Mockup of imaginary physical bitcoin with BTC symbol in center: around the edge reads "Bitcoin Digital Decentralized Peer to Peer 1 Troy Oz Fine Copper MJB Monetary Metals"

Bitcoin Update: What Happened to the Four-Year Cycle?

I wrote a post about Bitcoin a few months back. It was intended to be a primer for those who want to understand it better. If you are new to Bitcoin (BTC), you might want to read it to understand some of the terms I’ll be using here. While I talked about some of my strategies for investing, it was not intended as financial advice. And here I am again making the same disclaimer. I am not a financial adviser. This article is for information and entertainment purposes only. There is inherent risk in all investing, so do your own research.

Mockup of imaginary physical bitcoin with BTC symbol in center: around the edge reads "Bitcoin Digital Decentralized Peer to Peer 1 Troy Oz Fine Copper MJB Monetary Metals"
Digital Gold

Back in July, I believed Bitcoin could either drop below $20K or go to six figures by the end of November. Neither scenario played out. While it did reach new all-time highs in November, it then fell about 30% and is now moving sideways between $40-50K. That’s not bad in the grand scheme of things, and I still believe the long-term future for Bitcoin is very bright. But it’s a far cry from breaking $100K, as most of the experts I listened to believed it would do by the end of the year. Their belief, and hence mine, was based on what is called the Four-Year Cycle. I explained that in my previous Bitcoin article.

The Four-Year Cycle should have given us a bull market that should have ended sometime between September and November. Then there would have been a crash, and a long bear market would have followed, though the price would recover to some degree before the next Four-Year Cycle. If the all-time high of $68K we saw in November really was the end of the bull market, the price should have crashed down to about $10K. We have not seen the kind of price run-up or crash we should have according to the Four-Year Cycle, and I think I know why.

Whale Manipulation

On August 20, 2020, Microstrategy became the first listed company to buy Bitcoin. Since then, the company’s CEO Michael Saylor has become one of the most outspoken advocates for Bitcoin, singing its praises as a prime store of value, a hedge against inflation, and key to the company’s long-term financial strategy. Since then, many other corporations and institutional investors have jumped in, notably Paypal, Tesla, Square, ARK Invest, and Pantera Capital, just to name a few. The big money they brought to the market helped propel the price of Bitcoin from $29K on January 1 to a then all-time high (ATH) of $64K on April 14.

While it was exciting to see the price climb and Elon Musk tweet that Tesla added $1.5 billion of Bitcoin to its balance sheet and would accept it as payment, in the back of my mind there was this nagging thought. If anything could change the Four-Year Cycle, this would be it. If whales—big money investors—have the power to move the price up, they also have the power to move the price down.

After April 14, the price dropped some, settling into the $50,000’s, but no one who knew about the Four-Year Cycle was freaking out. It looked like a normal price correction, but according to the Four-Year Cycle, we were still in a bull market. Then in May, a flurry of negative press came out, including Elon Musk reversing his position and saying Tesla would no longer take Bitcoin as payment, citing concerns over its carbon footprint. After that, the price did not just drop. It plummeted as low as $29K before the end of the month, more than 50% off its recent ATH. That is not normal in a bull market. I don’t think it’s normal in any market. One billionaire tweets an endorsement, and the price immediately pumps. A couple months later, same billionaire tweets something negative, and the price immediately dumps. And how many people do you think were really interested in buying a Tesla specifically with Bitcoin? How many people really said, “What? I can’t buy a Tesla with Bitcoin? That’s the only reason I bought it in the first place. I’m selling!” This reeks of manipulation.

What Does Market Manipulation Look Like?

Sometimes markets move. Sometimes markets are moved. Whales are people or entities that have enough money to manipulate the market. They want to buy low and sell high, but they don’t always wait for the price to go up or down. Through strategic buying and selling, they can make the price go up and down.

In the 1930’s, a man named Richard Wyckoff found that market manipulation follows consistent patterns. The big investors who manipulate the markets all act the same way, so he referred to them collectively as “the Composite Man.” When you see signs of manipulation, ask yourself, “What does the Composite Man want, short-term and long-term?” Long term, it’s pretty simple. If it’s an asset they want and believe will go up a lot in value over time, they want to acquire as much of it as possible at the lowest price possible. Short-term, they either want to drive the price down, so they can buy at a discount, or drive the price up to take profit. This goes in cycles. Wyckoff created very detailed charts that show how to recognize what the Composite Man is doing, and the price action of Bitcoin this year has followed those patterns.

