Understanding the Current Market After the Fall From $11k Bitcoins
After exceeding $11k in a wave of excitement and new adoption, Bitcoin corrected. It has since traded between $9k and $10.9k. This weighed down the altcoin market.
In other words, although Bitcoin’s general trajectory is likely up in general, and although there have been a few rallies since the flash crash (which saw prices drop from over $11k to the high $8ks for a quick moment, but since has generally resulted in prices between the mid-$9ks and mid-$10ks), there is downward pressure on Bitcoin and that has dragged down the entire crypto market (the altcoin market). At the moment (9am-ish EST Nov. 30, 2017) that pressure does not show any signs of easing up.
That may seem gloomy, but the reality is this is just another day in crypto. Thus, where we stand now, there is not really anything to fear at the moment. The market had just been on an epic run. Just about every crypto was up 20% or so (or more) since Thanksgiving, all we are seeing here is an expected retraction.
This retraction is sadly going to mean a lot of new investors, ones who bought at $10k plus, are going to get shaken and sell at a loss (a move that has historically ended in regret for those who didn’t have a strategy for buying back in).
In cryptocurrency there is very little “always going up” and there is often “hard dips.” Thus, one must always have a plan in place for how to play the market during corrections.
What happens, especially after a new wave of bullishness and adoption, is that old and new users alike start placing bets with this idea that crypto can only go up (at least short term). Then, of course, things don’t go up at some point and many users start hitting the sell button. This then spurs on more selling. The general result is Bitcoin goes down, then when Bitcoin goes down, altcoins generally follow.
Thus, what we have here is the expect, a correction for Bitcoin that spurred on a correction for the entire market.
There is no way to know when the best reentry point is, so thus with that in mind you have a few options:
- Hold. The simple option is to hold, put the charts away for a few weeks, and then look again when the front page of the News says “who knew Bitcoin could go to $X?!”
- Average in your buys/sells. If you want to get in or out, consider averaging in or out of your position. Don’t just sell everything at once, or buy everything at once. Do it in increments and avoid mistiming the market.
- Consider what coins you really want to be in. No every coin will fare as well as the next after a correction. If you are in Bitcoin and other cryptos, you have to really consider what ratios of each coin you want want to be in for the recovery phase. Not every coin is going to recover the same way. Some cryptos could see better gains than Bitcoin, but on average Bitcoin is the most solid bet. If you still have profits, consider swapping coins around to get into the position you want to be in for the next wave.
At the end of the day, there are only a few things that are going to happen here:
- Crypto keeps going down, but at some point finds resistance before climbing back up to new heights.
- The crypto craze is over and we enter a bear market for a while.
- Bitcoin rebounds quickly to head back toward $12k. Either taking alts with it or not.
Since the future is unclear, its a good time to readjust your position and average into the position you want to be in for the next wave. With crypto, you either have to give it up, or you have to assume there will be a next wave. If you want to ride the next wave, you have to be ready to ride down at least a 20% correction. Here that means you have to have a plan in place to deal with a potential pullback to $8.5 or $7.5k (at least), and you have to have a plan in place to deal with a quick recovery and bull run.
TIP: One way to avoid all this is to sell incrementally as crypto goes up and to incrementally buy as it goes down. That means less gains, but it also means fiat on hand to buy during a correction. Since corrections can feel crummy if you are all in, this is a good strategy in terms of psychology. You are OK when crypto goes down, but you are still happy when it goes up.
What you should not do is panic and sell your whole stack (sell strategically if anything).
When many new users adopt crypto, it is almost certain the price will run up and the run-up will be followed by a sell-off as “weak hands are flushed out.” Its easy to get scared as a new user, but despite what happens in the short term, historically the users who have held tight have been rewarded. Likewise, those who got spooked and sold have come to tell that story of the time they bought Bitcoin and sold when they clearly should have held it.
Charlie Lee has a story about buying his first Bitcoin at $8 and immediately seeing it go to $1. That is an 80% correction. Holding through that is scary as a new user, but like, its nothing compared to selling for an 80% loss at $1 only to watch Bitcoin go to $11k. Will that same sort of increase or decrease happen these days? Probably not, but you get the point.
Point being, Bitcoin and crypto is inherently risky, and they don’t tend to be very kind to those who panic sell. Since you are already taking a risk, you want to manage your risk and prepare to ride the next wave. Since that is really one of the only strategies that works, you have to be ready to lose some money and ride out scary times (which happen somewhat frequently).
You can set a stop and risk missing out on a recovery, or you can hold and accept that if it all ends one of these days you are going to be losing a bet.
Since there is all this risk, think hard about what portion of your investable income you want to let ride on crypto.
Meanwhile, remember that the further down the list you go (of coins by market cap), the more risky your bet becomes (with a few exceptions). How you diversify between Bitcoin and alts will define how you do on the next wave. Bitcoin has been the best performer at most times, meanwhile some alts tend not to recover very well. However, anything could happen. If alts make a comeback before Bitcoin (that has happened in rare occasions) it could be annoying to be all in on Bitcoin.
In other words, right now the market is down and Bitcoin dragged it down. This presents an opportunity to average in and adjust positions. This is not a time to panic and sell, as much as it is a time to readjust and set up a strong position for the next wave (keeping in mind it could get bad and worse before that happens).
TIP: Keep in mind, sometimes Bitcoin recovers and doesn’t take altcoins along for the ride. I can’t tell you how disappointing it was to sit on $300 Ether and $3k Bitcoin in September and watch Bitcoin soar to $7.5k while Ether stagnated at $3k. That likely won’t happen again, but it is the type of thing that CAN happen, and you want to prepare for such things in times like this. Whether we see more correction or a bear market, the pause gives everyone time to readjust. Use that time wisely.