As Ran has said before, “bear markets are where billionaires are made”. Whether we are in a multi-month or a multi-year bear market, the principle remains: staying the course is the secret to success.
But humans are irrational. We tend to be quick to invest in bull markets, and even quicker to divest during a bear trend.
We have found two outstanding threads from Morgan Housel (@morganhousel), a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal, and The DeFi Edge (@thedefiedge) to dive into, which we hope will give you “the edge” to survive this bear market.
- First, understand the shock cycle
- Survive the bear market to thrive
- Play it safe
- Dollar cost averaging
- Work hard to build a war chest
- Sector rotation
Understand the shock cycle
Morgan Housel’s recent tweet summed up the shock cycle brilliantly:
The cycle is as irrational as we are.
But where are we in the cycle now?
Sentiment on Crypto Twitter and the charts themselves indicate we are probably in the “accept bad news” stage, having come to terms with a possible recession and the Russia/Ukraine conflict.
Good news seems few and far between.
Short of a total ceasefire and the scaling back of sanctions, market sentiment may be too low to absorb any small concessions and reflect a more positive outlook.
One approach is to close your eyes and wake up when it’s all over. We have a different view. Times like these are opportunities to work on your portfolio and get it set up to survive and come out stronger.
Survive the bear market to thrive
The DeFi Edge has delivered an outstanding thread, which beautifully explains how a bear market presents an opportunity for those with the wisdom to take it.
To survive a bear market, you need to balance your portfolio to reap maximum rewards in the next bull cycle, while minimizing downside risk.
Let’s break it down…
DeFi Edge makes the point: in a bear cycle, your job is simple – survive.
You need to come up with a strategy. Put a spreadsheet together, keep it up to date and track your portfolio’s performance.
Make sure your portfolio suits your risk profile. (A note to all degens: hard as it may be, keep space in your portfolio for stablecoins.)
Play it safe
This is not the time to be degenning into low-cap coins. Stick to the Layer-1 coins. You can make your picks – we do love LUNA, FTM, AVAX, COSMOS, but everyone should make space for BTC and ETH.
Ran often refers to his cash-o-meter, a crucial element to investing in crypto that can be all too easily forgotten – make sure you have some cash on the side. The DeFi Edge also advocates holding 25% to 50% of your portfolio in stable coins at the moment.
Stablecoins are not exciting, and even 19.5% yield (from Anchor Protocol) can seem underwhelming when the potential for 2,000% yields are out there. But having 25% of your portfolio earning 19.5% is better than having 100% of your portfolio dropping 50%.
Here is some great advice on what to do with your stable coins for a yield far better than you will get at your bank.
Dollar cost averaging
Sheldon often talks about the power of dollar-cost averaging (DCA) – buying in smaller amounts over time – irrespective of the actual price, to average out the dollar cost of your coins.
Trying to pick the bottom usually results in smelly fingers, and exiting the market in the hope of catching the bottom later on can be a costly mistake, because it’s so easy to miss the top growth days in the market.
Instead, you’re more likely to be better off deploying your investments over time at regular intervals, and not in one fell swoop.
Work hard to build a war chest
As The DeFi Edge puts it, to make $1 million, it’s easier to 10x a $100k investment than to 100x a $10k investment.
It’s simply easier to make money when you have it to begin with.
So work to increase your war chest by:
- Allocating a portion of your salary to purchasing crypto every month
- Taking on a second job
- Improving your negotiation techniques to get an increase – and don’t be afraid to ask
- Apply for higher paying jobs
- Using Medium, Twitter and YouTube to build a presence that showcases your skills
We have moved into a world where a degree is not everything. These days, people can teach themselves to code and change their future without needing to go to university.
If you are going to do well in crypto, these skills are a must:
The DeFi Edge calls it sector rotation. We call it ‘being a cyclist’. But the same principle applies: anticipate upcoming narratives and position yourself to thrive.
Bear trends are hard to spot until you’re deep in the woods. Few saw this one coming. The on-chain metrics were all positive. China banning Bitcoin, inflation and the Ukraine crisis threw on the brakes. Nonetheless, The DeFi Edge makes points we agree with wholeheartedly:.
- Don’t leave now.
- Increase your income to DCA into low risk projects
- Shuffle your portfolio to be low risk right now
- Skill up in DeFi & NFTs – you may need them in 2022
- Follow the projects the smart money is investing in
Two brilliant tweets, from two brilliant accounts.
You may have already deployed your hard-earned USD in November, or in buying the dip of the last three months.
If that’s you, know this: all of our portfolios have been hit but a long-term view gives more hope. The key is to reframe the situation in your favor. Bitcoin bounced today, but even if the relief is short-lived, we can all can survive a bear market, and also emerge well placed to capitalize in the future.