Without getting too technical, a Wyckoff pattern occurs in two stages called Accumulation and Distribution. During the Accumulation stage, the Composite Man is buying but careful not to buy too much too quickly. This is when he wants to keep the price low, so he can accumulate a sizable chunk of the asset. When the Composite Man (I’ll call him “the Man”) is ready, he buys more aggressively to drive the price up. The Man wants to tie this to some story or series of stories in the media, so when smaller investors see the price go up, FOMO (Fear of Missing Out) will kick in, and they will rush to buy, driving the price up even further. It works even better if the Man has access to those media channels (or 55 million followers on Twitter) and can push positive stories at the right time.

When the price is as high as the Man thinks he can make it go, he switches to the Distribution stage. This is when he sells off, not all of it, but enough to make the price dip 10, 20, maybe 30% very quickly. Again, they like to time it with some negative story (or stories) in the news. Retail investors who FOMO’ed in now experience FUD (Fear, Uncertainty, and Doubt) and sell to cut their losses, driving the price even lower. When they sell, who buys? That’s right. The Man, the people who created the FUD in the first place. Now the Man is back to Accumulation, and the whole cycle repeats. If you want more detail, here is a video that explains it well.

The End of the Four-Year Cycle?

I’m not saying Elon alone is responsible for this. Remember, the Man here is not one individual but a composite of big money investors. I think the Man had this planned all along, and Elon (wittingly or unwittingly) gave them cover first for Accumulation, then for Distribution. After revisiting its annual low of $29K on July 19, it appeared the Man had accumulated what he wanted, because Bitcoin started going up again. It reached another all-time high of $68K on November 10 before going down again. For the past two weeks, the price has been fluctuating between $42-49K.

The Four-Year Cycle has pretty well-established patterns of bull and bear markets. This kind of movement looks like neither. If $68K in November was the top of this bull market (which is when it should have ended), the price should have dropped about 85%, which would put it around $10K. We would know then the switch from bull to bear market has happened. Why isn’t Bitcoin behaving like it has in the past? I think it’s because this is the first Four-Year Cycle we have seen where “the Composite Man” is going after Bitcoin. Even experts who have followed Bitcoin for five years or more are at a loss to say whether it’s time to take some profit in anticipation of the bear market, or whether the Man will drive the price up one more time.

I’m beginning to think we need to stop thinking in terms of the four-year cycle and start thinking in terms of Wyckoff’s Accumulation and Distribution.

There is one more thing you need to know about the Man. They have a hierarchy of investment priorities for different levels based on risks.

  1. Traditional markets (stocks and commodities)
  2. Bitcoin
  3. Altcoins (any cryptocurrency other than Bitcoin)

1 is less risky than 2, which is less risky than 3. When the traditional markets are down, they tend to move money out of riskier investments. That means when the traditional markets drop, Bitcoin drops. When Bitcoin drops, altcoins drop. It works the same in reverse. When the traditional markets are up, Bitcoin is up. When Bitcoin is up, altcoins are up. I saw this happen in May. When Bitcoin dumped, my altcoins followed. I traded most of them for Bitcoin and Ethereum (ETH) to wait for the next upturn.

Earlier this month, the traditional markets dropped, so the latest drop in Bitcoin and altcoins can be somewhat attributed to that. But considering that a normal cycle would have had the price down to $10K, a price hovering in the 40’s isn’t so bad. Furthermore, there are indications that a new bottom might be in.

Retail Investors Wising Up

Data shows that the amount of Bitcoin on exchanges is the lowest it has been in a long time. What does that mean? People buy, sell, and trade cryptocurrencies on exchanges like Coinbase, Binance, and Crypto.com. However, most people don’t keep them there. They will keep most of their crypto on a digital wallet because it is more secure. Some popular wallets include Exodus, Coinbase Wallet, and Trust Wallet. These are sites on a blockchain network where you can deposit BTC and other crypto, and you are given encrypted keys to access it when you want.

While there are many factors to consider when trying to determine where the price is going to go, one factor is the amount of BTC on exchanges. When there is a lot of BTC moving from wallets to exchanges, that means people are looking to sell. But when a lot of BTC is moving off exchanges to wallets, that means people are planning to hold for a while. With BTC on exchanges at such a low level as it is now (at the time of writing), the chances of a huge sell-off driving the price down much further are very low.

