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Today I wanted to share my current thoughts on why you should have an exit strategy, I first got into crypto this year in April yes, a little late but just before the major crypto boom and was able to snag a few projects at low prices. These projects are currently keeping my portfolio a float in the current market, I have confidence that we are still in a bull market but I do see that a bear market could be in the near future (2022). I don’t want to fear monger and say crypto is over but I do feel it's time that I start looking to take profits when the market is favorable and get in a position that allows me to take advantage of a bear market, for me that means reducing current investments to free up cash so I can reinvest in a down market.
These last weeks has shown me that a 50% reduction in value is possible with news that has a low overall impact. Tesla stops accepting bitcoin ,Vitalik Buterin dumps/donates millions of dollars’ worth of meem coins, China banning Bitcoin mining and Bidens tax news all columnated in the market taking a significant hit. When in reality they mean nothing – Bidens tax legislation only affects US business receiving amounts of ten thousand dollars or more, China is proposing banning Bitcoin mining operations from using fossil fuels such as coal and incentivizing greener solutions. How are these bad things for crypto? If anything, it's positive, Bidden is setting tax legislation for crypto which means the US government sees a future strong enough that they need to implement regulations, China pushing renewable energy in Bitcoin mining is not only fantastic at an environmental level but setting a standard of green energy for Bitcoin can have a remarkable global effect on the way people mine crypto currencies.
The uproar in the crypto community when tesla removed the ability to purchase cars was ridiculous, eventually tesla will accept a crypto asset it will just take time, that asset may not be bitcoin – do you buy a car in gold? Clearly there are reasons they stop accepting Bitcoin whether that’s social politics or actual environmental concerns its irrelevant in the long run, it would however be quite ironic for tesla to try and fight the environmental front by not accepting bitcoin when they themselves are a large contributor to climate change and Bitcoins power consumption / emissions is relative, try calculating the running costs of the US dollar or the Total emissions of the gold mining industry globally and lets not mention lithium mining .
With this information in mind, I started to think that with this market volatility that a bear market was inevitable, I then started researching Bitcoin cycles and how the market operates. A quick summary for those who don’t know about bitcoin cycles – Bitcoin runs in a 4-year cycle and the cycle resets after Bitcoin's halving, halving's happen every 4 years and the halving reduce miners' rewards, the cycles is roughly like this
- First year: Rally , everyone buys – usually because the halving happened last year
- Second year : Profit taking / Massive retrace
- Third year : Finds market bottom between second and third year and starts gaining value towards the later end of year 3
- Fourth year: Larger buys at the start of the year preparing for the Bitcoin halving
The aspects of exiting the market
Everyone's exit strategy is going to be different depending on multiple factors –
- Current wealth outside of your portfolio
- Current profit and loss, are you up are you down
- Belief in the market's future
- Goal, are you investing with the long or short term in mind?
- Do you want to stay invested and by how much?
- Capital gains tax
All these factors can greatly change your exit strategy. These are some of the things you need to think about when creating a plan to exit. Do you want to leave completely or would you like to keep 25% in the market? How will tax affect your profits? it's it a good idea to create a trust or a business to offset tax. Are you receiving government support like welfare and how will your profits affect your welfare payments? You wouldn’t want to withdraw $20,000 and then get cut off from government assistance.
It can get intense quickly when you start trying to think about how, why and how much you want to take out or leave in, I could say just sell 75% and keep 25% in but that doesn't account for any of your variables and I feel that it would be a disservice to you if I was to tell you what to do with your own money and investments instead, I urge you to consider creating a plan and assessing what variables affect you and how the best way to handle those variables would be.
Do you need an exit strategy?
This is a question only you can answer, I feel I have given a few reasons why you may want to be prepared for a bear market but let's play devil's advocate for a minute, the situations that I can think about where I would consider not exiting is if I'm a miner or an individual that has the ability of dollar cost averaging or mining over a large period of time, this person would be financially sound if the market was to shift to the down side , this person would have also invested early and even went through the 2017 bear market. There profits may be so great that a bear market this time around may not actually hurt them in the sense of the initial investment, the money that they lose over the short term only reduces their profit margin and dose not eat into the capital invested. This individuals' strategy is protected by personal wealth and they have the luxury of long-term investing (5 to 10 years) accumulating crypto instead of fiat value so once the projects garner adoption their investments pay off exponentially as long as they picked the right horse in the race.
