- The 2020 Bitcoin Crash Helped Me Prepare The May 2021 One
A few weeks ago, when the crypto market crashed on 18–20 May, personally it felt different to me.
Don’t get me wrong, a crash, especially the one happening as fast as a bitcoin crash, is still nerve-wracking. But this time, unlike the corona-induced crash in 2020, I wasn’t completely caught off guard.
My portfolio is down 25% since its all-time high. With bitcoin down 50% (and even worse for some altcoins), you can say that I am outperforming the market.
For this “achievement,” I got the past crashes to thanks to, especially the 2020 crash.
Although I bought my bitcoin a long time ago when it was valued at $600 a piece, I have only started routinely trading crypto in late 2019. At the time, there was some sort of euphoria as well.
Bitcoin was about to get through its third halving. Altcoins seemed to awaken from their 2018–2019 bear grave. I remember making 100% profit a night on some obscure names. At the time, the terms meme coins or meme stocks were unknown.
Across the pond, in the realm of the stock market, indexes kept hitting an all-time high. Life seemed to be good.
But you know what happened next. The corona happened, inducing a crash in both markets. It taught me some priceless lessons.
When a bull run enters its intense and crazy period, I tend to hold fewer coins. The past crashes show me, the more coins you hold the more confused you will be when things turn in the reverse.
I remembered having too many names in my portfolio in the past and I wasn’t able to think clearly when a crash happened. Holding too many cryptos is overwhelming. It is also unnecessary as well. During weak periods, cryptos in general move in the same direction with one another.
That’s why when I found Ripple in an old wallet, I sold them immediately on its all-time high. I don’t invest in Ripple because I don’t believe in it.
That’s why when weak signals are incoming, I sold my low convictions name, the ones I traded for momentum during the peak of the bull market. I said it over and over again in my articles. Meme coins/stocks are a luxury during a bull market we can no longer afford when things go in the opposite direction.
Accumulating is something you do during a bear phase or a consolidation phase. When coins are rallying and getting ultra-expensive, I stop buying new names.
Instead, I aggressively trim my portfolio and focus on a small number of cryptos I truly believe in. This is the same strategy I apply to stocks.
Remember that peace of mind is usually underrated, but you need it the most during a period of turmoil.
Experiencing lots of crashes and corrections —even during high-traffic bull events has drilled me on how to save my portfolio when the stampede finally happened.
One thing to consider is how strong the infrastructure of your exchange platform is.
Most of the time, I used to lose money due to the inability to sell my holdings during peak traffic. The exchange crashed. They limit your trading capacity. It sucks to lose money because of technicals.
Before the May 2021 crash, we had already experienced this kind of issue. One example is whenever DOGE had its most volatile moments. Dogecoin was a practice of some kind. It prepared me for what’s coming.
It was just DOGE, imagine when it’s every crypto.
To deal with this possibility, I plan things in advance.
Always prepare an exit strategy, no matter how good the situation seems. Me being risk-averse by nature helps with being cautious. I roll out plans, a list of when to sell, what to sell, and how much. It’s also wise to set your orders beforehand and to sell or buy when the tsunami of liquidation isn’t here yet.
You must also understand the typical behavior of the exchange you use during high traffic. Every exchange is different. Learn their little nuances and technical glitches to prepare some workarounds. It’s like being in a building knowing where the emergency exit is located should a fire ever happens.
In this article, The Regret of Not Selling at The Top, I wrote about how in most cases, the best thing to do during a correction or a crash, is to do nothing.
I proved this by not selling any of my bitcoin during the 2017 crash, the subsequent crypto winter, and further proved it by holding during the March 2020 crash.
I also learned the hard way by selling some names like Doge last year. (Although I can’t entirely blame myself, Dogecoin was never a strong conviction pre-Elon era.)
This is also something to prepare as well in your doomsday strategy.
- Which cryptos you plan to hold for dear life.
Which cryptos you plan to buy the dip.
Deciding what to hold ahead takes one more burden out of your brain. When a crash happens, you can simply ignore this specific crypto you plan to hold. It’s one less problem to deal with.
In my case, it’s bitcoin. I don’t do anything with it last week. I can safely ignore it because I know, that’s the coin I’ll hold no matter what. I could redirect my energy to other coins that need more immediate attention. At most, with bitcoin, I just set buy orders at several price points.
Money management is truly the king.
My first instinct when I sense a crash is about to happen is to make sure my liquidity is in check. To translate, I have to have more than enough cash or stable coins to buy the dip should the price really tanks this time.
It’s not a good feeling when you’re watching a great price discount but you don’t have dry powder. I know this feeling well because, during the March crash 2020, I was caught off guard with little cash when bitcoin dropped 50%.
As mentioned at the time it looked like nothing bad (a.k.a a pandemic) would about to halt the world. I was overconfident and went fully invested.
Since that time, I made it my principle to avoid the same thing from happening again. I make sure to increase my liquidity when I sense the market is about to correct.
In practice, this is what I do.
- Close short-term positions. For example, I immediately sold my ETH which I bought at $3,200. I sold at $3,700 when the price started to go down from $4,000. Ethereum as of right now is trading around the $2,800 mark. I made the right decision.
Never hesitate to sell a short-term position at a loss. It’s better to take small losses now to avoid big losses later.
Selling low conviction coins.
Trimming some coins in that overvalued. I sold half of my BTG (Bitcoin Gold), which I bought last year and has since gone 20x to its ATH this year. For me, it’s just time to take profit and move to other coins.
5. Deposit more money from my other source of income. I just deposited a big chunk of money to my crypto account recently. Actually, it’s been a while since I deposit a substantial amount. The last time was a year ago.
It’s great too that I naturally refuse to buy everything at an expensive price. It applies to stocks, cryptos, and dresses. During April and May, I rarely staking cryptos. In fact, most of the time I was selling.
The past crashes taught me that, no matter how FOMO you are, always believe that there will be an opportunity to buy cheap again.
This principle helps me to not chase the green candle. Somehow, my brain is trained to become awry when crypto reaches another all-time high. I’ve also trained my hand to always take some profit whenever there’s another all-time high. I guess it’s some kind of conditioning having experienced various kinds of market turbulence in the past.
When I bought the dip I don’t just throw a big amount and open a big position. It’s simply a practice of good money management. You can never know whether a dip will keep dipping or not. Additionally, when you have to let go of a position because it hits your stop loss, the losses can be minimized when you buy a small amount periodically.
The exchange I use charges 0 trading fees for makers. I make sure to fully take advantage of that.
It works for selling too. When you plan to sell your coins on the way up, make sure to sell little by little to minimize the risk of selling too fast and too cheap.
- Date of publication:
- Mon, 06/07/2021 - 03:19
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