Furthermore, two of my favorite crypto analysts (Crypto Jebb and Satoshi Stacker on YouTube) showed data that says of the BTC that moved onto exchanges recently, around 5% came from wallets holding less than one BTC. That means despite the recent drop of 25-30% in just the last few weeks, retail (or small) investors are not selling. That also proves while the Man has great power to manipulate the market, that power is limited. If they are trying to scare small (and probably inexperienced) investors into selling at a discount, it is not working. When retail investors see through the FUD and Hodl (not a typo), the game of shaking BTC out of weak hands becomes pointless. I hate that this is part of the game, but if you want to invest in BTC, you have to be wise to the Man’s manipulations. But I am encouraged that other retail investors like me are catching on.

Again, this is not financial advice, but this is why I’m not selling yet. There probably will be a bear market at some time in the future, but this looks more like Wyckoff Distribution at the moment. While I don’t know when or even if it will happen, I think the price has to go up again before another bear market. If it does, that will confirm to me that the Four-Year Cycle is dead, and anyone investing in BTC will need to study Wyckoff in more depth.

I can’t help but think that once the Man sees he has gotten the price as low as he can, he will send the price up again for another round of profit taking. He might spend a few more weeks keeping the price below $50K so he can accumulate more. But his M.O is to drive the price down to accumulate, then drive the price up to take profits, and repeat. I look at the fundamentals of Bitcoin, and they are still strong no matter what the Man says. No one has ever lost money holding BTC for at least four years. Therefore, the only time to sell for me is just before a bear market. That way, when the price drops, I can buy back at a discount, just like the Man. But until then, I intend to keep calm and HODL on.

BTCUSD history — Timeline of major events — TradingView

Scene from Mission Impossible. Ethan Hunt trying to hack into super secure computer while hanging in midair.

How to Survive a Bitcoin Bear Market

Confession time: While we were in quarantine, a lot of people picked up new hobbies. My new hobby is Bitcoin and cryptocurrency. I was a skeptic for a long time, but now I’m a believer. The problem is I spent so much time learning and planning trades it consumed my writing time. I’m going to have to learn balance. But the best way I can justify that time I spent is to write about it.

A quick disclaimer: I am not a financial advisor. Anything I say is for educational and/or entertainment purposes only. Any financial product or service, including particular crypto currencies, exchanges, stocks, experts, or whatever I use as examples do not constitute an endorsement. Always do your own research.

I have owned some Bitcoin for only a little more than a year, so I can’t say if we are in a bear market now. But the fact that we are having that debate at this time took me by surprise. If you don’t know, Bitcoin is a cryptocurrency, meaning it is “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” So it is an asset that exists completely on a vast computer network. Bitcoin was the first and is by far the biggest cryptocurrency in terms of market capitalization. Coinmarketcap.com lists over 10,800 crypto currencies that can be bought, sold, and traded on exchanges, similar to stocks and commodities. Some of the more popular exchanges are Coinbase, Binance, Kucoin, Gemini, and Kraken.

Also like stocks and commodities, the value can go up or down depending on supply and demand. If more is being bought than sold, the value goes up, and vice-versa. While Bitcoin is the focus of this article, I may refer to other cryptocurrencies (a.k.a., cryptos) for comparison.

If you have heard anything about Bitcoin, it’s probably that the price is very volatile. It can go up very quickly and back down just as quickly. I already knew that, but I thought I had the market figured out. The Bitcoin (BTC) price normally moves on a four-year cycle because of an event called the halving. At set intervals, the amount of Bitcoin that can be mined (the term for creating new Bitcoin) drops in half. This diminishing supply coupled with greater demand makes the price go up for about 16 to 18 months before there is a bear market. The most recent halving was in May, 2020. Based on that, we should have had a bull market until at least mid-September, maybe even into October or November. Until May 12, it was playing out that way. Then Elon tweeted, and the price crashed.

We are now 50% down from an all-time high in April. This was supposed to be a bull market. How could one tweet break the cycle? Or maybe the cycle is not over, and this was just a much needed correction. But a 50% correction in a bull market? And we haven’t recovered yet? Should I hold on and hope the price goes up, or get out now to cut my losses?

Many who bought in March or April are asking the same thing. Again, I’m no expert, but I’ll tell you how and why I got in, and what I have learned in this crash.

