I’ve been in crypto for five years now, and I’ve lost over $100,000 during the past two bear markets. I’ve created a list of the top 10 mistakes I’ve made so that you can avoid them.
1. Leaving Crypto Forever
The first and biggest mistake is leaving crypto forever during the bear market. I do realize things get nasty during bear markets, it’s normal to feel like giving up when you watch your portfolio drop over, and over, and over again.
However, I think Warren Buffett put it best when he said, “Be greedy when others are fearful.” If we look at historical data, it was those lowest of lows where we could find 100x, or even 1,000x opportunities going into the next bull market.
You got to realize that there are life-changing opportunities during bear markets so if you stay disciplined and execute a good strategy, then you can maximize your ability to get those gains.
2. Running out of Dry Powder
Even if you don’t leave crypto, another huge cardinal sin that people make is running out of dry powder. This just means that you spend all your cash, and you have nothing left to deploy. I’m ashamed to say that this happened to me in prior bear markets, I was so eager and was like “Wow! what great prices, I’m gonna buy the dip.” I did that too much, too soon, and nothing left to deploy as prices continue to fall.
Here are two tips on how to avoid that. First, have good cash flow. Get a steady job so you’re not just trading all day. Second, dollar-cost averaging slowly over a long period of time instead of just going all in per your gut feeling. I recommend spreading out your cash across an 8 to 12 months period, maybe even longer if you’re expecting the bear market to continue. That way even if prices continue to drop, or go sideways, you’ll still be able to get those lower prices instead of being forced to watch from the sidelines.
3. Timing the Market
Even if you don’t run out of dry powder, if you try to time the market too much you may miss out on the entire opportunity. I know it’s normal to be like “Oh I’m just gonna wait and then smash it all in when the bottom is here.” Sure, you can do that with some of your capital but let’s be realistic, it is extremely hard to spot the bottom. That’s just not how markets work, or else everyone would be God-tier traders and make millions.
Last bear market, all those expert traders were waiting for BTC to reach $1,000 because their fancy charts and models told them so, but that never happened and those of us who listened to them, missed out on $3,000 BTC because we were all convinced it was going to $1,000. If you really can’t tell when the true bottom is here, why risk your entry on a complete guess?
4. Relying on Bull Market Valuations
You have to get rid of any concept of value that you learn during the bull market and throw those sky-high valuations out the window. Just because things are cheap compared to before doesn’t mean it’s good value right now. If we study historical bear markets, many projects dropped more than 90% from their all-time highs, and never recovered to those levels in either USD or BTC values.
So, what can we do about this? First, we have to knock all our mental evaluations way down. Second, we need to be way pickier when evaluating projects, it’s no longer going to be easy to find projects that will rocket for no reason. You’re going to have to dig deep and find projects with truly solid fundamentals so that you can be confident that you’re picking the right ones.
5. Not Re-adjusting Your Portfolio
The truth is the risk-reward calculus is different, for bear markets versus bull markets. We don’t necessarily want to be all in on the projects that are way out on the risk spectrum. For example, low-cap altcoins, they have amazing gains during the bull market, but those get pummeled so hard during the bear market.
Another example is NFTs. Those are arguably even worse; the liquidity is just not there. if you wanted to dump your all coins you could do so but if you wanted to dump your NFTs, you’d have to wait until someone grabs your offer. Even if you set a super low price, way below the floor price of the collection.
I’m not saying that you shouldn’t hold any altcoins or NFTs, but just be cognizant that those riskier bets are likely to lose value way faster during the bear market. Therefore, adjusting those to be a smaller percentage of your portfolio is definitely a savvy move.
6. Panic Sell
During bear markets, we sometimes see those big crashes where prices drop like 50% in a single day. It’s during those bloody days when people make the next mistake, they panic sell. you definitely don’t want to do that because if you look at historical data, rarely do prices go down in a straight line after big crashes. There’s usually some sideways consolidation or maybe even a small relief bounce so if you panic sell after a big crash, you’re likely selling the bottom or at least a temporary bottom.
I’m not saying to not sell during the bear market. I’ve already said that selling is good, but you want it to be planned and based on a well-thought-out strategy. Forced selling or emotional selling rarely turns out to be a good decision. I’ve actually gotten way better at not panic selling over the years and a big reason why is because I fixed all these mistakes that I’m covering in this article.
7. Diamond Handing to Zero
People who do this are succumbing to the common psychological effect called the sunk cost fallacy. They think “Okay, I’ve lost so much already so I’m just gonna huddle until it recovers.” That’s not the optimal strategy, let’s say one of your bags is now worth $100, down from the initial thousand that you put in. You could hold on to it and sure it may recover, but if you sold it at that point and put it into a more promising project, it could recover much faster and even go higher than the original project that you were stubbornly holding.
After all, fundamentals do change so the original project that you picked may not be as promising as a new one that you’ve come across. Also, bonus tip, if you sell your bags at a loss, you could lower your future tax bill by doing something called tax loss harvesting.
8. Shorting Too Much
There is a shocking transformation that I’ve seen during bear markets. When the most bullish people turn into the most bearish ones, it’s those people that make the mistake of shorting too much. They think everything’s going to zero, some people get super frustrated seeing more and more drops during the bear market, and they’re like “Fuck it! I’m gonna short hard and make money while it keeps dropping.”
I’m a fan of shorting to hedge but if you become too much of a stubborn bear, you could be shorting all the way into the next bull market and lose way more capital than is necessary. Definitely check your psychology and don’t get caught up shorting like a Perma bear. The market moves in mysterious ways, and it likes to cause maximum pain for most investors. One way to inflict that pain is to start moving up in price when the most bullish people flip to going short.
9. Revenge trading
Another common emotion that comes out during bear markets is anxiety or restlessness. People lose a lot of money, and they really want to return to their previous net worth when things were at all-time highs. They make the mistake of revenge trading, aka doing risky stuff, and try to make it all back in one trade. This is a surefire way to lose money because you’re succumbing to emotions and taking on too much risk.
It’s even rumored that the infamous three arrows capital fund tried to make it all back in one trade when some of their other bets went wrong. They got desperate that’s what led to their margin calls, and then their eventual bankruptcy. Therefore, please don’t resort to revenge trading during the bear market. Instead, go outside, take a break, or even leave crypto for a bit. At least your portfolio will still be there when you come back, and it won’t be liquidated.
10. Taking Risky Actions
Not just emotions like anxiety or fear that run strong during a bear market, sometimes the dominant emotion that people feel is boredom. It’s those people that make the mistake of taking risky actions in order to chase that thrill that was so prevalent during the bull market. They start margin trading or going all in on some small cap coin, just so they can scratch that itch and ride the emotional roller coaster once again.
Let’s be honest, many people on crypto are true degens, they’re here because they like to gamble. If it wasn’t for crypto, they’d be at the casino or sports betting perhaps. However, during a bear market, you don’t want to start doing those things because they will likely lose you money, and we’re trying to preserve our capital here to set ourselves up for bull market success. Good Luck!
