What Action Did I Take During This Bear Scare?
instructions for handling crypto market volatility

What Action Did I Take During This Bear Scare?

By NOVAX | Block To The Future | 27 Apr 2021


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Read my previous post: Towards a More Nuanced Understanding of Meta Market Cap [Part 1 of 2]

 

STILL ALIVE AFTER MY FIRST DECENTRALIZED LEVERAGED TRADE AT 3X


Well that was a scary weekend and I don't think we're out of the woods until Bitcoin reaches new all-time-highs again. I'm looking for Bitcoin to break the $70K mark in the next few weeks. But are we in the midst of a sucker's rally? I hope not. I don't know. I appreciate people who get technical with chart analytics, and the patterns of human trading psychology do manifest in charts, but I don't think anyone can really know with certainty which direction this market will go in the very short term. We're all just guessing. We're not just betting on Bitcoin either. We're betting on each other. We're trying to determine how the market will value Bitcoin. Of course, Bitcoin's value is a proxy for the entire crypto economy.

The entire market cap of the crypto economy is still relatively small at ~$2 Trillion. Compare that to the global stock market cap of ~$90 Trillion. So while it's impossible to predict short term price movements with absolute certainty, Blockchain maximalists (like myself) are sure that we're still very early in the cryptocurrency adoption timeline. However, things are heating up and mainstream adoption will likely occur as a fairly rapid explosion. It's still unclear to me whether the crypto market is on the verge of new highs or a larger correction. My instincts tell me that BTC won't dip below $40k, so I decided to place my first leveraged trade on a decentralized exchange. I took a very small 3x long position on BTC at the end of last week. I entered the position around $53,500 and I was definitely at risk of a margin call around $46k. I may have just narrowly avoided a margin call because I'm trading rBTC on RSK Network, so the price can deviate quite a bit from the actual BTC price.



COST BASIS IS RELATIVE & $50,000 BTC CRITICAL SUPPORT


I felt certain that there would be heavy support for Bitcoin around $50,000. I know that a lot of institutional money entered around that time, so I figured that big money would be looking to buy down their cost basis incrementally as Bitcoin price tested under $50k for the first time in several weeks. I think that theory tested positive, but I don't think it means we're in the clear. Institutional investors haven't opened their reserves and burnt up all of their cash during this last sudden sell-off either. I think we're all holding back a little bit, waiting for a possible retracing all the way back to the $30k range. So I decided to bet on 3x leverage that BTC wouldn't dip below the $45k range, and I figured that I would eat the margin call and place a big buy in the low $40k range if my bet failed. So far, I've skated by, but just barely. I'll probably exit the position between $68k and $72K and then cry about how I could have held onto it all the way through $150k, but let's save tomorrow's tears for tomorrow. I suppose that's the downside of having the DeLorean... sometimes I feel as though I can't stop myself from making a future mistake.

I've always heard people talk about pull-backs in the market as being a good thing or being necessary to achieve higher levels. That didn't make a ton of sense to me in the past. I thought of that as some sad consolation talk. It's actually true though. It feels more true after having lived through a few market cycles. I can see how people come and go. It makes sense that new investors get into crypto, double their money, and take their profits. That's how most of us come to the market. We can't believe it when our investment balance doubles and we're eager to spend that profit. We all see the value of things relative to the price at which we acquired them. Market psychology causes us to often refuse to buy back into a growing market because we've previously owned it or had the opportunity to own it for a lot less. It also leads us to take profits after a certain amount of growth is achieved beyond our buy price.

We all see the value of things relative to the price at which we acquired them.



