Everyone wants to buy bitcoin at the right time, so naturally, you'd like to know if bitcoin is going to crash so you don't buy the top, and you can get some coin at a good price. The good news is that there's a straightforward answer to your question. Yes, bitcoin is going to crash. The hard part is knowing when it's going to crash.
That's why if you meet someone who's been in bitcoin for a while, they'll tell you the same thing: You can never guess what's going to happen, so just stay humble and stack sats. Using things like leveraged futures or daytrading shitcoins or other ways trying to get cheeky and beat the market is a great way to blow your stack and end up with less bitcoin. In fact, the only proven way to get more bitcoin is to simply add a little bit to your stack over intervals and don't sell it during the inevitable crash and bear market.
To remind yourself that the pain of a bitcoin crash is temporary, watch this viral video from 2015 (7 years ago), titled Don't Buy Bitcoin. It's Going To Crash!! As you watch the video, you follow crashes throughout the years. Bitcoin first crashes from $0.36 to $0.20, then a year later, crashed from $29 to $3. The video continues on like this for a while, then concludes with deadpan humor that you shouldn't buy bitcoin because it's going to crash!
Of course, the true meaning of the video is that although the price crashed, the trend continues upward. Although the video was made in 2015, it continues to be relevant in 2022. We saw bitcoin crash from $20k down to $3k in 2017/2018. Then we saw bitcoin crash from $69k all the way down to $17k in 2021/2022.
Can you imagine the chaos when bitcoin crashes down from $500k down to $100,00?
How To Avoid Becoming Poor When Bitcoin Crashes
Don't Believe The Online Pundits
Don't believe for a second that anybody you follow on Twitter, YouTube, Podcasts, or any other social media platform knows more than you. Most of them are not even making money on their trades. They are earning money from advertising. Anyone who calls the next bull run or market crash is talking out of their ass just trying to get clicks.
Your favorite influencer may not be a crypto LARP posting clickbait and farm engagement for likes, but even the smart guys are just making their best guess.
I speak from experience. These days everyone realizes how stupid the famous S2F model looks, but in 2020, it was a big deal. I'm not proud of it, but I totally got caught up in the S2F model, predicting $100,000 bitcoin by the end of 2021.
Whelp. That didn't happen.
Luckily I didn't do anything crazy like leverage my stack, but I did buy more bitcoin than I should have, and ended up having to sell it all back to market to pay some unexpected bills. It was my choice, so I don't blame anyone but myself, but I'm just using this as an example of how everyone can be susceptible to this type of stuff.
So especially for beginners, this is an important warning. Don't listen to pundits about when is a good or bad time to buy bitcoin. They don't know shit.
Don't Use Leverage
The worst thing you can do with your bitcoin stack is to try to beat the market by purchasing bitcoin with leverage. Using leverage can come in the form of participating in options markets on crypto exchanges like FTX, Binance, or BitMEX, or you can get a bitcoin-backed loan to buy more bitcoin.
I haven't participated in options markets myself, but the concept is simple to understand. Instead of just buying bitcoin and taking it to cold storage, you place a bet saying you predict that the price of bitcoin will move either up or down. If the price of bitcoin moves with your prediction, you get the bitcoin, plus some, based on how leveraged your bet was.
Higher leverage means more rewards, but also more risk. With very high leverage, small moves in the market can earn you a ton of money, but you also more easily liquidated, meaning you give up the bitcoin you bet.
This is a very basic and dumb explanation since I'm not a trader, but you get the basic concept. You place bets on price movements and if you're wrong, you lose money. If you're right, you win money. It's basically gambling.
Even a more mild form of taking on leverage, getting a bitcoin-backed loan can blow up in your face.
This would be where you hand over the keys to a certain amount of bitcoin and in exchange receive a certain amount of dollars. There's usually a LTV ration (loan-to-value) of something like 40%, meaning if you have $1000 in bitcoin deposited, you'll get a loan of $400 in USD.
You can then use that money to spend on day to day expenses, and it's tax free, since it's a loan, rather than income. A lot of people choose to instead buy more bitcoin. If the price of bitcoin goes up, you then sell some bitcoin to pay off the loan, and you end up with $0 in debt, but more bitcoin than you had before.
Unless… the market goes down.
Then, you have to top up your bitcoin balance to ensure that your LTV ration remains at the required amount. If the market continues to crash, then you need to top up more. If you run out of bitcoin or can't top up fast enough, your bitcoin gets liquidated to pay back the loan.
This can be tempting, especially if the market seems calm. There was a period of a few weeks where bitcoin hovered around $40,000 where I thought no way we go below $40k, and I considered getting a bitcoin-backed loan as a leverage play until we hit $100k. In the end, decided against it, and that ended up being in my best interest.
I regretted missing the opportunity as we creeped backup to $48k, but as we sit at $19k right now, I realize it was a great decision. I would have lost my ass, or at the very least tied up a lot more bitcoin in the loan and would be super stressed right now.
