Placeholder Partner: One should not have overly high expectations during a bull market; preserving profits is the key

Author: Chris Burnisks, Partner at Placeholder

Compiled by: 1912212.eth, Foresight News

If your friends reach out to you with questions about Bitcoin, Ethereum, and other cryptocurrencies, it’s not easy to guide them given the current market situation (BTC is nearing $100,000). This is especially true when they are inexperienced novice investors. Here are some lessons I’ve learned from over a decade of observation.

Make sure the actions they take are their own responsibility. You may have more experience and knowledge, but that doesn’t mean you are absolutely right. No one understands everything happening in this market. If someone claims to know it all, they are definitely lying.

You can try to explain to them what stage of the market cycle we are currently in. For me, we have been in this bull market cycle for 2 years now. (The bottom of the chart is November 2022.)

From the bottom two years ago, BTC has risen over 6 times, ETH over 4 times, and SOL over 30 times.

The harsh truth is that as token prices rise, people's attention increases, and this attention will subsequently convert into purchasing power. Therefore, the more the price rises, the more people focus on how much potential return there is, but generally speaking, the later we enter the "attention cycle," the less favorable our position is.

So the best entry point is often when almost no one is paying attention, but that was 2 years ago. What should you do when they are eager to buy tokens, even if the current entry point isn’t the best?

Keep it simple: Personally, if they are novices, I would tend to recommend holding a certain proportion of BTC, ETH, and SOL (50/25/25%), with other risks borne by them. At least, if they mess up the "entry/exit," they can still maintain a certain amount of capital. If they choose small-cap coins, encourage them to learn and keep it below 10% of their total allocated funds to reduce risk.

From the current entry price, if they double their investment, encourage them to take out their principal at that time, which also ensures profit. After that, if their funds have tripled, they can cash out all their funds, or if they want to be a bit riskier, they can cash out the already earned double and maintain the remaining principal (cost), but try to make them understand the potential for a crazy crash in a bear market. (If they are staunch Bitcoin supporters who may never want to sell, that’s fine, but they must be prepared to face difficulties at some point.)

Selling in a bear market is driven by panic and fear, but exiting in a bull market becomes relatively difficult; sometimes if they feel they sold too early, they might resent you, but they will thank you later.

They also need to be cautious; if they choose to take profits and then can’t resist re-entering the market, reinvesting those profits, if the market continues to rise, it can lead to FOMO—this thought usually results in adverse consequences.

Because if the market suddenly crashes, they may ultimately find that the taxes owed on realized gains are more than the remaining assets they hold (this happens often).

Every sale of a crypto asset is a taxable event, even exchanging one crypto asset for another is no exception. Once I start to cash out, I plan to keep it in a principal-protected interest-bearing account in traditional finance (TradFi) for 12 to 18 months—high-yield crypto stablecoin accounts do not count as cash management because there is still crypto market risk in those accounts, and the leverage accumulated in a bull market can leave you with nothing. First, I will settle my tax liabilities before I start looking for new investment opportunities again, which usually happens when people lose their minds due to panic, or ideally, when market enthusiasm fades and people fall into apathy (this often occurs more than 12 months after the market peaks).

Although exchange-traded funds (ETFs) and potential sovereign purchases may imply that Bitcoin (BTC) will not experience a severe bear market in the future, every time a bull market arrives, people come up with various reasons to justify outrageous price increases or claim that there will be no bear market.

"Super cycles" are, without exception, collective delusions.

I can see the reasons for the cycle repeating (peaking in Q4 2025) and the reasons for the cycle extending and breaking the four-year pattern. While we may consolidate after the inauguration of a new U.S. president, I do not believe in the notion of a shortened cycle. This is just post-bear market trauma (PTSD) at play.

That said, structurally, anything that grows at a rate of 100 times is prone to at least an 80-90% retracement at some point—mainly due to excessive profit-taking.

If SOL rises to $800 in this cycle, it might drop to $80-160 in the future (say, by 2027). So, if someone buys in at $240 and holds firmly, they will lose money in the next bear market. It’s hard for people to realize this amidst the frenzy of a bull market, but since you’ve been through it, you understand, and now you can teach them :)

From the current price point (SOL has already risen over 30 times from its low), no one can get rich or achieve crazy returns, but they will see others making a lot of money, making it hard to resist temptation—if you tell them not to buy and to wait because "the final crash" will bring prices below current levels, they will feel pain, as depending on the asset, there is still 2-5 times or even more upside potential before reaching a peak, so everything is very unstable.

One last point I want to emphasize is that many inexperienced investors think more in terms of dollars ($) rather than X (multiples) or percentages (%). For example, if you say SOL might rise to $1,000, they think, wow! That would increase the value of each SOL by $760! However, rising from $8 to $240 only increases the value of each SOL by $232.

But what they don’t realize is that rising from $8 to $240 is a 30-fold increase, while rising from there to $1,000 is only a 4-fold increase. It’s crucial for investors to truly understand this.