Original article by Chris Burnisks, Partner at Placeholder
Compiled by: Alvis, Mars Finance
If your friends contact you and ask questions about Bitcoin, Ethereum, and other cryptocurrencies, it’s not easy to guide them given the current market (BTC is close to $100,000). This is especially true when they are inexperienced rookie investors. Here are some lessons I’ve learned from more than a decade of observation.
It is their own responsibility to ensure that they take the actions they want. You may have more experience and knowledge, but that does not mean you are absolutely right. No one knows everything that happens in the market. If someone claims to know everything, then he is definitely lying.
You can try to explain to them what stage of the market cycle we are currently in. For me, we are 2 years into this bull market cycle. (The bottom of the chart below is November 2022)
Calculated from the bottom two years ago, BTC has risen more than 6 times, ETH has risen more than 4 times, and SOL has risen more than 30 times.
The hard truth is that as the price of tokens rises, people will pay more and more attention to them, and this attention will be converted into purchasing power later. Therefore, the more the price rises, the more people will pay attention to how much room there is for subsequent returns. However, generally speaking, the later we enter the "attention cycle", the more disadvantaged our position will be.
So the best time to enter is often when almost no one is interested, but that was 2 years ago. When they can't wait to buy tokens, what should they do even if the time to enter is not the best?
Keep it simple: Personally, if they are new, I would tend to recommend holding a certain proportion of BTC, ETH and SOL (50/25/25%), and the rest of the risk is borne by them. At least if they screw up the "entry/exit top", 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 allocation to reduce risk.
Judging from the current entry price, if they have doubled, then encourage them to take out the principal at that time, which also ensures profits. Later, if their funds have tripled, they can cash out all the funds, or if they are willing to be more adventurous, cash out the 2 times of funds they have earned and maintain the remaining 1 times of funds (cost), but try to make them understand the crazy plunge that may occur in a bear market. (If they are a staunch Bitcoin supporter, they may never want to sell, it doesn’t matter, but they must be prepared to face difficulties at some point)
Selling in a bear market is caused by panic and fear of selling, but it becomes relatively difficult to leave in a bull market. Sometimes if they feel they sold too early, they will hate you, but they will thank you later.
They also need to be careful that if they choose to take profits, they may be tempted to buy again later and reinvest those profits if the market continues to rise, which will lead to FOMO - a thought that usually leads to adverse consequences.
Because if the market suddenly crashes, they may end up paying more in taxes on their realized gains than they end up with in assets that have plummeted (which happens all the time).
Every sale of crypto assets is a taxable event, even when exchanging crypto assets for crypto assets. Once I start to actually cash out, I plan to keep it in a principal-protected account in traditional finance (TradFi) for 12 to 18 months - high-yield crypto stablecoin accounts do not count as cash custody because there is still crypto market risk in these accounts, and the leverage accumulated in the bull market may wipe out your money. First, I will settle my tax liabilities, and then I will start looking for new investment opportunities again, which usually happens when people lose their minds due to panic, or better yet, when the market heat subsides and people fall into apathy (which often happens more than 12 months after the market peaks).
While exchange-traded funds (ETFs) and potential sovereign buying may mean that Bitcoin (BTC) won’t see a particularly severe bear market in the future, every time a bull run arrives, people will come up with reasons to justify the outrageous highs or to claim that there won’t be a bear market.
"Super cycles" are all collective delusions without exception.
I can see reasons for the cycle to repeat (peak in Q4 2025) and I can see reasons for the cycle to lengthen and break the four year pattern. While we may see consolidation after the new US President takes office, I don't buy the talk of a shorter cycle. This is just bear market PTSD at work.
That being said, structurally speaking, anything that grows at 100x is prone to at least an 80-90% retracement at some point - mostly due to too many profit takings.
If SOL goes to $800 in this cycle, then in the future (say 2027) it could go down to $80-160. So if someone bought at $240 and held on, they would lose money in the next bear market. It's hard for people to realize this in the heat of the bull market, but since you've been there, you understand, and now you can teach them :)
No one is going to get rich or get crazy multiples from today’s prices (SOL is up 30+ from its lows), but they will see people making tons of money so it will be hard to resist - if you tell them not to buy but wait because the “final crash” will drop prices below where they are now, they will be in pain because depending on the asset, prices still have 2-5x or more to go before they peak, so everything is very volatile.
As a final note, I want to further explain that many inexperienced investors think more in terms of dollars ($) rather than Xs (multiples) or percentages (%). For example, if you say that SOL might go to $1,000, they think, wow! That would increase the value of each SOL by $760! However, going from $8 to $240 only adds $232 in value to each SOL.
But what they don't realize is that going from $8 to $240 is a 30x increase, whereas going from here to $1,000 is only a 4x increase. It's really important for investors to really understand that.