The lesson here is that as smart as you think you are, you never really know which way the market is going to go.
Don't Bet On Bulls
Look, I love a good bullish headline as much as the next toxic maximalist, but don't bet your money based on permabull clickbait. There's always a reason to be bullish.
I remember through all of 2020 and 2021, there was just a relentless pounding from influencers about on-chain analytics and how bullish they were. Supposedly, people were withdrawing coins from exchanges and there was going to be a liquidity crunch that led to a short squeeze. We were supposed to melt faces on the way up.
Unfortunately, we crawled up to $69,000 and the market couldn't find enough money to make it to $100k. Now we've all had laser eyes for two and nobody knows when it's going to end. I know that as you're reading this you're maybe thinking that I'm just a shitty investor, but I'm just trying to be honest about the mental traps that are easy to fall into.
You'll see lots of price predictions from bitcoiners quoting $500,000 or even millions of dollars per coin, and I'd agree. I think it's going to happen! The question is when we get there, and what happens between then and now. We could 50x next year to a million dollars per coin, or we could drop another 50% to $10k and live out the longest bear market in bitcoin's history. Plan accordingly.
Don't Buy Into Cycle Theory
Here's another one I got caught up in.
I've never really bought into charts and predictions with all the colorful lines and fancy names for chart patterns, but there was something about cycle theory that really captured my attention. It just seemed to make sense due to bitcoin's programmatic issuance rate and 4-year halvings.
With two or three “cycles” behind us, traders and influencers started attempting to find patterns in price movements. Then when the pattern didn't hit, they'd redraw the lines or delete the tweets, and start over. The biggest one that a ton of people bought into was the Stock-to-Flow model, which predicted a bitcoin price of at least $100,000 by the end of 2021.
When that didn't work out, people moved onto the extended cycle theory, which said that we'd still hit $100,000, but it would be a bit later in 2022.
As of October (near the end of the year), that still hasn't played out, so now people are moving onto the rainbow chart. It never ends.
Fool me once, shame on you. Fool me twice, shame on me. There's no fucking cycles.
No, You Didn't Move The Market
Sometimes bitcoin dumps literally minutes after you buy, and it feels like you somehow triggered market selloff. It's happened to me at least a few times. I'd think I was crazy, but I've read a number of tweets suggesting that other people have this same feeling. It seems a bit silly to have to say this, but no, you did not move the market either way.
Bitcoin is a multi-hundred-billion-dollar market, so you could market buy $100,000 worth of bitcoin and not move the market.
Even if you were a multimillionaire and market bought or sold $100 million in bitcoin on any given day, even if you did temporarily move the market slightly, it would be a temporary blip. In Bitcoin lore, there's infamous story about a the bear whale who dumped 30,000 BTC onto the market in a single day. Though it was an exciting day in bitcoin's history, everyone pretty much moved on after that.
Keep in mind, this was in 2014, and it was 30,000 bitcoin, which was a massive amount of money, even back then. Whatever you're doing is not going to have any effect on the market either way.
When Bitcoin Crashes, You'll Know It
The funny thing about bitcoin crashing is that there's no set definition of what a “crash” is. Of course, mainstream headlines love to FUD bitcoin any chance they get, and you'll read about various crashes in bitcoin from time to time. However, if you investigate what's going on, it's often the case that market is down like 10% for the day, which is nothing. That's not a crash!
If you don't feel absolutely sick to your stomach, then the market hasn't crashed yet. 10% down in a day is just par for the course — an average day in Bitcoin Land. Even 20% is like OK, this thing is just getting started.
Try watching your net worth drop 80% over the course of a two months, and that feeling you get is a bitcoin crash.
After living through a couple big crashes, I'd say that I have never really “gotten used to it”, as you might expect. It still sucks to watch your net worth plummet like that.
Of course, I've done my research on bitcoin, and there's no chance I'm selling during this bear market, or the next, or the next. I'll always have some bitcoin in cold storage, because I'll always have a savings account.M personal money management strategy includes the possibility of a bitcoin crash at any time.
Bitcoin Crash FUD
One last little thing here that just popped into my Twitter feed last week. Worrying about crashing is often used as a reason to not buy bitcoin. It's too volatile! Well, 2021 and 2022 really makes this type of FUD less effective as we see the stock market and bonds crashing too. Netflix, NVIDIA, Pelaton, Paypal, Etsy, Uber, and other big name stocks are down 50% or more for the year.
Now, we're also seeing massive selloffs in the sovereign debt markets, and the 60/40 portfolio is delivering the worst returns in history, down more than 34% for the year! Would you rather have the massive upside potential of bitcoin down 80% or the snails-pace, conservative, traditional portfolio down 34%. Well, if you don't plan to sell the bottom, the choice should be obvious!