Logic, not emotions. It’s easier said than done, but this is the key to surviving a bear market. The recent bear market in crypto may have seemed like an eternity.
So you would definitely feel the heat if you’ve bought crypto at a high price and then see it lose it’s value day after day. You are not alone.
In fact below is a popular representation of investor psychology. It shows the emotional roller coaster that a typical investor goes through during a common market fluctuation.
Is this just a random chart? or does this look familiar? If you think it’s not relevant, here’s another example:
If you look carefully you will see that’s the Bitcoin chart. You won’t however need to look too carefully to realise the chart is almost identical to the above Wall Street Cheat Sheet!
In fact this pattern has been repeated over the years. Some past examples of such cycles are:
- Japanese bubble and bust of 1980s/early 1990s
- The “Asian miracle” boom and bust of the 1990s,
- The tech boom and bust of the late 1990s/early 2000s
- The US housing and credit-related boom and bust of last decade
- The commodity boom and bust of late last decade into this decade.
Cryptocurrencies are not immune to this pattern.
Investor psychology plays a big part in this expansion and contraction cycle. We know it shouldn’t, but emotions do indeed override our logic. Emotions lead us to buy when we have a fear of missing out. Emotions then lead us to a euphoric phase where strong growth makes us believe we will continue to make huge gains. So we either invest more or continue to hold.
This phase is normally short lived, but we don’t sell due to greed. Emotions then make us panic when the downturn accelerates. Finally, emotions make as sell when prices bottom out and we feel there is no hope left.
Numerous studies show people suffer from lapses of logic when investing. In particular, they:
- tend to down-play uncertainty and project the current state of the world into the future – resulting in a tendency to assume recent investment returns will continue;
- give more weight to recent spectacular or personal experiences in assessing probabilities. This results in an emotional involvement with an investment – if it’s been winning, an investor is likely to expect it to keep doing so;
- Tend to see things as obvious in hindsight – driving the illusion the world is predictable resulting in overconfidence;
- Tend to be overly conservative in adjusting expectations to new information – explaining why bubbles and crashes normally unfold over long periods;
- and tend to ignore information conflicting with past decisions.
So, rest assured, it’s not just you! There’s a large crowd of investors that tend to do the exact same thing. This magnifies and accelerates the cycle more than it really should, making it more painful for everyone.
Crowd mentality is evident in trading- it’s because of this that ‘smart’ traders know how to make money in trading.
There are a few things to note in crypto world, which makes it very easy for ‘smart’ traders to play the game more effectively.
They know that behavior can be contagious: social media and news channels cause this. This is expanded from the fact that most crypto investors get their information from the same sources.
They know that pressure will cause you to behave on emotions rather than logic: uncertainty, drama, fear of missing out, fear of collapse, grand theories of opportunity; these all feed your emotion.
They know that major displacement events will motivate investment: cryptocurrency and blockchain will ‘revolutionise’ the world, it will replace <insert any name here> industry, it will create freedom for individuals and bring a well deserved anarchy to our state; all these statements are too common in the channels that promote cryptocurrency.
While the emotions you experience during any market fluctuation is organic, there’s no denying that some cryptocurrency influencers and investors orchestrate initiatives to manipulate cryptocurrency prices.
No, these aren’t the ‘whales‘ and the ‘sharks‘ of the crypto world. No, not the big players that can easily move the entire crypto market with a single swift move. I’m talking about the common crowd of investors that you see lurking on the social media channels.
You have the Shills who are trying to promote their crypto to make a quick buck- they’re happy to promote useless coins at the expense of other investors looking for genuine investment opportunities. If you don’t know how a shill operates in the crypto world, then you need tolook at this!
On the other hand you have FUD-spreaders, spreading fear, uncertainty, drama. They missed the boat and are hoping their online shenanigans can temporarily bring the coin’s price down enough to allow them to buy in at a discount. This makes it hard to decipher a genuine concern from someone who is looking out for the community.
You also have fan-boys, true diehard fans of a coin. They believe their coin will solely resolve all world’s problems and will protect that belief by any means necessary. They spite any other coin that may be doing better in growth.
Finally you have the trolls, who are simply indulging in a few laughs.
The recent crypto crash is definitely no laughing matter though, especially if you invested anytime between December 2017 and January 2018. If that’s the case, most of your investments would have seen anywhere from 40 to 60 percent in losses.
Having seen such loses, some would have surely sold out. Others would have decided to hold on to their precious coins. But are these loses enough to end of your crypto journey? do you continue to hold your bags and hope for the best? or do you play the game the way it should be played?
So, let’s consider some things before you call it quits.
Below are some sample sets from various cryptocurrencies. All examples are BTC pairs, but you will easily find plenty of fiat pairs showing the same story.
BTC-OMG between December 2017 and April 2018.
This over the peak and decline of the crypto market. As you can see the movement for the above currency has been a gradual incline, followed by side way pattern. It then moves in a slight downward trend finally ending with a strong rise upwards.
From December it has made a climb of nearly 200%. So even if you invested just before the bear market in early 2018, you would still be up close to 100%.
In April alone, you would have seen the same 100% return on investment- assuming you timed the dip perfectly.
Cardano April 2018
The above shows a similar bullish run, but for April. Cardano shows a gain of almost 50% in April.
But what about something with a long bearish trend.
XRP December 2017 to May 2018
Let’s assume you bought into the Ripple (XRP) FOMO in December 2017. Meaning you would have bought at an all-time-high of 22500 Sats!
Since then you would have seen your wallet slowly drain to a slow and painful death. Well, almost. But you would have seen your holdings shrink by over 60%. Not a small loss.
But, lets zoom in a little…
Well, well, well, what do we have here?
We can see multiple opportunities that see short bull runs of around 15% each. Notice below, more of the same, with a few even touching 50% short term gains.
So, the point is this: Logic, not emotions.
Logic would tell us to buy when the price is low. Instead, our emotions tell us to buy when the price has already increased.
Logic would allow us to buy the dips. Instead emotions tell us to avoid the dips.
Logic would allow us to make significant profits, even during long and slow bear markets! Instead we end up holding bags hoping that some day the price will beat the old all time high.
Making profits in bear markets should be evident in the examples above. In fact I could list out countless other examples.
As I write this article, the alt market is already showing positive signs once again for a significant bull run. Hopefully you were buying during the decline and will be ready to sell when prices rise, instead of the opposite.
So, what will it be? Could the bear market be the end of your investment journey? or will it be another opportunity to start making money in crypto. Logic, not emotions. Your choice.
Don’t be like Derp.