Another Wave of Bad News for Crypto Leads to Even More Bad News; But For Some, that Might be a Buying Opportunity
In other words, after a rather deep crypto correction caused by a wave of bad news, there is even more bad news… and that is bad news for every coin not named Ether (or the similar NEO and a few other odd coins).
Ether and NEO aside, most coins have lost 50% or more of their value since all time highs in Dec – Jan.
While the constant stream of FUD is a little distressing for those who bought anything other than Ether or NEO, or for those who bought at the top, it is important to keep in mind that crypto is volatile and most coins are still up 500% – 1,000% in the past 12 months.
If history is any indicator, then it suggests that the bearish sentiment won’t last forever.
After-all, the waves of bad news can’t last forever. When the waves end we will either be left in a bear market or will be facing an exciting recovery. Along the way there will be opportunities to play bounces, trade volatility, and accumulate more crypto to build average positions.
Historically crypto has reached great heights quickly only to give a good chunk of those gains back. Also, historically, there have been deep corrections triggered by widespread FUD. Also historically which coins do well has been subject to a rotation, right now Ether is in rotation. Also, early investors with deep pockets have a habit of taking profits after a wave of mass adoption cashing out while leaving everyone else with bags (sad but true, and that pattern is playing out where coins decline in waves giving whales ample time to take profits on the way down; generally this happens with pump and dumps, but the whole market looks like this right now… and as long as the really bad news continues, this is likely to continue as well).
Often all those factors don’t always pile up at once in such dramatic fashion, but sometimes they do. This is one of those times. The result is a lot of red across the board the likes of which we haven’t really seen since the bubble pop of 2014. That is the reality here.
Still, things always look grim right before they stop looking grim. For example during all corrections in 2017. So 2014 isn’t the only spot to look back to.
Ultimately, there is no rule that says crypto can’t go any lower. Instead, there is simply historic support levels (which you can see on a price chart) and its up to traders to make choices. Those choices will determine what happens next.
If enough people buy and hold, then even those trying to cash out on the correction, easing us back toward support levels in waves, can be overwhelmed by the general investor. Or, if enough people panic and sell, then at some point those trying to cash out on the correction will simply switch back to accumulating and attempting to push the price up (by holding themselves and buying themselves). Or, if prices will get low enough a new wave of investors waiting on the sidelines could come in and help define the bottom.
One way or another, at some point, the bleeding will stop and we’ll enter the next phase. When the bleeding stops and what the next phase looks like depends on if the general investor rallies first, the early investors with deep pockets rally, if a new wave comes in, or if a mix of all of these things happen at a given BTC support level (alts tend to follow BTC, so we are looking at BTC’s chart to get a sense of the market).
One thing to keep in mind while this uncomfortable situation plays out (and it is uncomfortable unless you were waiting to buy or are margin shorting or are nimbly trading the volatility) is this: Those who bought the top in 2013 – 2014 were ultimately rewarded a few years later, those who traded in between generally had opportunity to do well, those who bought the top in the summer were rewarded quickly. Historically speaking, only those who bought high and then sold in a panic at a lower price have missed out. The lower it goes, the more true that becomes.
Of course, one could argue that selling now and aiming to buy lower is a good move at any price when the trends are bearish. However, that requires you to be nimble, and it requires you to make short term trades (thus sacrificing long term gains in terms of tax purposes).
There hasn’t yet been a time in the history of digital asset where patience and a long term strategy didn’t pay off. That doesn’t mean that can’t change, but it does mean there is as much precedent for that as everything else happening. And it is from that perspective that it can make sense to hold through 50% – 80% corrections. As, as long as it goes back up, the only losses that occurred are happening on paper. Further, from that perspective, averaging into the dip lowers your average price and makes it easier to recover on the next rally.
There is likely to be a bit of a rough ride before things get better. However, assuming crypto recovers at some point in the future, the time right before the recovery is likely to feel a bit like this (somewhat hopeless and bleak). If you build average positions in the bleak times, or hold through the bleak times, then you have an easy and profitable road when the good times set back in.
If the good times never come back, then well the downside is obvious. If the good times do come back, then you’ll likely see higher prices than we have now (and thus; there would be wisdom in holding and buying the dip).