The necessity of an exit strategy may be felt more by a retail investor that does not have the protection of personal capital or may not have the safety of other investments like stocks or bonds. If your entire portfolio is crypto and worth more than $5000 and you don’t have an exit strategy then I would say diversify your investments into government bonds and index funds to protect yourself and consider holding some cash whether that’s in stable coins like DIA or USDT or just cash in a flexible saving account. This cash not only gives you the ability of buying dips it also allows you to replace your fridge for example if yours blows up, trust me you don’t think it will happen till you buy a few hundred dollars of crypto and then boom now you're up for $1000 to buy a new one or the ordeal of buying one second hand, either way if you don’t have a safety net you could be eating out of an Esky (cooler) for a week or two maybe more depending on your situation.
Investing with low capital
Everyone says don’t invest what you don’t want to lose and at its core its fantastic advice but it's also unrealistic here is an example: most people that are working class make around $60,000 and let's say you want to grow your wealth which is 100% fair and in you right , now depending on your cost of living what you have left to invest is small in the grand scale of investing but let's say this person managed to invest $1000 that’s 1/60th of their total yearly income , $1000 could be a month's rent or food for some people so can the average person go without a house or food for 1 month maybe but if their job needs them to turn up clean and for them to do some work outside of the office it's going to be extremely challenging and they may lose their job. I understand that this situation could sound like a bit of a stretch but for some its reality and at the end of the day when someone sees a crypto project got up 50 to 100%, they forget that the $500 they just through in they might need and the market may not be favorable in the direct future.
So, saying that you shouldn't invest what you don’t want to lose is a null and void point for some because the capital they are investing they could also need and in the same vein if people always listened to this moto of not investing what they don’t want to lose then the people that echo the moto would be a lot poorer , I am not recommending by any stretch of the imagination that you should throw your life savings into investing but what I'm saying is that investing has long been controlled by wall street elites and their agenda is to make money , they not only can make money buy you not being involved in investing they can also make money from you investing emotionally or over capitalizing your position. I try to choose the approach of smart investing and DCA for low capital investors, if you only have $1000 don’t spend it all at once, stretch it out over months try to buy dips and learn the market. Have a balanced portfolio, personally I like to have my crypto portfolio 25% to 50% made up of Btc and Eth and the rest is in top 300 alt coins, the top 50 coins are going to be the safest options just don’t invest in hype/meem coins and take PROFITs once a coin goes up for example 20% to 50% sell 10% to 25% and reinvest either in that coin or roll the profits in to BTC or ETH once the market has dropped to an acceptable level.
I say all this because I believe that everyone that has the interest of growing their wealth should be able to invest, whether that’s stocks, bonds, property or crypto everyone has the right. The issue is that the system is rigged against those without the capital to begin with. Be patient and remember those that are exposed to the market for a long period of time are rewarded.
In summary
Having an exit strategy is one way to protect your investments and it gives you a plan in a time of emotion when it may be hard to sell or buy. It allows you to plan for the future and dictate that once X reaches Y you sell a certain percent of X it does not matter if X reaches a higher Y value all that matters is that you made a specific percentage return that you predetermined to be positive and you should celebrate the fact you made a fantastic decision that resulted in overall profits, don’t be greedy have set targets and stick to them because there will always be large dips acting as buying opportunities as we have seen in the last week.
Crypto as a whole is always filled with FUD fear uncertainty and doubt, this not only creates buying opportunity's but also can cause massive loss. Understanding this can allow you to capitalize on these situations which can be rewarding but also an understanding can strengthen your resolve in the market especially if your down 50% or more. Short term gains may well give you the confidence to trade but it’s the long-term profit and loss that secures your wealth for the future.
As warren buffet once said – Be Fearful When Others Are Greedy and Greedy When Others Are Fearful. This is a moto to live buy no matter your capital.
