Do you feel it? Euphoria. Growth will never end, right? What does an average cryptocurrency maximalist respond you with when you mention that current cryptocurrency market conditions are not healthy and remind you of a bubble? «It is cryptocurrency, bro, it is still not that widespread! Remember the $6.7 trillion dotcom bubble? We are not even close! ». It all sounds familiar. We’ve been here before. It was late 2013 and the beginning of 2014. I remember this time quite clearly, because a lot of people were talking about Bitcoin on the internet and how it made fortune for its investors.
Even I tried investing but was unsuccessful. Later a lot of investors realized that it was just a peak of the bubble which was fueled by the Chinese demand. February of 2014 will forever be in the history books as the day the first ever Cryptocurrency bubble ended with the fall of the biggest exchange at the time. Let’s try to see what we can do to prepare ourselves for this kind of events. Even though, you will never know when the market is going to crash. As always, bubble burst will come without a warning.
I need to start by saying that there is not much historical data to properly analyze Bitcoin and Cryptocurrency bubbles. The market is simply too new. Still, Bitcoin has been actively traded since 2013 (before that year the trade volume was just too low) and we can use this 5-year data to see how Bitcoin was affected by different external forces.
9.04.2013 Bitcoin had reached its all-time-high of $230. A lot of investors name the Chinese demand and “Willy” the trading bot as the main reasons for this price increase.
16.04.2013 Bitcoin plunged to $68. 7 days were enough to slice local all-time-high by almost ¾. Mt.Gox, exchange that handled 80% of Bitcoin trade at the time, halted trading during this freefall. Later, the exchange blamed the huge inflow of new traders as the main reason for the fall.
29.11.2013 Bitcoin reached $1206, setting a new all-time-high. As I mentioned before, the Chinese demand is brought as the reason number one for this historic event in Bitcoin history.
Here I want to note that some event should take place for the market to significantly react. From the information available, Mt.Gox played a very important role for Bitcoin at the time. It was a market monopolist which concentrated too much power in his hands.
What was the event that changed the Bitcoin history forever? This event was Mt. Gox exchange. 24.02.2014 was the day when Bitcoin reached $174. This month Mt Gox suspended trading, closed exchange and website, and filed for bankruptcy protection from creditors.
What about the next trigger event, will you ask? And I will tell you that with my absolute belief in this that initial coin offering craze will be the next Mt Gox for cryptocurrency market. Absolutely all cryptocurrencies will be affected. Shitcoins are going to be killed, major currencies will just suffer significant capitalization losses. Not very bright future, but this way market will clean itself from all those shitty ICOs.
When will this happen? I cross my heart, I do not know when. Nobody knows, because it is the nature of bubble bursts that you cannot simply predict when market is going to fall. That’s why if you made some great profits on the cryptocurrency market, enjoy them.
So, now you think that there is a possibility of the market fall. What should you do? Well, it depends on your targets in the cryptocurrency sphere.
Adjust your assets. If you are a long-term investor, it is better to build portfolio which will mainly consist of the “core” cryptocurrencies, which are expected to survive from 2-3 years’ time. It is up to you how to build this part of your portfolio. Also, I would allocate a small part of long-term portfolio to utility tokens. Many of them will be first to go when bubble bursts. So, choose wisely.
Do not participate in many ICOs at once. In this sphere it is getting harder to earn each day with so many projects coming to the market. You can try to pick only the most popular ones but it seems that even the those initial coin offerings do not have such a huge payoff they once had. Try not to throw too much money.
Another thing is leverage. If you are not an experienced trader, you’d be better off avoiding this. Sudden market movement can crush all your positions.
Are you in deep profit zone? Cash out your initial investment. This way, you will sleep much better during the night. You have your money back plus you are still exposed to possible continual growth of the cryptocurrency market.
I have heard too many sad stories. Do not invest money you cannot afford to lose. We all remember dot-com craze. A lot of people put their 401k or borrowed money in shares of Nasdaq listed companies only to lose all they had on the next day. There are a lot of personal stories from people who experienced family tragedy when their fathers/mothers tried to gamble on the dotcom bubble and lost. Do not ever borrow money to invest into highly volatile and speculative assets. Cryptocurrency IS the future, but current valuation is unhealthy.
First of all, everything that I laid down here is just my personal opinion. It is crucial that you make your own financial decisions. Think of it as an interesting and simple tree of choice. In any case, do not take this slide as investment advice.
Who are you? Are you a holder? Will you not sell long enough so your chosen cryptocurrencies go to the moon? Or you are just a temporary guest who wants to make a quick buck on all those highly volatile cryptocurrencies? It is always about short-term investors and long-term investors.
The main question I will ask you is whether you are currently in profit zone. Let’s start with the Short-term investor.
If the answer is yes, you have managed to receive over 100% or less on your initial investment, then I would cash out the invested money and a little bit more to reward myself. It is especially to do for people who have achieved some unbelievable numbers. If you are that person, then I would advise you to enjoy at least some part of hard-earned money.
If you didn’t manage to make any return on your investment in cryptocurrencies and you are a short-term investor, then I would choose to either reallocate the available funds more efficiently, leave it as is or quit the market. It is up to you to decide.
Long-term investors. You are here to hold until you can buy 10 lambos at the same time, right? I hope you chose your long-term portfolio well. If you doubt your choice, check out my article on how to create long-term cryptocurrency portfolios (https://medium.com/@EthereumRussian/how-to-create-long-term-cryptocurrency-portfolio-my-top-long-term-picks-b415b8320747). If you have some magic returns on your investment, I would cash out the initial investment and leave other part of the portfolio alone. In case market plunges, you will be able to buy even more of cryptos you want. If the market doesn’t stop to grow, well, you still have a lot of crypto, right?
If you are a holder and you do not have some magical returns on your investment, then I would advise you to leave your portfolio alone for a couple of years. If you truly believe that it is the most solid portfolio out there, then just forget about crypto for some time. Do not overreact when market will make its moves, do not repeat the mistakes of the guys who sold their ETH at $8 to buy more bitcoins. Check the prices once a month and take it easy, mate.
