I saw this chart posted in another sub I’m fond of, and I think it’s helpful perspective, especially for those of us who forget to zoom out or consider the historical, cyclical nature of markets.
While this period of bearishness might last a few years or longer even, compared to bull market time frames, there’s many more good days ahead to look forward to. And given crypto’s correlation of late to equities markets, there’s reason to be optimistic in the longer term, despite all the negative sentiment in the near term. But that also requires you, me, and everyone else to not only hang tight while things go down, but to also consider the idea of dollar cost averaging. Because the other truth is that while those drawdowns are short, if your investment in coin X drops by 50% you don’t just need 50% recovery to be back in the black, you need 100% returns to return even, and you need more to profit again, so brining your average buys down can help achieve this profitability goal post closer, rather than keeping it farther away.
To be fair and accurate, the chart above is a measure of the S&P 500 since, roughly, the Second Great War. And while I understand these markets are apples and oranges—cryptocurrency, the S&P 500, and others—my point in this comparison is to give some healthy perspective into the way that markets, though they crash, do also historically recover. And those crashes tend to be much shorter than the bull markets that follow them. Furthermore, cryptocurrencies, especially of late, have tended to correlate rather closely with the equities markets, as evidenced by this second chart, as more and more institutional money enters the space.
Again, I recognize that these markets are not all the same. And that it’s not necessarily true that these assets will always directly correlate. And I also understand that—especially for those who are giga-bullish among us—the whole damn thing (crypto) could go the way of LUNA or Bitconnect, but I tend to also think that this is hyperbolic. I don’t think crypto is going to zero. Sure, none of us can predict the future: up, down, sideways, or spiraling loops of insanity. But it would be nothing short of miraculous to see the whole industry to dark. Realistically, I do think that as this recessionary environment continues to take it’s toll across the board, so too will crypto continue to correlate downwards. As u/katiecharm mentioned in recent post,
It should be a possibility on your mental list that crypto might be about to experience it’s first true crash, and it will seem like an extinction level event.
It would be naïve to not consider the mental possibility that your whole portfolio of internet coins could, for whatever reason, nuke catastrophically downward. Just like any major economic black swan event or recession or whatever could send your brokerage account or 401(k) to Goblin Town. Nevertheless, as I’ve tried to point out, all markets are cyclical, and despite u/katiecharm‘s warning that we should all be prepared for an “extinction level” crash, they also pointed out that they are—like myself—”a crypto maximalist.” And while things may seem awful right now, as most folks are down bad or feeling the red across their entire portfolios, this too shall pass—also, congrats if you’re new to crypto and enjoying some gains. Luck always favors the beginner, some say. As Ray Dalio (former manager of the world’s largest hedge fund, Bridgewater Associates) has said about the cyclical nature of markets,
The biggest mistake that most people make is to judge what will be good by what has been good lately . . . So if a market has gone up a lot, they think that’s a good market, rather than it’s more expensive.
Conversely, during times like these, when things are bearish, Dalio notes that folks tend to think,
That’s a bad market, and I don’t want any of it.
But the reality is that every period of major downturn, historically, has been followed by a typically longer period of prosperity. The hurt locker doesn’t last forever. And while some folks won’t make it out alive, as is true of any market, crypto or otherwise, the reward often comes to those who can push forward, confidently, with conviction in what they’re investing in, and a willingness to not only hold, but continue investing, long term, in those investments that offer real value.
So prepare for the worst. That’s prudent. Be aware that near term could be a whole lot of not much fun, if you only get enjoyment out of the excitement of bullish periods. But also consider that this is the time everyone was clamoring for when prices were higher. This is the time to really average down. There’s plenty fun to be had in Goblin Town. Everything is a fire sale. Just be sure you’ve got the stomach for playing hot potato.