Author: Chris Burnisks, Placeholder partner
Compiled by: 1912212.eth, Foresight News
If your friends contact you and ask questions about Bitcoin, Ethereum, and other cryptocurrencies, it is not easy to guide them given the current market situation (BTC is close to $100,000). This is especially true when they are inexperienced rookie investors. Here are some lessons I've learned from over a decade of observation.
Ensure that the actions they take are their own responsibility. You may have more experience and knowledge, but that does not mean you are absolutely right. No one understands everything that is happening in this market. If someone claims to be an expert, they are definitely lying.
You can try to explain to them what stage of the market cycle we are currently in. In my view, we have been in the second year of this bull market cycle. (The bottom of the chart is November 2022)
Calculating from the bottom 2 years ago, BTC has risen over 6 times, ETH over 4 times, and SOL over 30 times.
The painful truth is that as token prices rise, people's attention will increasingly turn into purchasing power. Therefore, the more the prices rise, the more people's attention will focus on the potential for further gains, but generally, the later we enter the "attention cycle", the less favorable our position.
So the best entry timing is often when hardly anyone is interested, which was 2 years ago. What if they are eager to buy tokens even though the current entry timing is not the best?
Keep it simple: Personally, if they are rookies, I would tend to recommend holding a certain proportion of BTC, ETH and SOL (50/25/25%), with the other risks borne by them. At least, if they mess up the "entry/exit", they can still maintain a certain amount of capital. If they choose small-cap coins, encourage them to learn and keep it under 10% of their total allocation to reduce risk.
Given the current entry prices, if they double their money, encourage them to take out their principal, which also ensures their profits. Thereafter, if their capital has tripled, they can cash out all of it, or if they are willing to take more risk, they can cash out the doubled portion and maintain the remaining one-time capital (cost), but try to make them understand the possibility of crazy crashes during a bear market. (If they are die-hard Bitcoin supporters and never want to sell, that's fine, but they must be prepared to face difficulties at some point)
Selling during a bear market is due to panic and fear, but it becomes relatively difficult to exit during a bull market, and sometimes if they feel they sold too early, they may hate you, but they will eventually thank you.
They also need to be careful, if they choose to realize their profits and then can't resist re-entering, reinvesting those profits, if the market continues to rise, it will become FOMO - this idea usually leads to adverse consequences.
Because if the market suddenly crashes, they may eventually find that they need to pay taxes on the realized gains, which could be more than the final assets they have left (this often happens).
Every sale of a crypto asset is a taxable event, even if it is exchanged for another crypto asset. Once I start to actually cash out funds, I plan to park them in traditional finance (TradFi) interest-bearing accounts for 12 to 18 months - high-yield crypto stablecoin accounts do not count as cash custody, as there is still crypto market risk, and the leverage accumulated in a bull market may wipe you out. First, I will settle my tax liabilities, and then I will start looking for new investment opportunities again, which usually happens when people lose their minds due to panic, or ideally, when market enthusiasm subsides, and people become indifferent (this often occurs more than 12 months after the market peaks).
Although ETFs and potential sovereign nation purchases may mean that Bitcoin (BTC) will not experience an overly severe bear market in the future, each time a bull market arrives, people will find various reasons to justify the prices reaching absurd heights, or claim that there will be no bear market.
"Supercycles" are without exception collective delusions.
I can see the reasons for the cycle repeating (peaking in Q4 2025), as well as the reasons for the cycle being extended and breaking the four-year pattern. Although we may see some consolidation after the new US president takes office, I don't believe the claims about the cycle shortening. This is just post-traumatic stress disorder (PTSD) from the bear market.
That said, structurally, anything that grows at 100x speed is likely to experience at least an 80-90% retracement at some point - mainly due to too much profit-taking.
If SOL reaches $800 in this cycle, it may drop to $80-$160 in the future (e.g., 2027). So if someone buys at $240 and holds firm, they will lose money in the next bear market. It's hard for people to realize this in the frenzy of a bull market, but since you've been through it, you can now teach them.
From the current prices (SOL has already risen over 30 times from the lows), no one can become fabulously wealthy or achieve crazy multiplier returns, but they will see others making a lot of money, so it's hard to resist the temptation - if you tell them not to buy and to wait because the "ultimate crash" will bring prices below current levels, they will feel pain, because depending on the asset, prices still have 2-5 times or even higher upside potential before reaching their peak, so everything is very unstable.
Finally, I want to further explain that many inexperienced investors think more in terms of dollars ($) rather than multiples (X) or percentages (%). For example, if you say SOL may reach $1,000, they will think, "Wow! That means each SOL will increase in value by $760!" However, from $8 to $240, the value per SOL has only increased by $232.
What they don't realize is that the 30x increase from $8 to $240 is a much larger gain than the 4x increase from there to $1,000. For investors, truly understanding this is very important.
