The bear market in BTC has lasted almost a year now and it’s a hard place to be. Holding onto assets as they drop is a difficult thing to do and getting through this market takes a lot of character.
In this article, I am going to lay out some advice on how you can hold and not get yourself squeezed out of the gains that will eventually come.
Why is Bitcoin Dropping?!?!?
A lot of people get upset during bear markets. Their anger isn’t as intense at first as most expect the initial drop to be temporary. It’s only as the bear market continues that people get more and more upset.
The expectation is specifically that Bitcoin would be going up, or at least stay steady. That is, people are expecting some sort of linear progression. Because the average gain in Bitcoin has been X% over the past 7 years, they expect that to continue.
Of course, nothing in the real world, including Bitcoin, is that linear. Things grow in spurts and that is entirely normal. Bitcoin, for example experienced multiple crashes of up to 80%+.
The real reason for being upset is that at core, there’s a desire to make money without really working. Indeed, if Bitcoin were to go up at a nice, steady rate, there would be no need to earn a salary. But we’re getting ahead of ourselves. Let’s first look at the bad of a bear market.
Why a Bear Market Sucks
First, bear markets suck because of financial pressure. Stress, especially stress that you’re not equipped to handle can break you financially. If you are over-leveraged or un-hedged, bear markets are when you will get squeezed out of your positions. Getting squeezed is when you can’t afford to wait until you’re proven right. And that sucks.
The first rule of investing is to not get wiped out and bear markets are where that rule comes into play the most.
Second, bear markets suck because of social pressure. It’s not enough that there’s financial pressure, but the I-told-you-so’s of the critics that come out at every bear market can be a lot to bear (pun intended). Having to listen to all your friends and relatives that do the same can be even worse. Unlike the bull runs when people treat you like a genius, bear markets humble you socially.
Third, bear markets suck because of less opportunities to make money. During bull runs, there are lots of different startups and projects that are looking for people of all kinds of talents. The opportunities to make money seem unlimited and if you have a track record, you can make a lot of money consulting, advising, marketing, etc. in salary and contract jobs. During bear markets, however, things get much harder. People start seeing you as irrelevant and projects that were flush with money suddenly start caring about budgets.
Why a Bear Market is Good
First, bear markets are good because they clear the malinvestments of the bull market. During a bull run too many projects raise too much money on extremely flimsy theses. Some in this past one raised over a $100M on just a whitepaper! The level of malinvestment in this space over the past couple years has been insane and many of those projects are going to disappear. This is a good thing as the resources from those projects can better be deployed to more useful endeavors. The correction in the markets make better companies and institutions per Austrian business cycle theory. In other words, money goes from bad actors to people that know what they’re doing. That’s a very good thing.
Second, bear markets are good because they reveal what’s really important. In the pressure-packed crucible of a bear market, only the truly useful survive. We can find out what’s really important to people because bear markets are when people make discriminating choices about what they want. They don’t buy just any ICO anymore. They start scrutinizing what they see. They start making choices more rationally and carefully. They stop FOMOing and start DYORing. A smarter market is a good thing because better allocation of capital leads to a more prosperous society via wealth creation.
Third, bear markets are good because they teach you to work smart and hard. In a bull market, jobs are easy and the expectations are small. In a bear market, employers are much more discriminating and hire out of need. That means that as a candidate, you have to provide real value, which means working smart and hard. Bear markets are when you get cut for not providing real value and you won’t get hired unless you bring something good to the table.
Fourth, bear markets are good because it develops your character. A lot of people complain about the early adopters of Bitcoin and how they “got lucky”. Long term holders didn’t get lucky, they had conviction. A lot of people bought Bitcoin in 2010–2011 but a lot of them also sold because it was, to them, a plaything, a gamble, a trade thing. They didn’t bother understanding Bitcoin very deeply or perhaps they did and weren’t convinced. It’s not so easy to hold for a long time and bear markets are the reason. When something drops 80%, do you keep holding? It’s easy to say you will in a bull market. Going through the bear market and continuing to hold takes conviction. You also have to make sure you don’t get squeezed out of your positions, so you can’t be a spendthrift or buy things you can’t afford. You have to plan for the future carefully and be diligent in sticking to your values. A bull market gives you room for everything. A bear market makes you make some difficult choices. If you get through it making the right ones, that’s how your character develops.
Bear markets are a necessary part of any economy, especially when there’s malinvestment as there has been in the past few years. The redistribution of resources to productive things people want from things people don’t want is the major benefit. There’s been too much skew the last couple years in the cryptocurrency space. There needs to be a realignment based on real utility, not just promises.
Getting through this realignment is not easy, but if you can come out the other side with your Bitcoins intact, this will be worthwhile because you’ll have earned the gains from the next bull market.