How I Got Started with Bitcoin

When I first heard about Bitcoin in 2013, and it sounded like a pipe dream. I didn’t see how a currency, asset, or whatever you call it, could exist only on computers and have real value. Last year, I saw a presentation that explained what currency is and how it works. We are used to currencies having a physical form, for example, gold, bills, coins, etc. However, that is not really necessary. Anything people accept as a medium of exchange can be a currency, even if it is entirely digital. So yes, Bitcoin can be real money. El Salvador has even made it legal tender for the whole nation.

I also learned about the blockchain technology behind it. A blockchain network is the most secure network ever created. The first Bitcoin was mined, or created, on January 3, 2009. Since then, the Bitcoin network has never been hacked, because the blockchain it uses is so secure. Forget about cryptocurrency for a minute. Just think about an Internet that is virtually unhackable. Do you think there could be some other applications for that? Bitcoin and the whole crypto market is not even the tip of the iceberg of blockchain’s potential. That more than anything convinced me Bitcoin and cryptocurrency are here to stay.

My First Bitcoin

I bought my first Bitcoin in June last year, shortly after the halving. The price went up, slowly at first. Then on October 21, 2020, Paypal announced users could buy, sell, and spend Bitcoin and other cryptocurrencies directly from their accounts. The price went up pretty steadily from then on. There were a few dips, but they were not deep, and they did not last long.

By the time Coinbase, one of the biggest cryptocurrency exchanges, IPO’d on April 14, the price was up to an all-time high of about $63–65K (prices vary some between exchanges). In the next few days, there was a pull back, and the price hovered in the 50’s for a few weeks. That wasn’t so bad. Even a bull market will have corrections like that.

Then on May 12, Elon Musk tweeted concerns over its energy use and climate change. I care about climate change, but in this case I think the concern is overblown. I plan to write another article to explain that, but this chart will give you an idea.

Energy consumption for: The banking system: ~260 TeraWatt-hours per year; Gold mining, ~240 TeraWatt-hours per year; Bitcoin mining, ~110 TeraWatt-hours per year
The current financial system’s energy consumption vs. Bitcoin. Source: Galaxy Digital. https://docsend.com/view/adwmdeeyfvqwecj2

As you can see, the latter two use more than twice as much energy. Furthermore, the energy Bitcoin uses is more likely to come from clean, renewable sources. I wonder what would have happened to the banks if Elon had raised concerns about their carbon footprint. If people knew about how damaging gold mining is to the environment, would they stop buying it?

But Elon’s 56 million Twitter followers got the message. The price dropped about 15% in just one day and kept falling. At the bottom, it reached lows of about $29K, a more than 50% drop from its recent all-time high. Most experienced crypto investors know this kind of volatility is normal. But even many of them were surprised that such a drop happened when we are supposed to be in a bull market. Experiences like that create FOMO (Fear Of Missing Out) and FUD (Fear, Uncertainty, and Doubt). You could also think of them as fear and greed, and they tend to move the markets more than one mercurial billionaire.

FOMO and FUD: How You Can Be Your Own Worst Enemy

What is the mantra of professional investors? Buy low, sell high. FOMO and FUD will make you do the opposite. Here’s how they work together.

You heard about Bitcoin a few years ago, and you thought it was silly. You haven’t thought about it in years. Then you hear it broke its previous all time high of $20K, and it’s going up, up, up. $30K, $40K, $50K, $60K. You don’t understand how it works, even at a “Bitcoin for Dummies” level. You don’t know any market fundamentals. You don’t know what makes the price go up or down. But you are afraid of missing out, so you rush to buy before it’s too late (FOMO). Then the price falls: down, down, down. Just when you think it can’t go lower, it does. You are afraid of losing everything you put in, sell at a loss, and promise never to do that again (FUD).

Experienced investors use this FOMO and FUD to enrich themselves. When everyone FOMO’s in, they sell. When everyone FUD’s out, they buy. The best protection against FOMO and FUD is to educate yourself. Learn the history of why Bitcoin was created. It’s a fascinating story. Learn how cryptocurrency compares with fiat currency (dollars, euros, etc.). Learn what blockchain is and how it works. You don’t have to get too technical, just enough to where it makes sense. Learn about the halving and the four year cycle. And most of all, listen to people who have held Bitcoin for four years or more. They have seen markets go way up, way down, and everywhere in between, and they are still in the game. That will give you the perspective you need.

