It doesn't even felt that long since the last crash. In my previous Defi adventure post, I was talking about breaking even in terms of the opportunity cost if I have held on to my ETH bought for Defi onboarding. How is my Defi portfolio faring now? The capital value has taken a slight beating in this storm but faring better by 14% than if I was holding ETH spot. That's in spite of a farm-wrecked episode after inception.
(Note - ETH price on the date of my last post was around $4250, but now it is around $2700).
A problem with spot trading is that we are often not that great at identifying the tops and bottoms. We can identify a trend but we often do not know how long the trend will last; whether we are selling too early in an uptrend or buying in too early in a downtrend. At times we wished we had done the opposite of what our brains tell us. A really simple way to overcome this is to buy or sell in tranches.
That being said, the problem when I want to offload all of a cryptocurrency holding in Defi is platform over-diversification (which I did to spread out farming and dApp risks). However, doing so will hinder me from doing a quick selling of say all my ETH when I felt that the market is overheated. Withdrawing and selling of cryptocurrency on Defi is a complex process of navigating different chains and farms to break LPs from the pools before exchanging the tokens for stables (unless yours is a token/stable farming pool or Curve atricrypto pool, which has the beautiful function of letting one choose to withdraw all tokens in BTC, ETH or one of the three stable coins).
When the bear market strikes, the only way to make profit is to "short sell". But for cryptocurrency, it's not done like the traditional CFD. It's more complex - "short selling" can be done on trading dApps (quite a hassle by putting up collaterals and monitoring against liquidations) or on dApp Aave (by closing out any stable coin loans and borrowing crypto to sell e.g BTC).
Take note that in a bear markets the yields (APY) everywhere would get cut. This is due to liquidity crunch on DEXes and all farm tokens plummeting in prices.
On the brighter note, I can make use of LP mining to do DCA (dollar-cost averaging) in a bear market. Exchange part of stables into the token of interest, dump into the LP pair with the stable, if price of the token plunges further it became auto-DCA. When the market looks like it's on the brink of recovery, remove the LP and wait for a price surge then sell the token. It's a strategy where patience is tested and one would be slowly earning yield for as long as the token doesn't mega crash.
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| From Dune Analytics |
My crypto bags
Layer 1 chains:
ETH, BTC, MATIC, AVAX, CRO, SOL, FTM, DOT
Layer 2 chain:
IMX
Utility chains:
LINK, GRT, ZRX, REQ, AUDIO, AR
And small bags of metaverse, protocol tokens and the meme coin SHIB (bought a bit to do liquidity mining for fun on Polygon Quick).
Most of my holdings are native tokens of L1 blockchains. Actually they have more utility value to me than those utility tokens that I hold. Sadly, I was late to onboard AVAX, SOL and DOT. Although these new generation L1s are mostly banging on scalability, which Ethereum still lacks, they also have certain unique features eg. programmability, IBC capability, subnets etc.
Utility tokens no doubt took the worse trashing in the crash (dropping even more than my meme coin ugh!).
Below is an illustration of the crypto price plunges in % from their ATH.
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| Source unknown |
There's bound to be something one can do to take advantage of market conditions - no matter good or bad. Unless the market is in a flattish non-volatile crabbing state, during which we should just sit on our hands and watch.
One good article that I have came across about playing the market talks about Probabilistic thinking.
"Retail traders are often bad at evaluating the attributes of a crypto asset, as they are unfamiliar with the technological or fundamental merits — but they’re also quite bad at evaluating the price behaviour of a crypto asset, since they are unfamiliar with trading concepts, price charts and financial markets. And if a trader is making shitty or biased estimates as to what could happen in the future, then they’re calculating bad probabilities and probably losing all their money.
Realistically, I think 95% of people reading this should probably not be actively trading crypto markets. Simply having exposure to the fastest growing asset class of the last decade is good enough, and the potential upside of winning some trades is not worth the risk of you losing that exposure. If crypto does fulfill its societal mission, there is still a gigantic amount of long-term upside and it’s better to just survive than try to maximise short-term gains."
And sometimes we can liken playing the market to Poker:
Playing Poker will give you an unfair advantage in Crypto.
— The DeFi Edge 🗡 (@thedefiedge) February 18, 2022
But you don't have to play thousands of hands to reap the rewards.
Here are 17 most important lessons:
In a bull market, anyone can be a winner with any pick. The real survivors are revealed only in a bear market.
Don't envy those who claimed they have made it, I am sure there are fellows who had 10x or 100x and still lose it all. It takes a lot of discipline to sell when a coin is pumping, cos it is psychologically difficult to let go of something when it was looking rosy. After witnessing a number of pumps, what I observed is - the faster a token pumps, the faster it dumps. So learn how to sell, especially after a steep pump.
Some may see bear market as a bane, some may see it as an opportunity. I believe if one takes calculated risk and invests with what one can afford to lose, this winter will too come to pass.
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Thanks for reading!
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