Here is the benefit of all my mistakes — an overarching philosophy for crypto trading that works regardless of your trading psychology.
Borrow crypto in bear markets.
Yield farm in sideways markets.
Lend or pay back loans in bull markets.
It's really that simple.
Why Borrow the Bear?
The same principle that applies in real estate applies in crypto. When prices are low, that's the time to borrow currency to purchase assets. When the price of the asset rises in relation to the currency you borrowed, you can sell the asset back for more of the currency and pocket the difference.
Using a lend/borrow protocol like cream.finance or Aave, you can hold collateral, take an interest rate, and borrow a percentage of it as well. This unique semi-fractional reserve characteristic of crypto allows you to hypercompound — lend yourself money and immediately buy crypto, which you then immediately restake into the protocol to earn the interest. If you hypercompound in a bear market, you're also less likely to get liquidated because you are buying near the bottom.
Or you can just borrow, buy, and wait for the bull.
Why Farm the Dove?
Yield farming creates the most profitability in a sideways market. If prices of coins remain the same, you simply collect the premium for holding your currency in the protocol. You are also being paid for the economic cost of holding your money rather than spending it. But in a sideways market, there are no opportunities for capital gains — so what else would you really spend your investment capital on?
By the same token, yield farming protocols are not good investments in bear or bull markets. In bear markets, you are holding two tokens that are decreasing in value and providing you the loss of selling in the liquidity pool. In a bull market, you are basically selling on the way up, putting a ceiling on your profits. You are better off holding coins separately when the bull arrives.
Put the yield farming money to good use by paying your loans back during bull fakeouts and accumulating crypto during bear fakeouts.
Why Lend the Bull?
When the price of assets are high relative to stablecoins, lending is preferable. Interest rates are robust, people are looking to borrow in a bull market (backwards thinking), and there are fewer assets to buy because you shouldn't buy at the top.
If you are borrowing from yourself, pay yourself back during the bull market. You are locking in gains as your holdings give you more value relative to the stablecoins or fiat, and you get to pocket the difference.
Why does this philosophy work? Because it follows the money, plain and simple. Fill in the details smartly for best results.