Written by: Chris Burnisks, Partner at Placeholder
Compiled by: 1912212.eth, Foresight News
If your friends contact you asking about Bitcoin, Ethereum, and other cryptocurrencies, it’s not easy to guide them based on the current market situation (BTC is approaching $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 they understand everything, 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 below 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, which subsequently converts into purchasing power. Therefore, the more the price increases, the more attention people pay to the potential return space. However, in general, the later we enter the 'attention cycle,' the less favorable our position becomes.
So the best entry time is often when almost no one is paying attention, but that was two years ago. What if they are eager to buy tokens now, even if the 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 them. At least, if they mess up the 'entry/exit,' they can still maintain a certain amount of funds. If they choose small coins, encourage them to learn and keep it below 10% of the total allocated funds to lower risk.
From the current entry price, if they double their investment, encourage them to withdraw their principal at that time, which also ensures profit. 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 twice the amount earned, maintaining the remaining principal (cost), but try to help them understand the potential crazy drop that may occur in a bear market. (If they are staunch Bitcoin supporters, they may never want to sell, that's fine, but they must be prepared to face challenges at some point.)
Selling in a bear market is driven by panic and fear of selling, but exiting in a bull market becomes relatively difficult; sometimes, if they feel they sold too early, they might resent you, but later they will thank you.
They also need to be careful; if they choose to take profits and then can't resist re-entering the market with those profits, if the market continues to rise, it can turn into FOMO—this idea usually leads to adverse outcomes.
Because if the market suddenly crashes, they may ultimately find that the taxes they owe on realized gains are more than the remaining assets they have (this happens quite often).
Every sale of a crypto asset is a taxable event, even exchanging crypto assets for other crypto assets does not exempt it. Once I start to cash out funds, I plan to keep them in a traditional finance (TradFi) principal-protected interest-bearing account for 12 to 18 months—high-yield crypto stablecoin accounts do not count as cash management because there are still crypto market risks, and leverage accumulated during a bull market could wipe you out. First, I will settle my tax liabilities, and only then will I begin to look for new investment opportunities, which usually happens when people panic and lose their minds, or more ideally, when market enthusiasm wanes and people become indifferent (this often occurs more than 12 months after the market peaks).
Although exchange-traded funds (ETFs) and potential sovereign purchases might mean that Bitcoin (BTC) will not experience a severe bear market in the future, every time a bull market arrives, people will come up with various reasons to justify prices soaring to ridiculous heights, or claim that there won't be a bear market.
'Super cycles' are invariably collective delusions.
I can see the reasons for the cycle repeating (peaking in the fourth quarter of 2025) and the reasons for extending the cycle and breaking the four-year pattern. Although we might consolidate after the new U.S. president takes office, I do not believe in the idea of a shortened cycle. This is just the result of post-bear market PTSD.
That said, structurally speaking, 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 much profit-taking.
If SOL rises to $800 in this cycle, it might drop to $80-160 in the future (for example, in 2027). So, if someone buys at $240 and holds firmly, they will lose money in the next bear market. It's hard for people to realize this amidst the frenzy of a bull market, but since you've been through it, you understand, and now you can teach them :)
From the current price (SOL has already risen more than 30 times from its low), no one can become wealthy or achieve crazy returns from this, but they will see others making a lot of money, making it hard to resist temptation—if you tell them not to buy and to wait because 'the ultimate crash' will bring prices below current levels, they will feel pain, as depending on the asset, there is still a potential for a 2-5x or even higher increase to reach the peak, making everything very unstable.
Lastly, I want to emphasize that many inexperienced investors think more in terms of dollars ($) rather than multiples (X) or percentages (%). For example, if you say SOL might rise to $1000, they will think, wow! That would mean each SOL increases in value by $760! However, going from $8 to $240 only increases each SOL's value by $232.
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 is crucial for investors to truly understand this.
