As a seasoned crypto investor with a few cycles under my belt, I can confidently say that I’ve seen more bear markets than holiday dinners. The dinner table this Christmas might as well be a trading floor, with curious relatives questioning my every move in the market. But fear not, for I’ve learned a thing or two along the way.
Retail investors tend to join the Bitcoin (BTC) trend later rather than earlier, often investing when it reaches significant and eye-catching thresholds such as $100,000.
At this year’s Christmas dinner, besides turkey and dessert, the conversation may veer towards cryptocurrencies as inquisitive family members might challenge your expertise on the subject and seek guidance on participating in a potential bull market. Are you prepared to be the center of attention?
This holiday season, your beliefs about “orange pill” ideas are being tested. Will you impress with persuasive discussions on decentralization and financial independence, or falter like an old-fashioned cookie and merely repeat, “The numbers rise!” as the festive light shines upon you?
Fear not — here are some tips to steer your family and friends through the crypto conversation.
Remember: You’re not a crypto guru and can’t predict the future
One of the first things you must do is make sure they know that any action taken “is their responsibility.”
For those new to investing, you might appear as a seasoned cryptocurrency expert. However, it’s important to note that such an assumption may not be accurate. To quote Chris Burniske, partner at venture capital firm Placeholder and former blockchain products lead at ARK Invest, “That’s probably not the case.
“No one knows anything for sure about markets. The only people you know for sure are lying, are those who say they ‘know for sure.’”
When cryptocurrency markets surge during a bull run, it’s tempting to think oneself as the next investing legend, such as Warren Buffett. However, let’s remember humility and acknowledge that we don’t have all the solutions. Instead of mindlessly following, encourage others to use discernment and not mimic actions like a flock of sheep. Prudence is crucial, especially in times of excitement.
Give them context on where we are in the bull market
With Bitcoin making waves in news outlets, inexperienced daily investors frequently yield to the anxiety of not being part of it – Fear Of Missing Out (FOMO) – and jump in without thoroughly considering the potential dangers.
Many individual investors find themselves eager to jump on the bandwagon quickly due to the intense excitement surrounding cryptocurrencies, as it appears that everyone is growing wealthy from them.
Wise cryptocurrency traders frequently go against their natural impulses – they purchase digital coins when interest is scarce and sell them as excitement surges throughout the market. On the contrary, ordinary retail investors tend to act on instinct rather than strategy, usually following the crowd based on emotions.
As a researcher delving into the realm of cryptocurrencies, I’ve come to understand Burniske’s observation that an escalating trend in crypto prices naturally attracts more attention, sparking increased buying activity. This self-reinforcing dynamic, which he creatively dubbed the “attention cycle,” gains momentum as prices reach unprecedented levels.
“The later we are in that attention cycle, the worse the entry.”
Burniske recommends providing insight into our current phase within the cycle. He thinks that, having been in an upward trend for about two years, the market might be approaching its final stages.
If someone’s desire for cryptocurrency investment continues to grow, regardless of whether it might not be an ideal moment to invest, consider suggesting alternative strategies or types of cryptocurrencies that could align with their risk tolerance and financial goals.
According to Burniske, it’s suggested to invest an equal one-third portion in Bitcoin, Ether (ETH), and Solana (SOL). This investment breakdown is approximately 50% for Bitcoin, 25% for Ether, and the remaining 25% for Solana. Burniske explains that even if the market shifts towards a bear trend, holding these assets is considered “quality,” offering some level of protection against potential market downturns.
According to Burniske, if someone is considering investing in altcoins or memecoins for a quick profit, it would be wise to suggest they should not invest more than 10% of their total investments. He also emphasizes that such investments carry inherent risks and the investors themselves are responsible for any potential losses.
Timing the crypto exit is the real challenge
Entering the world of cryptocurrencies can seem straightforward, enticing many individual investors to jump in with enthusiasm and reap initial profits during a rising market. However, it’s crucial to keep in mind that trends tend to reverse: what climbs high may also fall low.
The current climate for cryptocurrency markets is exceptionally promising, notably due to advancements in regulatory frameworks and increased institutional involvement.
During his presidential campaign, President-elect Donald Trump expressed strong support for cryptocurrencies. It appears that Securities and Exchange Commission Chair Gary Gensler may be stepping down, with crypto advocate Paul Atkins being a potential replacement. Moreover, an individual who holds Solana tokens could soon take on the role of the U.S.’s top crypto official.
Senator Cynthia Lummis has put forth a proposal for the United States to acquire Bitcoin as a strategic reserve asset, while the acceptance of cryptocurrencies by institutions is escalating at an impressive rate. Notably, crypto exchange-traded funds (ETFs) are setting new benchmarks in performance.
In light of these significant shifts, certain individuals posit that the traditional four-year Bitcoin pattern may evolve into a supercycle, during which cryptocurrencies could maintain an overall upward trajectory.
However, keep in mind that this isn’t a guarantee. Burniske advises that overly optimistic expectations might cause retail investors to overlook the chance to cash out at the market’s maximum point.
“‘Supercycle’ is without fail a collective delusion.”
As a crypto investor, I find it reassuring that Burniske suggests ETFs and potential sovereign buying could moderate future bearish trends for Bitcoin. Yet, he advises us to be cautious, as anything that soars rapidly by 100 times is likely to experience a significant correction of around 80-90% at some point. This is due to the sheer number of people holding onto their profits.
Burniske stated that understanding the rapid drop of a cryptocurrency can be challenging for many people. But, if you’ve likely experienced this rollercoaster ride in past cycles by investing and then selling at a loss (known as ’roundtripping’), you’re well-equipped to advise others about this risk. Essentially, since you’ve been through it yourself, you can now pass on that knowledge to them.
Nothing is certain except death and taxes
Beyond the insights you’ve provided on buying and selling strategies, Burniske points out some frequent blunders that investors often commit.
During a prosperous market, selling investments might lead some to watch as their value climbs higher, since it’s impossible to know exactly when the top has been reached. Investor Chris Burniske recommends educating novice investors to curb their fear of missing out (FOMO) and refrain from using profits to buy more in hopes of earning even greater returns. In most cases, this approach is not advisable.
Investing in this manner can be dangerous since a sudden market downturn might mean that investors end up paying more in taxes for their realized profits than what’s left of their assets following the crash.
Instead of getting caught up in the fear of missing out on crypto market fluctuations, he advises setting aside profits from the crypto market for 12-18 months in conventional savings accounts that offer some interest. This saved money can then be utilized to cover any upcoming tax obligations. Keep in mind that stablecoins tied to cryptocurrencies may carry extra risks.
After taxes have been taken care of, we can start over again. Burniske advises revisiting the crypto markets once interest wanes, which usually happens about a year following the market’s peak. In simpler terms, he suggests keeping an eye on the crypto markets when people seem uninterested or indifferent, around the one-year mark after the highest point in the market.
For seasoned cryptocurrency investors, it’s important to share knowledge with novice investors to prevent them from making similar errors during the next market surge. Encourage them to spark their curiosity about crypto when public interest is minimal or absent. Properly executed, they will be primed to instruct other newcomers who may join the fray during the next wave of excitement.
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2024-12-23 19:25