Take a Deep Breath

Be fearful when others are greedy, and greedy when others are fearful.

- Warren Buffett

Getting through your first real crash

(i.e. 50% drop in a day)

You said you’d be fine. You thought you were prepared. You read the risks, disclaimers, and you knew the crypto market was volatile… but now it’s happening to YOU, and you’re freaking out a little. Also, Murphy’s law says you probably just bought a whole bunch right before the crash too, and that’s making you feel even worse.

That’s ok! You eventually get used to volatility like this, and it won’t bother you at all. But, most everyone freaks out a bit their first crash or two.

The important thing right now is to NOT DO ANYTHING STUPID. 🙃

Remember the Market Manipulation section? Well, you now know that manipulation is typically the cause of big market moves, and it’s exacerbated by people using leverage that have their positions forcibly closed.

No matter what happened this time: Regulation fears, the market being over leveraged, a hack or big technical failure, some government “banning” crypto, or some new thing…

Unless the whole internet was destroyed (and you’re reading this, so clearly not), or the fundamentals of the entire world economy somehow inverted overnight, the underlying investment thesis is still valid. Stay calm and stay the course, everything will be fine. 🙂

But, just to be sure, let’s cover a few Do’s and Don’ts.

What should you do?

Most crashes in crypto happen during bull runs, and reverse themselves pretty quickly. So, typically, the best thing to do is nothing at all. If anything, these are often very good buying opportunities!

Especially if you own quality projects, you have nothing to worry about, just hold what you’ve got. If you own positions you aren’t confident in, or took some risky bets, you may want to consider using this crash as an opportunity to close those out, take a tax loss to offset some of your gains, and buy something you won’t stress about while it’s on a discount. Crashes are a great time to do that!

What else should you do during a crash?

Stay off social media

Go for a walk, get outside, do some yoga, etc

Remember this is all just numbers on a computer screen

Educate yourself about something that will be useful in the future

Look for good buying opportunities

What should you NOT do?

Freak out 🙃

Panic sell quality projects (remember… this is what they want you to do!)

Try to “trade” this if you are not a professional trader

Go on social media or listen to your friends who are freaking out

Obsess about the headlines

Stress yourself into a nervous wreck

Again, most of these “crashes” in bull markets reverse themselves fairly quickly, but they don’t always. That’s when we get to the thing that really scares people, prices going down, and staying down…

“Help again! The crypto markets keep crashing, and it’s getting worse!”

Getting through your first real bear market 🐻

Ahhh yes, the dreaded crypto bear market, the “crypto winter”. Well, if we are truly here again my friends, allow me to welcome you to the trial that all true long term investors, believers, and futurists must face…

It sucks.

Yep, no way around it. While it may be simple to build wealth, times like these that prove that simple does not mean easy. Bear markets are periods of extended downward price action and highly negative sentiment (i.e. “crypto is going to zero! it’s all a bubble!” etc, etc). We’ve been here before, many times. On average, a prolonged crypto bear market has begun about every 4 years for the last 12 years or so, and each one has lasted several years, with a maximum drawdown from the peak of 80%+ multiple times (ouch!).

While difficult, just like an actual winter season, bear markets are actually healthy for an economy. They clean out the weak projects, the bad ideas, many of the scammers, and the ideas that don’t make economic sense. On the flip side, they make strong projects stronger, they galvanize communities, and they bring the focus back to fundamental improvements vs marketing and hype. The businesses and crypto projects that survive and become stronger will be the ones to lead the charge during the next bull cycle.

This mechanism is the same with investors! The “weak hands” and people who aren’t really committed or convicted, sell their holdings… and who buys them? The people who are in this for the long haul, the “strong hands”. The real wealth is built by the people buying during bear markets.

While it seems logical that future crypto cycles will be shorter, potentially less frequent, more sector specific (i.e. a Bitcoin bear market doesn’t need to be a bear market for everyone), and they may be less severe as crypto gains mainstream adoption (i.e. maybe a 50% maximum drawdown rather than an 80%), that is not a certainty.

You should always be prepared, both financially and psychologically, for a prolonged bear market.

So what should I do during a bear market?

Make sure you’re in high quality projects that are likely to survive the lean times. This matters much more than it does during a bull market crash, since weak projects won’t survive the hard times.

Centralize on your highest conviction bets to ride out the winter!

Set up your holdings to cashflow/generate yield for you if you can (Staking, maybe some in CeFi/DeFi, or even more advanced strategies if you’re technical enough).

Definitely dollar cost average purchase into your highest quality positions. This is the best time to buy, as prices will drop to the lowest they will ever be, typically when sentiment hits its lowest point. (when it’s a “depressing" time to be in the market, it’s a great time to buy!)

What should you NOT do?

Freak out 🙃

Lose your nerve

Get depressed about the markets

Be in a position where you have to sell, or where you “need” the money (I can’t reiterate this enough!)

Stop learning, growing, or otherwise improving your knowledge for the next cycle

You will probably be much better off just holding what you have and riding it out than you will be trying to sell and buy back in at a lower price (i.e. trying to trade or time anything), though you may have good tax loss harvesting opportunities during the bear market if you’re sitting at a loss on paper (consult your tax advisor). Using Bitcoin as a proxy for the crypto market, every time it has gone through a bear market, the low of that market has been higher than the previous high of the last cycle.

So, even if you bought at the worst possible time at any point in a previous Bitcoin cycle, if you just held long enough, you were in the green. At the time of writing this article (November 2021), even if you were the poor soul who bought Bitcoin at $20k in 2017 right before the crash, if you’d just held through until today, you’d still be sitting on some solid returns. 😊