Investing in Boom & Bust Cycles

Don't go all-in at the top.

Some observations about the nature of crypto markets. Not financial advice.

A History of Cycles

Bitcoin is going places.

The public Bitcoin blockchain was originally deployed in 2009 —12 years ago. Ever since, the total value of the Bitcoin network (market cap) has swung in highly volatile boom and bust cycles. It is what it is.

Here at BrisketRib, we are all about long-term investing, not trying to trade and time market tops and bottoms. We believe it's impossible to time the tops and bottoms perfectly. Our main thesis is that the price of Bitcoin, and the entire crypto ecosystem tends to go up in the long run as both money (central banks) and finance (the entire financial industry) are disrupted by innovation (Bitcoin and DeFi).

As the price goes up in the long run, people tend to momentarily get over-excited. It is at these times that the price skyrockets and tends to overshoot where it ought to be at the moment, even though it still tends to be undervervalued when viewed with a long-term mindset.

Inevitably, at these times when everyone gets over-excited about Bitcoin and the broader crypto markets, people start to freak out and panic. This always leads to a crash. The crash is always much faster than the build-up, and just like the build-up, it goes too far. Every. Single. Time.

What's a crash?

A crash tends to be a rapid correction of 50-90%+. Yes, it can easily be 90% or more. Expect this, especially in assets other than Bitcoin and Ethereum.

What's a bull market?

Bull markets are when everyone discovers that "Bitcoin has risen from the dead." It was never dead. The price starts to go up a little, for weeks on end. Positive headlines roll in, big announcements. "Blockchain is the future," they will say (without true conviction).

Everyone starts talking Bitcoin and cyrypto again. Everyone wants in. People start to feel they missed the boat on Bitcoin and Ethereum, so they try to outsmart the market by getting into the "next big thing," the disruptor of the disruptor. People go further and further out on the risk spectrum. They load up on small cap projects.

Bull markets can last for years.

What's a bear market?

A bear market is a time when everyone loses hope. "Bitcoin is dead, " they proclaim. Everyone who was just in it for quick money exits here. The buidlers quietly continiue to buidl. The hodlrs quietly continue to hodl.

Persevere.

Bear markets can last for years.

Don't do This

Don't go all-in at the top.

Is everyone super excited and you're feeling like taking out a mortgage on your house to make a big entry into Bitcoin/crypto? Stop it!

Don't go increase risk when everyone is super excited.

The cypto market is going up. Everyone's making money. But you want to make even more money. So you look for up and coming projects, disruptors of the disruptors.

It's okay to invest in a new project. If you come across something so compelling, with traction and a big addressable market, you might feel compelled to have a position. Take that position, but don't walk your entire portfolio out on to the fringe end of the risk spectrum.

Do This

Stock up on dry powder.

Bull runs are the time to build up dry powder. Take some profits, build up liquidity. Don't sell everything. It is at this time that you're preparing for the next bear market. You're looking ahead.

Increase risk when people are disillusioned.

In the bear market, everyone feels like Bitcoin and crypto were all hype after all. It's a "toxic asset" and everyone wants out. No one's looking for the next innovative project.

It is at this time that you'll be making your best investments. Continue to do research, find those projects with teams that continue to buidl despite the storm.

Use a little bit of the dry powder to get Bitcoin and Ethereum at a good price.

Shovel cash into the woodstove.

Often near the tail end of a bear market, people are at their most disillusioned. It's at this time that the already down price will dump even further. If you're investing at this point, you'll feel like you are shoveling cash into a woodstove, but it will be your best investment of all.

Summary

Don't go all-in at the top.

At BrisketRib, we hate to see anyone get financially hurt. The best way to get hurt is:

• to go all-in at the top.
• to trade on leverage (unless you're a really good trader).
• to be impatient.
• to go for newer, low-quality projects because you feel you missed the boat.

Instead,

• be patient.
• don't panic.
• expect 50-90%+ drawdowns.
• keep the long-term view.
• build up dry powder when everyone is overhyped, deploy it when people are discouraged/not paying attention.