MARKET PSYCHOLOGY,
FRACTALS, & HODLing


On a macro level, this market psychology manifests in charts which take fractal forms and describe Fibonacci sequences. So when we evaluate moving averages and get technical with the charts, we're mostly looking for familiar patterns. These patterns describe successive waves of new investors entering the market and exiting investors taking profits from investments made during prior waves. All of these individual market choices are being made based on the individual's cost basis relative to the current price. So it is very much necessary for the market to have deep corrections in order to reach and sustain new all time highs. We need to shake out the weak hands and welcome new blood along the way. I've been the new blood a few times now and I've been the weak hands a few times as well. And I'm just one investor who has only experienced two bull market cycles. So the behavior I'm describing is what I've personally experienced, but it's also what I've come to see is necessary for the whole market to achieve the most growth over time. In order to climb to new support levels, new investors must enter the market at a higher cost basis and existing investors must take profits along the way.

So what did I do during these past few days? I wasn't posting on the blog as much as I would have liked. It's all hands on deck when the market turns that red. Everyone is either panic selling like idiots or swooping up bargains like geniuses. I was neither during the past few days. I decided to take very little action. I'm mostly a value investor now. I'm an accumulator and a HODLer. I'm not really trying to time the market. I'm content to dollar cost average into my favorite projects. I like to deploy lump-sum cash occasionally and redeploy profits, but I don't really have any intention of trying to sell high and buy low on a daily or weekly basis. I'm thinking in terms of building positions over 3-5 years and then reaping the rewards over the next 5-10 years. I'm ok with the market volatility, I just wish I had more cash to buy those dips!



HOW DO WE KNOW WHEN VALUE INVESTMENTS HAVE COME TO MATURITY?


I've been spending a lot of time recently in the low cap crypto world. I'm hunting for value under $500 Million market cap. It's a great thing to see innovation happening at that level because there's so much potential for growth. But there's also a lot of competition and a lot of projects to sift through when searching for value in lower market cap projects. So, I was surprised how little action I took during this recent sell-off because everything was on sale and I know of a ton of great projects that I want to establish or build a position in. I guess I froze up a bit. I'm still a little stunned. I'm not sure how to proceed. I don't have any plans to sell and I want to buy more than ever. But the things I want most surprised me. I want to build my positions in VeChain ($VET), Decentraland ($MANA), and Basic Attention Token ($BAT). I want to finally start my position in ThorChain ($RUNE). I want more Bitcoin ($BTC) and I want more Mirror Protocol ($MIR). I'm surprised at how many of the projects I want have relatively large market caps already. I was able to sell off a bunch of $DOGE for around $0.35 (pretty close to the top of $0.42). I swapped most of my $DOGE for $BTC, but I couldn't get rid of all of it. After the recent irrational price explosion of Dogecoin, I'm afraid to sell it all and miss out on the $10 Doge (something which should never ever happen... but very possibly may).

I didn't think that this market would effect me this way. It's partially because I've been doing a deep dive on market capitalization recently. I'm beginning to see the crypto market differently. I used to see any blockchain project with a market cap over $1 Billion USD as having already achieved most of it's price growth. However, I'm beginning to see the entire crypto market cap as having a lot more room to grow than I had originally anticipated. I've begun to conceptualize of price and market cap movement differently. My recent exploration of meta market cap has given me new insight, but the irrational behavior of the market is vexing as ever. I watched Dogecoin climb to the top handful of coins by market cap and I began to see that the potential for the $DOGE price to increase much further was limited by the relative market cap of Bitcoin. Insane as the world may be, I was fairly certain that Dogecoin was not going to jump Bitcoin as the #1 cryptocurrency by market cap. It was apparent to me that as I had surfed DOGE up the Coinmarketcap list, it had surpassed a ton of coins that I value a whole lot more... but it wasn't going to surpass Bitcoin. That's when I personally made the choice to swap my DOGE for BTC. When $DOGE was #4 or #5 with a market cap in excess of $50 Billion I decided things had gone about as far as they were going to go on the BTC/DOGE pair.