I guess what I’m trying to say is don’t invest in something just because the price is going up or some celebrity tweeted about it. Get at least a basic understanding of what it is, what value it brings to the market, why the world needs it, whether the business model is sound, how much investment it is attracting and from whom, and risks versus potential reward.

With Bitcoin, the four-year cycle has meant it reaches an all-time high about 16-18 months after the halving. Despite this downturn, there is still time for that to happen. Then it drops 85% before beginning to recover. If that happens again, will you beat yourself up or see it as a buying opportunity? 

It Is Not a Get Rich Quick Scheme

Of course, I knew that before I got started. But it is easy to forget when you see the price go parabolic. When the price skyrocketed to an all-time high of about $65,000, I started having visions of all the remodeling my wife and I want to do and retirement by the end of the summer. Then the price went into free fall, like Tom Cruise in Mission Impossible, when his assistants stopped him just before he hit the floor, but he’s just hanging there with his arms and legs up to keep from setting off the alarm.

Scene from Mission Impossible. Ethan Hunt trying to hack into super secure computer while hanging in midair.
You might have felt like this when Bitcoin crashed.

At first, I was scared. But as the price has settled in the 30,000’s, I realized this crash was the reality check I needed. There are some newer cryptocurrencies that saw over 1000% gains this year alone. Bitcoin is not that kind of investment. It is so big now, it takes much more to move the price up than for something like Polygon (MATIC), which currently sells at about $1.05.

Of course, with greater rewards come greater risks. Many of those with 1000% gains dropped back to pre-bull levels in the crash. Even though they’re not connected, most cryptocurrencies follow Bitcoin in the market. If Bitcoin pumps, they will pump more. If Bitcoin dumps, they will dump more, so the losses can be much greater as well. Some even went down to zero, so make sure you do your research before jumping in. Bitcoin has been around long enough that it’s highly unlikely that it will go to zero now. But if you expect to get rich with it, you have to think in terms of years, not weeks.

So what do you do when the price drops?

Buy the Dip

If you don’t believe in it as a long-term investment, the emotional roller coaster will drive you nuts. If you do believe in it as a long-term investment, you won’t get caught up in the hype when it goes up, and a price dip is a buying opportunity. Large investors have been buying even during this crash, which is the one reason I don’t believe this bull market is over. Who knows how long this opportunity will last?

How should you buy? You could try to time the market. When I think about how I bought at $9.7K, it’s tempting to think I could have sold at $63K. That would have been over a 600% gain. And then I could have bought back in at $29K to prepare for the next bull run. But I had no way of knowing where the top or the bottom was. Professional traders have very sophisticated market analysis tools, and even they get it wrong sometimes. That is why I believe the best strategy for buying is dollar cost averaging.

Dollar Cost Averaging

This is a way you can take advantage of an extended price dip without having to guess which way the market will go. On most exchanges, you can set up a recurring purchase, where you buy a set amount every day, week, or month. That is called dollar cost averaging. It’s a way to minimize your risk, because you’re not putting all your money in at once.

When I started out, I set up to buy $10 of Bitcoin per week on Coinbase. The price went up slowly from June to October, and I kept buying. When the price went up much more noticeably, I stopped my weekly buy and made bigger, less frequent purchases. But even when the price is going up, dollar cost averaging is not a bad strategy, because the price will come down at some point. On average, it still works out in the long run. The following chart shows what dollar cost averaging with $10/wk would have yielded today.

Dollar cost averaging chart from July 2017-2021. Value = $9448.62. Amount invested =
Dollar cost averaging $10/week from 7/12/2017-7/12/2021

$10/wk for four years equals $2090 invested. For July, 2021, that results in a value of $9448. That is a gain of about 352%. 

But no matter how I buy, I do not put in more than I can afford. I have heard of people losing their homes because they bought too much and at the wrong time. This market is much too volatile for you to spend the money for your rent, mortgage, groceries, water, electricity, children’s education, or any other essentials. I approach this like a retirement account. I do not put in money I need for daily or monthly expenses. I do not put in money I am likely to need in the next few years. I put in a little at a time, because I expect it to appreciate in the long run. If you are comfortable with that approach, the next strategy is for you.

Bonus Tip: Prices tend to be lowest on Friday mornings, so that is when I like to set weekly buys.

