Some asset prices still have 2-5 times or even higher room for growth 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, it’s not easy to guide them given the current market situation (BTC is nearing $100,000). This is especially true when they are inexperienced novice investors. Below are some lessons I've learned from observing for over a decade.
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 understand it well, they are definitely lying.
You can try to explain to them what stage of the market cycle we are currently in. To me, we have been in this bull market cycle for 2 years. (The bottom of the chart is November 2022)
From the bottom two years ago, BTC has risen over 6 times, ETH has risen over 4 times, and SOL has risen over 30 times.
The painful truth is that as token prices rise, people's attention increases, and this attention subsequently converts into purchasing power. Therefore, the more the price rises, the more attention people pay to how much potential return is left; however, generally, the later we enter the 'attention cycle', the less favorable our position becomes.
So the best entry point is often when almost no one is paying attention, but that was 2 years ago. What should they do when they are eager to buy tokens, even if the entry point now is not the best?
Keep it simple: personally, if they are beginners, I would tend to recommend holding a certain proportion of BTC, ETH, and SOL (50/25/25%), while other risks are borne by themselves. At least, if they mess up 'entering/exiting', they can still maintain a certain amount of funds. If they choose small coins, then encourage them to learn and keep it below 10% of their 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. After that, if their funds have tripled, they can cash out all their funds, or if they want to be a bit more adventurous, cash out the already earned double funds, maintaining the remaining one times the funds (cost), but try to make them understand the crazy crashes that may occur in a bear market. (If they are staunch Bitcoin supporters, perhaps they never want to sell, that’s fine, but they must be prepared to face difficulties at some point.)
Selling during a bear market is caused by panic and fear of selling, but exiting during a bull market becomes relatively difficult. Sometimes if they feel they sold too early, they will hate you, but they will thank you later.
They also need to be careful. If they choose to take profits and then can't resist entering the market again, reinvesting those profits, if the market continues to rise, it will turn into FOMO—this thought usually leads to adverse consequences.
Because if the market suddenly crashes, they may find that the taxes they owe on realized gains are more than the assets they have left (this happens often).
Every sale of a cryptocurrency asset is a taxable event, even when exchanging one cryptocurrency asset for another. Once I start to really cash out, I plan to keep it in a principal-protected interest-bearing account in traditional finance (TradFi) for 12 to 18 months—high-yield crypto stablecoin accounts do not count as cash management because these accounts still carry crypto market risks, and leverage accumulated during bull markets can leave you with nothing. First, I will settle my tax liabilities before I start looking for new investment opportunities again, which usually happens when people panic and lose their minds, or ideally, when the market cools down and people fall into apathy (this often occurs more than 12 months after the market peaks).
Although exchange-traded funds (ETFs) and potential sovereign purchases may mean that Bitcoin (BTC) will not experience too severe a bear market in the future, every time a bull market arrives, people find all sorts of reasons to prove that it will rise to absurdly high points, or claim that there will be no bear market.
The 'super cycle' is, without exception, a collective delusion.
I can see the reasons for the cycle repeating (peaking in Q4 2025), and I can also see reasons for the cycle to extend and break the four-year model. Although we may consolidate after the new US president takes office, I do not believe in the claim of cycle shortening. This is just PTSD from the trauma of a bear market.
That said, structurally, anything that grows at a rate of 100 times is prone to at least an 80-90% pullback at some point—mainly because of too many profit-takers.
If SOL rises to $800 in this cycle, it may drop to $80-160 in the future (like in 2027). So if someone buys at $240 and holds firmly, they will lose money during the next bear market. It's hard for people to realize this from the frenzy of a bull market, but since you've been through it, you understand now, and you can teach them :)
From the current price perspective (SOL has risen more than 30 times from its low), no one can become rich or achieve crazy returns because of this, but they will see others making a lot of money, making it hard to resist temptation—if you tell them not to buy, but to wait because 'the ultimate crash' will bring prices below current levels, they will feel pain because, depending on the asset, prices still have 2-5 times or even higher room for growth before reaching their peak, so everything is very unstable.
One last point I want to elaborate on is that many inexperienced investors think more in terms of dollars ($) rather than multiples (X) or percentages (%). For example, if you say SOL could rise to $1000, they will think, wow! That means each SOL will increase in value by $760! However, rising from $8 to $240 only increases the value of each SOL by $232.
But they do not realize that rising from $8 to $240 is a 30-fold increase, while rising from here to $1000 is merely a 4-fold increase. It is crucial for investors to truly understand this.
