I’ve said this before and I’ll say it again:
Making a return on your crypto investment is the easiest thing to do. All you have to do is pick a project to invest in—literally any project—and ride it for the 6 hottest months of the bull run.
With that strategy, you’re bound to make a 50-1000%+ return on investment.
That’s what most people do. They buy in during the hottest parts of the bull run and they become elated to see their portfolio growing exponentially, with seemingly no end in sight.
So why is it the case that most crypto investors have never profited a single dollar? In fact, most are down money.
It’s because they’re either new to crypto investing and don’t understand the market patterns, or they’re crypto veterans who are likely making the same mistakes over and over, cycle after cycle.
Your gains (and losses) are only realized once you sell. And contrary to the popular narrative, most of the profitable crypto investors aren’t holding their bags through the deep bears.
Honestly, you’d have to be a fool to do that. As we can see right now, in the middle of 2022, even the most fundamentally sound projects will experience a 90-99% draw-down from their bull market apex. The only exception to this rule is Bitcoin (and arguably Ethereum, to a certain extent).
We don’t believe in holding forever throughout the length of bear markets. Why do that when you can secure your profits and then have more money to buy back in at a lower price in the near future?
Unless you believe in the crypto-Twitter meme of “up only”, which kind of does happen, but only for so many months at a time.
Besides, this industry, and the entire world, frankly, are moving so fast. Who knows what will happen in 2, 5, or 10 years. Will the project you’re invested in still be going strong? Will crypto and Web3 even be around then? We think so, but who really knows?
So for these reasons, we recommend you always secure your profits.
Knowing when to sell (and buy) is the hard part.
Luckily, by studying patterns, we can make educated guesses about when exactly to buy and sell.
Market Dynamics are One Giant Game of Smart Money vs Foolish Investors
Emotions, Social Media, Influencers, and a “This Time is Different” Mentality Tend to Fool Us
It’s easy to get caught up in your emotions when investing. This is especially true in crypto and Web3, because the volatility is unlike any other large market.
Aside from the extreme volatility, the fact that Web3 investors rely on social media as a source of market news, project developments, and price speculation only contributes to the emotional rollercoaster.
There are other contributing factors too, like the Wild-West style of crypto and its (lack) of regulations.
And don’t forget the many prominent influencers in the space who have amassed a large, loyal following simply because they were early to the BTC or ETH party. They often preach “forever hodl” and “up only” because they’re financially incentivised to do so.
It’s all a recipe for masses of extremely emotional crypto investors who don’t know any better.
Unfortunately, our emotions often dictate our actions. It’s easy to follow how we feel and follow the masses. Sometimes we follow them right off the cliff or right into a trap.
Become Educated, Learn to Analyze and Think Critically
You don’t have to be part of the market majority and be an unprofitable Web3 investor.
You just need to put in a little bit of work to learn how to read market sentiment and how to fade the masses.
Learn to think for yourself, perform your own analysis, and come out on top at the end of every market cycle.
Market Sentiment
Market sentiment refers to the emotions, thoughts, and feelings about a market or asset. You can also think of it like the “public’s opinion”.
When market sentiment is good and strong, hardly anyone thinks about selling. At the highest of times, this can be thought of as extreme greed.
When sentiment is down, hardly anyone thinks about buying. At the lowest of times, this can be thought of as extreme fear.
The best investors know how to read the general market sentiment and use it to their advantage.
Greater Fool Theory
The Greater Fool Theory is an idea about exuberant markets and how people will buy overpriced assets—even if they know they’re overvalued—because they think some other fool will buy it at a higher price.
Don’t be the fool. Don’t get caught holding the bag!
Smart Money
Smart money is a term that refers to the people who tend to consistently profit in a market. They generally understand the market patterns (cycles) and are able to read market sentiment accurately.
Smart money inventors tend to fade the foolish money. Which means they do the opposite of what the fools (and therefore most of the market participants) are doing.
This is because they know that most investors never profit. They know that most investors are foolish. So it pays to be contrarian.
Perhaps only in the middle of bull-runs will the smart money and the market majority both be doing the same thing (holding and tripling down to squeeze extra profit).
How the Crypto Market Cycle Works
So how do the smart investors know when to buy and sell?
They have great analysis skills. They ignore the noise. They stay level headed. They stick to their plans. And they play the market cycle.
Every Market Goes Through Cycles But Crypto Market Cycles Are More Pronounced
The crypto market, like any other market in the world, cycles between fear and greed.
Fear is what causes someone to want to sell an asset (expectation of the price dropping).
Greed is what causes someone to want to buy and hold an asset (expectation of price growing).