Consider, we don’t need to see $20k again to make selling now not optimal. Seeing $16k again is a near 100% increase from this point! Heck, seeing $12k again is a 50% increase. And so it goes.
If you take your chips off the table, you may save yourself lots of stress and some on-paper losses, but then you’ll be in a position of needing to time the bottom before the next run (or needing to walk away forever).
We’ve all seen crypto take off quickly when it does. It is really easy to miss the recovery. Then, if you miss the recovery, you have that problem of seeing the next rally and FOMO buying at a higher price. If you don’t have a crystal ball, buying and holding through the bad times is sometimes the safest bet despite the clear risks.
However, if you do buy and/or hold, you need to be aware that support levels include [very roughly] levels like $9k, $8k, $7k, $5k, $3k, $1k, etc. Essentially, any price BTC consolidated at before it made a jump over 2017 is likely to trigger buying as the price falls.
It could be that this is the lowest price we will see, it could be that any of those numbers are. It could be that none are. No one knows. It is simply historically probable and common to assets that support levels will matter.
Thus, instead of knowing for sure, we have to make an educated guess.
An educated guess would say, old patterns are repeating to a T like clockwork.
So either we have a long bear market and some further gradual declines ahead or we are gearing up for an epic 2018. Likewise, if patterns repeat, then Ether will at some point fall out of rotation, the reset button will be hit, and another coin or set of coins will enter rotation.
Since it is impossible to know what will happen, it can be helpful to hold, dollar cost average into the coins you think will do well in the future, and buy the dip.
If crypto never recovers, then obviously buying and holding is a failing strategy. However, if this isn’t the end, and instead is just one of those common but never fun periods of correction and FUD, then taking risks now as blood continues to flow onto the streets is exactly the sort of move that pays off.
For the short term, holders and buyers will feel like krill as whales let the price gradually decline and sell higher and buy lower, gradually taking profits from the last run. In the long term, if crypto isn’t dead, then holders and buyers will at some point be the long term investors themselves.
Think the bottomline is this: Every time crypto looks like it is dead it is tempting to cut losses and run. Meanwhile, when it does well it is tempting to FOMO buy. If instead of giving into those impulses you buy when it looks dead and take profits when you want to FOMO buy, then you are “buying low and selling high.” If you buy high and the cut losses, you are “buying high and selling low.” Since this is true, it has historically been better to buy the dips and hold. Of course, crypto has never been this high, and this last quantum leap could have been our last (“Ziggy, should I HODL?”). That is going to be true every time crypto corrects until the very end. So how you want to play each event is up to you. Charts look bad, FUD is all around, this is very likely not the bottom… yet, at some point, if there is a recovery, then the bottom will come in, and from there it’ll be all upward movement (potentially for months on end). Mistiming the market isn’t fun, sitting through a correction isn’t fun, no, not at all. What is fun though is coming out the other side with an asset you believe in and some profits (or “not losses”). What is worst of all is selling in a panic at the bottom and then watching the price go up without getting back on the train and then having your friends say to you “wow, you must be excited, $25k?!? Don’t you have Bitcoin!?” When that happens, you think to yourself, “I should have just held,” then it goes to $30k, then you FOMO buy. Then it corrects. Then you find yourself here. Then you read an article like this saying the same things again and the cycle repeats. If you just assume the cycle will repeat, then you can cut the line by buying when everyone else is fearful. Just remember, there is room for more fear and it can get bad before it gets worse. So make sure to give yourself room to account for that if you buy or hold. Otherwise, we could just argue this is a healthy correction after an epic 2017 and a little patience is in order (especially if we want to take advantage of the long term capital gains tax on our long term holds).
Final thoughts: I’ll leave you with these words, when the FUD from September wore off, there was recovery. In that period of recovery crypto became immune to FUD. It has taken a ton of outside forces and an epic run to create the current correction. There is only so long that sort of thing can suppress demand. People grow wary of any cycle. We just had a cycle of epic gains, this is the correction. The correction cycle is likely to naturally to pass. When that happens, there is real potential for another epic rally. Thus, what you would be doing here is betting on that next cycle, and taking an educated guess as to wether it’ll be bullish or bearish in terms of price. As, that is really all we are talking about right, price? We all known dang well that the underlying tech is going to be a dominant force in the future. The only thing we don’t know is at a what price.