Written by: Chris Burniske, Partner at Placeholder
Translated by: 1912212.eth, Foresight News
If your friends reach out to you with questions about Bitcoin, Ethereum, and other cryptocurrencies, given the current situation (BTC is close to $100,000), guiding them isn’t easy. This is especially true when they are inexperienced novice investors. Below 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 happening in this market. If someone claims they do, 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 been in 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 subsequently translates into purchasing power. Therefore, the more prices rise, the more attention people pay to the potential returns, but generally speaking, the later we enter the 'attention cycle', the more disadvantaged 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 current entry point isn’t 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%), with other risks borne by themselves. At least, if they mess up the 'entry/exit', they will still maintain a certain amount of capital. If they choose smaller altcoins, 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, it encourages them to withdraw their principal at that time, which also ensures profits. Subsequently, if their funds have tripled, they can cash out all their funds, or if they are willing to take a bit more risk, they can cash out the already earned 2 times capital while maintaining the remaining one-time capital (cost), but try to make them understand the potential crazy drop in a bear market. (If they are steadfast Bitcoin supporters who may never want to sell, that's okay, but they must be prepared to face difficulties at some point.)
The sell-off in a bear market is caused by panic selling, but exiting in a bull market becomes relatively difficult; sometimes if they feel they sold too early, they will resent you, but they will thank you later.
They also need to be careful; if they choose to take profits and then can't help but re-enter the market, reinvesting those profits, if the market continues to rise, it can become FOMO — this thought often leads to adverse consequences.
Because if the market suddenly crashes, they may ultimately find that the taxes owed on realized gains are more than the assets they have left in the case of a market crash (this happens often).
Every sale of cryptocurrency is a taxable event, even exchanging one crypto asset for another is no exception. Once I start to cash out, I plan to place 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 there is still crypto market risk in those accounts, and the leverage accumulated during a bull market 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 lose their minds out of panic, or more ideally, when the market cools down and people become indifferent (this often occurs more than 12 months after the market peaks).
Despite the exchange-traded funds (ETFs) and potential purchases by sovereign nations possibly indicating that Bitcoin (BTC) will not see a severe bear market in the future, every time a bull market arrives, people come up with various reasons to justify absurdly high targets or claim that there won't be a 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 the reasons for cycles extending and breaking the four-year pattern. Although we may consolidate after the inauguration of the new president in the U.S., I don’t believe in the notion of shorter cycles. This is just post-bear market trauma (PTSD) acting up.
That said, structurally, anything that grows at a rate of 100 times is likely to experience at least an 80-90% pullback at some point — mainly due to too many profit-taking.
If SOL rises to $800 in this cycle, then in the future (say 2027) it could drop to $80-160. So, if someone buys at $240 and holds firmly, they will lose money in the next bear market. People find it hard to realize this amidst the euphoria of a bull market, but since you have experienced it, you understand, and now you can teach them :)
From the current price perspective (SOL has already increased more than 30 times from its low), no one can get rich or achieve crazy returns, but they will see others making a lot of money, so it's hard to resist temptation — if you tell them not to buy, but to wait because 'the final crash' will bring prices below current levels, they will feel pain because, depending on the asset, there is still 2-5 times or even more room for price increases before reaching a peak, so everything is very unstable.
The last point I want to clarify is that many inexperienced investors think more in terms of dollars ($) rather than multiples (X) or percentages (%). For example, if you say SOL could rise to $1000, they might think, wow! That would mean each SOL's value increases by $760! However, going from $8 to $240 only adds $232 in value for each SOL.
But what they don't realize is that going from $8 to $240 is a 30-fold increase, while going from here to $1000 is only a 4-fold increase. It's crucial for investors to truly understand this.
