2027). So, if someone buys at $240 and holds firmly, they will lose money in the next bear market. It's hard for people to realize this amid the frenzy of a bull market, but since you've been through it, you understand, and now you can teach them :)
From the current price (SOL has already risen over 30 times from its low), no one can get rich or achieve crazy returns because of this, but they will see others making big money, making it hard to resist temptation—if you tell them not to buy but to wait because ‘the final collapse’ will drive prices below current levels, they will feel pain because depending on the asset, there is still 2-5 times or more upside potential before reaching the peak, so everything is very unstable.
Lastly, I want to further explain that many inexperienced investors think more in terms of dollars ($) rather than X (multiples) or percentages (%). For example, if you say SOL might rise to $1000, they will think, wow! That means each SOL will be worth an additional $760! However, going from $8 to $240 only adds $232 in value for each SOL.
But they don't realize that going from $8 to $240 is a 30 times increase, while going from here to $1000 is only a 4 times increase. It's crucial for investors to truly understand this.