A market cycle is the completion of the long-term-trend of market sentiment changing from fear to greed and back to fear.
With crypto being as volatile as it is, it means the market cycles much more pronounced compared to other markets. There are higher peaks (with extreme greed) and lower valleys (with extreme fear).
The Four Stages of the Crypto Market Cycle
The crypto market cycle is just like any other market cycle in that it has four common phases before the cycle completes.
Just below, we’ll explain what each phase is and we’ll also explain what the market majority (fools) and the smart money tend to do in each phase.
Accumulation
Market has bottomed.
Market Sentiment: Hoping for lower prices. Fatigued. Uninterested.
Market Majority: Sitting idle. Not sure if should buy or not.
Smart Money: Buying. Usually by dollar-cost-averaging in their perceived low ranges.
Mark-Up
Bull market.
Market Sentiment: Expecting higher prices. Delighted.
Market Majority: Starting to buy/continuing to buy.
Smart Money: Continuing to buy/starting to take profits.
Distribution
Market has topped.
Market Sentiment: Expecting higher prices. “This time is different.”
Market Majority: Continuing to buy. Thinking about taking profits.
Smart Money: Finishing taking profits.
Mark-Down
Bear market.
Market Sentiment: Expecting lower prices. Scared. Extreme fear.
Market Majority: Selling. Not sure if should sell whole bag.
Smart Money: Sitting in stablecoins/cash.
Notice a Pattern? If You Want to be the Smart Money, It’s Better to Be Early Than to Be Late
This is one of the major takeaways from this article:
It’s better to be early than to be late. Especially when it comes to selling.
You don’t need to time your selling at the absolute apex top. And you don’t need to time your buying at the absolute rock bottom.
Chasing apex tops or rock bottoms is how you get wrecked (rekt)!
A savvy web3 investor should be trying to do two things:
- Preserve initial investment + profits. AKA manage risk.
- Maximize gains.
In that order! Because what good is maximizing your gains if you’ve already lost all your money? There are PLENTY of ways to lose money in crypto, and holding on to your bags of coins too long is one of the most common.
You DON’T need to time the top or bottom. You just need to be in the market for the majority of the mark-up phase and remain out of the market for the majority of the mark-down phase.
That’s crypto risk management 101.
If you follow those rules, you’ll profit more than 99% of crypto/Web3 investors ever have.
The Bitcoin Halving is an Event You Need to Know About
Bitcoin is the leader of the crypto markets. That goes without saying.
But did you know the Bitcoin halving is one of the leading indicators that signifies the kick-off of a new bull market?
At least, historically, that’s been the case.
The Bitcoin halving occurs after 210,000 blocks are filled on the blockchain.
Given that a block is filled up and mined every 10 or so minutes, this means the halving event takes place roughly every 4 years.
Here’s a list of every Bitcoin halving going back to the genesis block.
| Date | Block Height | Block Reward |
| 2009 (January 9) | 1 (Genesis Block) | 50 |
| 2012 (November 28) | 210,000 | 25 |
| 2016 (July 9) | 420,000 | 12.5 |
| 2020 (May 11) | 630,000 | 6.25 |
| 2024 (March 2nd Projected) | 840,000 | 3.125 |
As you can see, the block reward gets slashed in half during every halving event.
The block reward is split amongst the miners who use their computers to verify the transactions inside the blocks.
Looking at previous crypto market cycles, it’s very evident that the halving event essentially kicks off the next big bull run for Bitcoin (and for the entire crypto market).
With the next halving expected around March 2024, should we expect the bull run to kick off shortly after that?
Historically, yes. But the market and the market’s participants are changing so fast. It’s possible the halving is “front-run” and the beginning of the bull market actually starts before the halving date.
The truth is, no one knows. But just based on the timeline crypto seems to be on and where we are in the cycle (mark-down bordering on accumulation), we think the halving-bull run theory might prove to be accurate for at least one more cycle.
The Fear and Greed Index Helps Articulate Market Sentiment
If you’re ever unsure of what the general market sentiment is—it’s probably the same as your own personal sentiment towards the market.
Okay but really, you should take a look at the Bitcoin Fear & Greed Index.
The Fear & Greed Index is described as a Multifactorial Crypto Market Sentiment Analysis.
This means it pulls data from many factors—5 factors to be exact.
- Volatility: Measures volatility of BTC price and compares it to averages of the last 30 and 90 days.
- Market Momentum/Volume: Measures the momentum and volume and compares it to the averages of the last 30 and 90 days.
- Social Media: Measures the amount of hashtags, posts, post interactions and more on Twitter. Reddit analysis is in testing to be added as well.