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COINS THAT HELD THEIR VALUE BEST ARE THE MOST HIGHLY VALUED


These market shake-ups are very useful and instructive and I have actually come to enjoy them in a twisted way. Nobody likes seeing your investments lose value, but when the whole market turns red we're forced to re-evaluate what we value most. So I like to look for those coins which didn't lose too much value during the sell-off. I want to know why the community has such diamond hands. I feel like Sovryn price and Rune price held there ground pretty well and for very good reason. Those projects are definitely both going to grow a lot in the coming months. However, there were some completely bass ackwards movements that just leave me more confused than ever. Dogecoin should not be doing what it is doing. I'm glad I was dumb enough to bet on the market being dumb and buying Doge. I've said it before, but it's never been more true than right now... I bought $DOGE a while back on Robinhood because I was looking for the most frictionless path for mass adoption. I put a few grand on DOGE because I saw it as the most likely alt coin to capture new crypto investment... specifically BECAUSE of its inclusion on the Robinhood trading platform.

That's how I generally operate. I invest half of my portfolio in projects that I love and that I personally see value in. I use the product and I make a decision to invest based on my faith in the community, the tech, and the market sector. The other half of my portfolio goes towards projects that I may not personally value or which I may not even want to be successful. However, these are projects in which I see potential for mass adoption. I bought the Coinbase "IPO" for this reason. I bought DOGE on Robinhood for this reason. I own a very very small amount of XRP for this reason. I hold almost as many investments that I might personally want to fail as I do investment that I personally hope are successful. In other words, I don't get very ideological with my investment strategy. I could have bought a shitload of XRP at $0.20 (and I should have), but I just sincerely did not want to own more XRP. That was probably the most ideological sacrifice I've made.



A PRINCIPLED SHITCOIN INVESTOR


I usually take opportunities wherever I see them. The problem is that I'm starting to see opportunity everywhere so I'm having to refine my process for quantifying opportunity. I'm also constantly re-evaluating my investment strategy, philosophy, and goals. But I sleep easy knowing that I deliberately passed on XRP at $0.20. I feel pretty stupid for not having seen the value in Decentraland at $0.08. I'm definitely not going to be putting any money behind any privacy-infringing vaccine passport or CCP-style social credit score blockchain tech bullshit. So, to that extent, I do invest somewhat ideologically. But I try not to let my biases blind me to opportunities in the market. If I pass on an opportunity, I prefer it to be because I identified the opportunity and declined it, rather than to have be entirely unaware of the opportunity.

When you've been in the cryptocurrency market for a few years, you get used to seeing tokens at a certain value. I've become comfortable thinking of projects at a certain price. I've owned at least a very small amount of every token that was available on Exodus wallet a few years ago. So when I see BAT over $1 it still blows my mind. Since I began accumulating and trading many different tokens at prices much lower than today's price, I'm increasingly aware how uncommon it is to HODL through multiple bull market cycles. I would love to know what you did over the past few days. It felt like Publish0x was quieter than usual. I imagine many of us had our faces buried in the charts trying to make decisions. What decisions did you make? Are you on the Sovryn decentralized exchange where you can trade rBTC with up to 5x leverage? Are you long or short BTC? What large and small cap alt coins have your attention right now? What NFT projects look interesting to you. Please let me know your thoughts in the comments. I still need to finish my post about how I grew $600 to $25,000 in 3 years, so please check back for that. Thanks for reading! I look forward to engaging with your comments below. Please like, tip, and subscribe if you found value in this post!


-NOVAX

Read my previous post: Towards a More Nuanced Understanding of Meta Market Cap [Part 1 of 2]

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NOVAX
NOVAX

Cataloging my discoveries from the fringes of the crypto economy. Finding deep value in decentralized small caps. Block To The Future blog author & Vaxxed World contributor. Tracking innovations in multi-chain defi, yield farming, nodes, and staking.


Block To The Future
Block To The Future

Get in my DeLorean. I'm looking for deep value in small cap blockchain projects and cataloging my discoveries on the fringes of the crypto economy. This crazy old man gave me a copy of Novax's 2050 Crypto Almanac so now I just need to place the right bets and I'll be rich.

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