Hodl

That is not a typo. Thanks autocorrect for making me retype it. On December 18, 2013, someone with the username GameKyuubi posted on the Bitcoin Forum with the title “I AM HODLING.” Why? Because in his own words, “I’m a bad trader and I KNOW I’M A BAD TRADER.” The gist of it is good traders know when to buy and sell, but he doesn’t. Trying to time the market is a trap for most traders. You end up buying high and selling low, the opposite of a good trading strategy. But he has figured out that the overall trend is up. What do you do with an asset that is volatile but goes up in value over time? You buy and hold (or hodl). The crypto community still likes to use that term today.

One obvious advantage is you never say, “I should have sold or traded then.” Whenever you have that thought, you just remind yourself, “No, I am hodling.” I want to be clear, though, this not a good strategy for every cryptocurrency. I used to think I had to hodl at least some of everything. Now, I hodl Bitcoin (BTC) and Ethereum (ETH). There are a few others that I don’t exactly hodl but am reluctant to sell. Any others I have no problem selling if the price goes up, or if it is time to cut my losses. There is no way I can keep up with every crypto that is supposed to be “the next Bitcoin,” so I am very selective about it.

Another advantage is holding onto any asset, including crypto, for at least a year will reduce your tax liability. So next I want to talk about taxable events for crypto currency.

Be Aware of Taxable Events

I am not an expert, so check with your accountant or tax advisor on this. If you don’t have one, you will probably need one once you get into crypto. I learned that buying crypto is not a taxable event. If all you do is buy and hold, you won’t have to worry about taxes on Bitcoin or other crypto. Good for you, hodlers. Selling or trading one crypto for another is taxable. For example, if you want to sell some of your Bitcoin to take profit, or exchange some of it for Ethereum (ETH), those are considered taxable events.

As I understand it, if you trade one asset for another, any profit on that trade becomes taxable. That might mean if you buy that Tesla with Bitcoin (assuming they bring that option back), you might have to pay extra taxes, because you swapped one asset for another. Unlike El Salvador, Bitcoin is not considered currency in the US, so using it to buy something could make you liable for capital gains or other taxes. Again, I am no expert, so don’t take my word for it. That’s just what I have heard.

But unless you are 100% hodling, you will likely have to pay taxes. There is some software available to help you navigate that, so I’ll tell you what that is like.

Daily Interest Payments on Crypto Might Not Be a Good Thing

There are many good opportunities to earn interest on crypto, and I encourage you to investigate them and find one or more that works for you. However, with what I know now about crypto tax software, I would avoid offers of daily interest payments on any cryptos for now. Let me explain. The programs I’ve seen are free up to a certain number of transactions. Once you cross that threshold, you will have to pay. How much depends on how many transactions you’ve made. That includes all transactions — buy, sell, swap, move, or gifts. Any transaction whatsoever.

When I joined Coinbase, I took advantage of their Earn program. They offer the chance to earn free crypto by learning about it. That was a good thing. I got between $3-$6 in several free cryptos just for learning, which I was happy to do. A few of them offered 4–6% APY in interest, which was much better than the 0.1% I was getting from my bank. I was like, Great. Not only do I get free crypto, I get interest on it. And on Coinbase it’s compounded daily, so it will gain faster. And if the crypto takes off, I will have just a little more boost to it. Each of those daily interest payments was another transaction. Do you see where this is going?

I had a couple hundred or so transactions that amounted to nothing but counted toward my transaction limit on the tax software. I know my dollar cost averaging creates more transactions, and I’m okay with that. I didn’t know each and every one of those miniscule interest payments would count towards the number of my transactions.

I had to shop around, and the cheapest software I found was koinly.io. Even with that, I was going to have to pay $99. Fortunately, I was able to get a summary report for free. This year, I probably will have to pay for a full report. But I will try to do it without all those negligible interest payments, maybe putting all of it into one total transaction if possible. The only way I would take daily interest payments now is if I had a large enough balance to where the payments actually amount to something. I mean, if you’re getting 6% interest on one million dollars, that would give you daily payments of $164.38. I could live decently on that. Otherwise, to save on your tax software, you might want to look for weekly or monthly payments.

Despite tax liabilities, you might want to take some profit if the market goes up again. I’ll talk about that next.

Taking Profits

You could adopt a “modified hodl” strategy, where you take profit when the price is going up. My ideal strategy is when the price doubles, sell half. Then you will make back your investment, and you can hodl the rest. I was fortunate to be able to do that not only with Bitcoin but some of the other cryptos I had invested in last year. Of course, that only works if you buy at a time when the price can still double or more. That is why you want to buy the dip. Whether it’s a temporary correction or a bear market, buying when the price is down sets you up to take profit during a bull market.

