My Defi adventure 5: Lessons from recent crypto crash

Crypto crash reared its ugly head again from May to July this year, giving recent hodlers jitters and jelly-hands.

The sell-off sprees that happened about every weekend, in that period, were as predictable as the weekend markets. Making my heart plunge every time I check my massacred crypto portfolio. The ETH gas price had a record crazy surge (as degens rushed into action) and subsequently sank slowly to the lows as crypto prices plunged lower by the weeks. 



Network was clogged. Even Polygon, an Ethereum Layer 2 network, at some point in this period.


However, looking at the recent run up in prices and positive sentiment swing, perhaps we are out of the wood (FUD over? Such a short winter?).


Still, I am not convinced of the $100,000 BTC year end target price prediction. My humble opinion is that BTC will continue to face resistance in the momentous upswing as long as the tug-o-war between policy makers and pro-crypto parties continues. Despite a possible slow climb moving foward, it has proven to be super rewarding for those that remain long in crypto for the past years to date, especially for the OGs and those who held through the crashes.

Studying the past patterns

Technical Analysis

Given the speed and volatility in crypto prices, it seems that waiting for a MA cross-over to make a conclusion on bearish or bullish momentum will often prove to be a tad too late. Perhaps a better indicator is a direct price cross of the 200 MA or the sell volume mega spike.


As we can see below, before the 'death cross' appears, the first mega plunge was already over and has even performed a small trampoline bounce. Towards end of May, we can see a significant volume spike (capitulation volume) and more long vertical red candles possibly exacerbated by liquidations all the way into the $31k zone. 

Thereafter, we saw another two bounces and minor falls forming a pattern that looked somewhat like a dead-cat bounce. The dead cat revived on 21st July.


BTC price has crossed its 200MA but 50MA is still otw


It pays for one to be skeptical and do a sell-off on the first post-crash bounce, then wait. The slide after first bounce could very well be the effect of the "death cross". (Hindsight Zhuge here again.)


Note: Alt season, which refers to altcoin uptrend, tends to lag BTC uptrend / spike. Alt coins tend to lag in the plunge as well (like my ETH MATIC case below).


We can see in the chart above that despite a quick price recovery, BTC's MA50 still has not cross over its MA200 line. With a lack of negative narrative and greed building up again, there's bullish momentum for now.


Crashing into Defi space - to learn crash survival

As I have blogged about previously, I started my Defi adventure at the worse of all time and that was in mid May - right before the crash.


There are two points I want to highlight - Opportunity cost and Timing. Both closely related.


Opportunity cost

When one gets too attached to the farms that one is in or gets too captivated by chasing APY yields, it would result in decision-action lag.

This means not rotating out of assets fast enough to capture upside opportunities and/or selling assets fast enough to minimize downside losses.


Remember, locking up an asset equals opportunity cost. However, it can be mitigated if you are using it as a collateral or hold a strong bullish view.


It is absolutely possible to capture gains of both long and short positions in Defi. Just that one needs to have a strong gut and decisive mind.

And we got to look at...


Timing - bullish view versus bearish view, DCA

In executing the strategies below, you need to bid your timing in the cycle.


Bullish

- Money starts flowing into exchanges and crypto flowing out, Defi space's TVL heats up, more participants joining the party, many hype about new projects and hottest coins

- Convert stable coins to tokens / alt coins. Deposit tokens / alt coins into Lender dApps.

- Farm or hold on to yield tokens of reputable farms (high TVL, multi-platforms). The less popular tokens tend to crash faster and recover slower (like stocks).

- Leverage on stable coins (either farm or purchase coins to long). 

- De-leverage on coins and tokens (if any held).


Bearish

- Crypto starts flowing into exchanges and money starts flowing out of, Defi space's TVL plummets, participants getting spooked, bearish tweets and FUD starts

- Convert tokens / altcoins to stable coins.

- Sell all yield tokens before their prices spiral down

- Start to leverage BTC / altcoins in Lender dApps

- De-leverage stable coins and watch your LTV to avoid liquidation


Of course there's a another bear strategy, which is not to do anything and just hibernate out the winter.

Related post: Different spaces but same logics


My worse mistake during the crash was a blind FOMO into farms without any foresight and too much "hopium". 


When I onboarded Polygon with ETH, the first thing I did was to change ETH into Matic to farm more Matic. Here's the cost (MATIC per ETH price) at that time on a few dates in May/ June:

2241
1662
1516
1172


Matic was experiencing some crazy price spike at that time due to the attractive farming rewards and Polygon craze (people were looking to bypass the high gas price on Ethereum chain). The piqued interest to onboard increased Matic's demand and caused it to become expensive relative to ETH. 

Then the flash crash came and Matic price dropped drastically relative to ETH (a crypto "forex" experience for me). Another reason for the MATIC price crash is the increase in circulating supply from protocol's incentive rewards payout. This caused a selling pressure which pushed the price further down.


In order for me to break-even and offboard in the base currency of ETH, I have to wait for another Matic price spike (probably spike in usage again or some NFT catalyst) and continue to farm for Matic in the meanwhile. 
Note: My Sushi farm has broken-even (ETH-MATIC LP).


Yeah, I certainly didn't start off with a very smart plan...

Source: SecretsOfCrypto on Twitter


DCA (Dollar Cost Averaging) and portfolio re-balancing

In a down-trending market, DCA through winter might work out well. Although some might call that "catching a falling knife". This is because we cannot tell for sure when will the bottom be before a sentiment /momentum change. 

Another viable strategy might be to wait for a big plunge eg. 40% to first happen and then DCA for every subsequent -10% or -20%, depending on how deep one's coffer is. 


I could have been profitable if I manage to sell quickly into stable coins to farm the winter on Defi. Then slowly DCA using the stable as token prices fall. The only flip side is the need to service loans given that my collateral value will be falling too (just gotta ensure APY of farms remains higher than APY of loans).


Benchmarking

I did benchmarking of my altcoins performance against ETH. It is also not wrong if you choose to benchmark against BTC instead, say if you are doing Defi on multiple chains and not solely on Ethereum's.

On calculating, I would have fared better as a spot trader of ETH than as a "gan chiong" farmer in those times of volatility. 

Perhaps as the saying goes - less is more!

Less actions = better clarity of mind = more gains


More posts of my Defi journey:

A good article for beginner crypto traders: Crypto trading tips and common mistakes


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Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets. This post contains affiliate links.

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