Preparing for the Worst in Crypto

It is conservative to plan for things getting worse in crypto before they get better. In my opinion, it is time to put aside the FUD and FOMO and draw up a game plan.

In other words, with all the crashing and panic, it is now more important than ever to center yourself and stick to a level headed and well thought out strategy that accounts for this crypto bubble to be the worst one in history (so far every bubble since 2010 has resulted in a bottom above the previous lows, but that doesn’t mean this one has to).

TIP: Look at the chart below, that is 2010 to Aug 2018. BTC has never went fully bearish in all that time, even when it went down 90% plus it kept the long term uptrend. That said, there is a first time for everything. Are you prepared for the worst?!

Bitcoin is essentially a bullish log fractal, 2010 – 2018… you know, so far.

For some, that will mean selling now with hopes to buy back later (it goes down 50%, you can buy twice as much, even if you are down 90% now for example). For others, it will mean looking right entry to go in heavy. For others still, it’ll mean shorting crypto into the ground if they should be so lucky. For me, that means averaging down (a surefire way to be in crypto for the next cycle, but not the ideal way to maximize returns).

For all of us, it’ll mean being mentally prepared for what we are up against.

Here is how I am approaching this 2014-size bubble many of us are stuck in, fleeing from, or considering approaching. Maybe it’ll give you some ideas about the right tactic for you..

1. I know about market cycles, economic bubbles in crypto and other assets, and have accepted that this could be the worst crypto bubble yet. In other words, I’m not a bear looking to short to $1.2k, or a bull looking to buy at $4k with a $50k target, I’m a fan of crypto who is aware that markets can be cruel and human behavior is predictable trying to add to my position at the best prices I can. I’ve seen Bitcoin bubbles steady and rally after an 80% drop, I’ve seen assets collapse 99%+. How can we know which one this will be?
2. I have a game plan for what I will do if we approach zero (and for me it is to average down slowly and trade a bit; no more than 1 or two buy zones per $1k BTC drop, only a few percentage points of my total crypto bankroll per zone). Do I think Bitcoin will go to zero? No. Do I think some alts will? They could. My thoughts and hopes aside, it is conservative to prepare for the worst. My strategy is to average in at major supports (going harder as we go lower), and then if it works out to sell back some on a bounce (or HODL as needed). To ensure I can do this I have to leave a bunch of my investable income in cash and not touch it. I have to ward off FOMO, and not panic-buy due to a feeling that I have missed the bottom. For the most part I’m an investor and not a trader, so I’m using analysis for entries, but not using stops once an entry is picked. Your game plan doesn’t have to look like this, but it should involve a plan of action for the worst case. Do you understand how much capital it will take to average down to a few dollars if BTC drops to fifty cents (HINT: it is less than you already spent)? That is the sort of question I like to ask myself, helps keep it real and ward off the desire to go all-in at any price.
3. I already know what coins I want to be invested in and around what prices, but I will change my mind as needed. I won’t say which ones, but I know which coins I want bold positions in moving forward, and I know what coins are moonshots. I know what prices I want in alts if certain supports hold in BTC. I have a plan to buy at those prices, if I don’t see them, then I’ll reevaluate far down the road.
4. I am not going to sell at a loss unless something major changes (however, I will stay educated on what is happening in crypto). Some people might have a strategy that requires selling at a loss (for example, wisely using stops). However, I won’t be selling at a loss in this case, I would rather just go down with the ship and use averaging to bring my cost down later at this point in the cycle. Since this is the case, I have to ward off FUD and not give into sell pressure when things get dark. If a coin I have is going to stop development, I might swap out of that to another coin, but mostly I am going to be disciplined and ignore the news cycle. I did readjust a little after the last round of SEC charges, but ultimately I am still sticking with projects I believe in and expect them to play their hand well in the matter.
5. I am going to countertrade the majority. At the height of the bubble it was popular to long crypto and say coins were going to the moon. Now it is becoming fashionable to brag about selling and shorting. It is a badge of honor to have sold above the current level, very few brag about buying the dip. On Twitter people with names like @HODLaltGuy are super bearish on crypto and are shorting on Bitmex. To me this is a sign we are approaching a bottom (no limit to how far down that is, I just think we are approaching it). The more that ramps up, the more articles calling the end, the more I’ll play the contrarian within my set strategy. Back in 2015 everyone thought the Bitcoin fad was over, many passed up those $200 Bitcoins, those who didn’t… well we know the story.

Bottomline: For me selling now is like selling Amazon at $20 at the end of 2000. Yeah, you avoid going down to $5, but then later you miss out on a $1,980 run. How do you play that? How do you play it if this is like selling at $40? For me, it is played by averaging with a plan for what if those 2016 – 2017 BTC prices don’t hold. If any worst cases play out, the media will get dark and the crypto community will only become more bearish. I’ll need to ignore the FUD. I CANNOT compare myself to that trader who profited in 2018, just like I couldn’t compare myself to the altcoin millionaire in early 2018. I am only me and only playing against myself. If the 2017 lows start being hit, it could be tempting to go all-in… but I’ll need to ignore the FOMO. This isn’t about a lambo, this is about building a long term position that makes sense. It has been ugly here in 2018, there is room for it to get a lot worse in the coming months, but for me crypto is an Amazon in a 2000 tech bubble. You don’t leave tech behind as a failed experiment in 2000, especially not Amazon. In 2000 you do your best to pick the winners and start to build a position for the future, and to do so with your sanity you have to zone out some of the noise and not give into the FUD and FOMO.

NOTE: The chart below gives a visual example of places where I’m personally interested in adding to my position (please don’t use my chart for your investing, instead make your own plan and do what makes sense for you; this is literally educational, I’m not suggesting you do it, and I’m not making a blood oath to stick to this). The reason I’m sharing this is because it offers a sense of what preparing for the worst looks like. If BTC goes to $10, I will in this example chart have 5 – 10 buys of a few percentage points each on the way down and an average price sub $100 ideally (so that is heavy losses from the $6k+ zone – $1k zone, but buys in the $100 and $10 zone to bring the average down). I’ll have 50%-ish of my investable-in-crypto funds on hand, and I’ll reevaluate…. I don’t think it will get that bad, but this isn’t a game of thoughts and wishes, it is a matter of planning and strategy. I’m not exiting crypto, I’m not shutting down the site, and thus I have to have a plan… and this is the point of the article 😀

Bitcoin since 2012 with some chart patterns and trend lines illustrated.