- Bitcoin Dominance: Measures the total amount of value invested in Bitcoin compared to the entire crypto market cap. BTC dominance is known to be higher in the late stages of the mark-down phase (bear market) and the accumulation phase.
- Google Trends: Measures Bitcoin-related queries in Google, using Google Trends, especially changes in search volume over a period of time.
After taking in all factors, the Fear & Greed Index spits out a number anywhere from 0-100 along with the simple description “Fear”, “Greed”, “Extreme Fear”, or “Extreme Greed”.
You probably shouldn’t completely rely on this sentiment analysis tool as a guiding indicator, but it can certainly paint a picture of how the market majority are thinking, feeling, and acting.
We should also mention that a rating of 90% Extreme Greed has been known to mark the tops of bull runs. So perhaps it has more accuracy than most analysis tools.
Macroeconomic Conditions Are Always the Guiding Indicator
It’s important to always remember that crypto and Web3 are still considered extremely speculative markets for 98% of the population.
This means that when macroeconomic conditions are very unfavorable—AKA the national and/or global economy are looking bleak—people will look to sell their crypto holdings before they sell most of their other investments.
Crypto is a blessing and a curse in that respect. The crazy volatility is what makes it a potential wealth multiplier, if you know what you’re doing. But volatility works both ways. And most people will sell their random altcoins and JPEG NFTs before they sell their bluechip stocks or investment properties. Especially when those tokens are dropping by double-digit percentages every day during the deep bear market.
This is why many “smart money” investors pay attention to the economy. When the economy is thriving and booming, borrowing money is cheap, jobs are plentiful, and company (and token) valuations are growing fast.
When inflation is high and interest rates have to rise, money becomes more expensive to borrow. Jobs get cut. People lose confidence and sell their investments (especially speculative ones like crypto).
So just by knowing roughly what kind of shape the economy is in can help determine when or how long a bear or bull market might last.
Take most of Your Profit Before Major Trend Reversal
As we’ve stated on our Investment Strategy page, we believe trading the long trend is the easiest way for most common crypto investors to make consistently great returns on investment.
This means investors should be buying most of their coins at the bottom of the cycle and selling most at the top. Easier said than done, right?
It’s not easy, but it’s much easier than degenerately day-trading (haha).
You Don’t Need to Time the Exact Top or Bottom
We’ve already talked about this but it’s worth repeating again.
You don’t need to ride it out for every last percentage point of gains. Before you know it, all your gains will be wiped out!
Try to Identify When the Market is at Its Frothiest
When the market is frothiest, it’s usually a great time to take plenty of profits. This means selling your coins and realizing the value into stablecoins/fiat.
A frothy market is an extremely greedy, exuberant market.
It’s also important to understand that extremely exuberant markets with lots of momentum (like crypto) can stay frothy for a long time. So it’s okay to have a slight bullish bias and hold some tokens well into the distribution phase of the cycle.
However, we should be biased towards managing our risk more than anything. Ideally, by this point, you should already have your initial investment cashed out, as well as at least 50% of your total profits.
Make a Plan to Pull Your Profits At Certain Levels—And Stick To It!
Every time you add an asset to your portfolio, whether it’s a top 10 coin or an unknown NFT, you should write down a plan about what kind of return you expect to receive from it and when you might expect to sell it.
It’s important to have a plan. You can adjust it as the market unfolds but you should try to follow your plan to cash out before it’s too late.
For example, if you buy a coin in the accumulation phase of the cycle, by the time the mark up phase (bull market) really gets going, you’ve most likely already doubled your investment (sometimes more, sometimes less).
From that point forward, the bull market could last many more months. Your investment could still grow many multiples in that time.
So you kind of have to learn how to feel the markets. When charts are going parabolic day after day (straight uppppp!), and everyone is foaming at the mouth to buy every copycat NFT project, you need to step back and sense that hey, maybe now is a good time to cash my winning chips in before everything falls off the cliff.
Make a plan to pull your initial investment plus additional profit in the early froth. Pull more profit as the market starts to be too good to be true and before it fizzles out.
“This time is different” hasn’t happened yet.
Be Realistic and Remain Level-Headed, Especially During Times of Extreme Market Emotion
This ties into everything we’ve talked about.
If you want to win in crypto and Web3, you need to be able to identify the phases of the market cycles. You need to have a grasp on what’s happening out in the macroeconomy. You absolutely need to have a grasp of what’s happening inside the Web3 ecosystem. You need to make a plan to research, invest, and take profits before the market flips bearish.
And most of all, you need to remain level-headed. Don’t let your emotions dictate your actions. Don’t be the fool or the market majority.
Be the smart money.
