I am planning on writing a longer post on how to take advantage of a bear market (similarly to the one I wrote here on the fundamentals of cryptocurrency investing) but as the onslaught on the markets continues, I thought I'd share with you a quick observation that might be of help to you.
In a Bear Market, He Who Has Fiat Is King
In a downtrend, fiat is the fuel that allows you to maneuver. You can use it for opening shorts and trying to ride the wave, though I would advise against it unless you have considerable time at your disposal to look at the charts and unless you already have had some exposure to the volatility of cryptomarkets.
No, this is not what I would like to talk about here. What I would like to address is something way more fundamental than that - for the majority of folks like myself, who don't aspire to be traders but rather view ourselves as long term investors, we still need fiat to do what downtrend is best for, that is buying at a discounted price.
The Pitfall To be Avoided At All Cost
"Oh wow, look at the price of my fav coin!!! OMG WTF BBQ no way it is so cheap! Once it hits XYZ I am buying!" Great :) Doing so is not all that bad and at least there is some semblance of strategy that gets executed here, but if you spend all your fiat in one go, that is clearly a no-no.
In the words of Warren Buffet
The Market Can Remain Irrational Longer Than You Can Remain Solvent
Part of what he means here is that even if your purchase was fully rational and 100% made sense, even if the price was a steal, by spending all your fiat you might be missing out on the opportunity to take advantage of the irrationality of the market down the road, of the potential for the price to drop even lower. Or even much lower than the lowest low that you can imagine in your wildest dreams.
What Should I Do Then?
The truth is, no one knows where the bottom is. If anyone would be able to time the market with any reasonable consistency, they would be beyond insanely rich.
Is all lost then and there is no hope? No, by all means, no! Dollar cost averaging, or a form of it, is the way to go. Start buying before you hit your target price and keep on buying after the price gets lower
But Will I Not Miss A Once In a Life Time Opportunity?
"I mean, c'mon, the price is so low the market needs to start turning soon!" Stop. You are trying to time the market again.
As it stands, there should be no greater fear in a down market than running out of cash. So what if you don't spend all your fiat before the market turns? At least you have a much greater chance of spending the fiat that you spend really well!
Look at it this way: would you rather spend 10 bucks poorly or spend 5 bucks well?
And the key takeaway here is this - by being patient, by playing it slow, you might not 'get lucky' and make such a killing as you would if spent all your fiat at this one particular price point and you somehow miraculously ended timing the market perfectly.
But investing or anything in life should not be about luck. Via being patient you maximize your chances of doing well in the current bear market and any other bear market you might ever find yourself in!
Once again in the words of the great Warren Buffet:
The stock market is a device for transferring money from the impatient to the patient
Oh gee, now I know it all, but I am out of fiat - let me just put this one purchase on my credit card...
STOP. This is a recipe for disaster. So you have all your available fiat in crypto and we are deep into the bear market? Congrats - this means you have not sold and likely should not sell now because:
- who knows where the bottom is
- if you missed selling in the bull market chances are selling in the bear market might get you into a lot, a lot of trouble (say hello to buying high and selling low
If you believe the tide will turn and crypto will not disappear, holding might be the way to go. But above all, don't be stupid. Buying cryptocurrency with money you need to pay the bills or money you need to pay back is a recipe for a disaster beyond any of the epic, mindbending cluster#&^%s you can imagine (don't trust me? google 'going on tilt' as it relates to poker and imagine what this can do to you when messing with money you do not own).
Finishing Thoughts
So this is it, really. Above all stay safe and if you have fiat at your disposal enjoy this shopping season :) If not and if you decide to sell, do yourself a favor and don't buy in higher.
And if you do decide to hold I think you might be onto something. Maybe cryptocurrencies and blockchain technologies will not disappear. And maybe there will be more waves and tides for us to ride down the road. Chances are that through the experience of surviving the current bear market we will come better prepared next time.
And if you enjoyed this article, please give me a shout in the comments. I am only starting to blog and would appreciate the extra energy :)
Also, please stay tuned for more. I have a lot of ideas I would like to cover and on a related subject to that of this post I would like to write something more detailed on dollar cost averaging and maybe something on how to have fun, literally fun, in a bear market.
Until then, arivederci and all the best in your trades!
PS. If you have any comments on my thought process and see ways in which the above can be improved or extended, if you would be so kind and share that would be super great and I will be forever grateful!