What should you do after selling? Paying off some high interest debt is always a good thing. If you have that taken care of, experienced investors set aside part or all of their profits and wait to buy the next dip. Then when the price goes up again, they take some profit so they can buy the next dip. Rinse and repeat. That is how crypto fortunes are made.

“Corrections”

When I bought my first Bitcoin, the price was about $9700. As I write this, the price is now just under $35K. That’s a gain of over 200%, even with the recent crash. I understand, though, if you bought in at 40K, 50K, or 60K, you’re not feeling great about your decision now.

Though I don’t have any gift of prophecy or crystal ball, I feel confident in saying the bull market will return. The question is when and for how long. Will we have to wait four years to see any gains, or will the market come back in the next few weeks? Again, history says a bear market will come, if it’s not here already. I just don’t believe this is it.

But one more thing that surprised me. One of the reasons cryptocurrency was created was to eliminate the need for a “middle man” in financial transactions. Third parties like banks, credit cards, Western Union, and Paypal take fees for facilitating transactions. Cryptocurrency, theoretically, should reduce those fees significantly, but in practice that is not always the case. Ethereum’s ERC-20 network especially has seen fees go up a lot in the last several months. Bitcoin (BTC) has nothing to do with ERC-20, but sometimes its fees are too high as well. One thing you can do is convert BTC to Litecoin (LTC), which has much lower fees, and then trade, sell, or withdraw it.

What Comes Down Must Go Up?

For now, I want to leave you with this. If you bought for the first time at the top of this market, that doesn’t mean you made a bad decision. There is a saying in the Bitcoin community: “When in doubt, zoom out.” That means when the chart looks bad for a month or two, look back a year or two, or even going back from the beginning to now.

Chart shows daily close price action from 2012 to July, 2021
This chart is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

You might be wondering if it’s too late to get in. If you believe in Bitcoin long-term, then this price dip is a great time to buy. If you don’t believe in it long-term, then it is probably not for you.

Past performance is no guarantee of future performance. It is an extremely volatile asset. Parabolic gains and crashes come with the territory. But there is enough history to be optimistic in the long run. It’s hard to see this on the chart, but in 2013, the price dropped 80%, then rose 2300%. Will we see a similar bounce in the coming weeks? I don’t know, but anyone who has bought and held for at least four years has come out ahead. In July, 2017, the price averaged around $2600. If you bought four years ago and held, while people are complaining about a price hovering between $33–37K, you would be up over 1200%. Where do you want to be four years from now?

Just understand there is still some risk to it. I think in the next two or three months, the price could go to six figures. But if this really is the end of the latest bull market, the price could drop to $20K or even lower, and we will either have to hodl or wait for the next bull market to take profits.

Conclusion

So if you are just getting started, or considering getting started, here are the important lessons I’ve learned in my first year:

  • “When in doubt, zoom out.”
  • Dollar cost averaging is the easiest, lowest risk, and most stress-free way to get into this (or any) market.
  • Consider hodling or modified hodling.
  • It’s okay to take profit in a bull market. Have a strategy for when and how to do that.
  • If you are looking to get rich quick, look elsewhere.
  • For tax calculations, daily interest payments might not be worth it. Weekly or monthly payments might work better for you, depending on how many transactions you want to do.
  • Watch out for high transaction fees. Converting BTC to LTC can help with that on some exchanges.
  • You don’t need expensive programs to learn how to do this. There is plenty of good information available for free.
  • Seek advice from people who have been in for at least four years. That way, they have seen at least one complete bull and bear market.
  • Don’t rely on one source to tell you what to do. You should have three or more different sources. Look for people who have a lot of experience and a track record of putting out good information.
  • Certainly do not listen to people who are either always positive or always negative. The always negative ones are just pushing FUD, maybe even hoping to convince you to sell to them at a discount. The always positive ones will miss the signs that a bear market is beginning. 
  • Look for experts who are positive long term but aren’t afraid to tell you when we are headed for a downturn.
  • FOMO + FUD = consistent losing.

For more information on what Bitcoin is, how it works, and how to get started, I can recommend a site and YouTube channel called 99bitcoins. Have you had any experience with Bitcoin? What do you think of it? What hobbies did you pick up while quarantining? Let me know in the comments.