Surviving The Bull Run

We all have a journey to Bitcoin. Some started as sound money advocates who adored Austrian economics and gold. Others fell out of the TradFi world when they knew something wasn’t quite right. Most Bitcoiners have gone through trials and tribulations of altcoin hell. However you made it here and to Bitcoin, welcome–and buckle the F*ck up.

When I first became interested in Bitcoin, it was July of 2017, and it was already well into the bull market of that year. I bought some and watched its value increase. Then I bought more. As tends to happen during these parabolic bull runs, I kept watching the price rise and my interest go from:

Interested to Disbelief to Infatuation to Degenerate Buying to Despair.

This is a trajectory you can avoid during the next bull run if you prepare yourself properly.

If you are reading this hoping to find all the answers, I have some unfortunate news. There are no right answers in Bitcoin or life. We are all on a journey to figure out what to do and how to approach. I hope to guide you, but ultimately, your personal goals and disposition will dictate how you handle volatility. Bitcoin will test your resolve.

During the later phase of the 2017 bull run, I talked about Bitcoin to everyone in my life—completely obsessed. My neighbor at the time was older than me and had experienced the dot-com boom. I will never forget the advice he gave me; this advice was born of gaining (and losing) a lot of money during the dot-com bubble. He listened to my fervent interest in Bitcoin, and he took a very measured approach to my evident LOVE for this asset. He told me that during the dot-com boom, he made more money than he ever believed he would have, and in the end, he was right back where he began—because he rode the bull market over the top and didn’t sell anything. His advice was, “I’m glad you are doing well, but don’t forget to take some profit.” He advised me to sell 50% and keep 50%—a simple hedging strategy. I did heed his advice shortly after Bitcoin hit its all-time high and sold some of my holdings near that local top.

Now, I know that this is sacrilege to many hodlers. We don’t sell our bitcoin, right?? Well, that is a personal decision, and depending on your risk tolerance and place in life, you may want to take some risk off the table. That is part of investing, and as the old saying goes, no one ever loses money selling for a profit. This article aims to give the advice I wish I had gotten when I first discovered Bitcoin. I hope this helps newcomers to the space understand how to navigate the bombastic environment that bitcoin produces during its bull runs.

I have seen two bull runs, one in 2017 and one in 2021. These bull runs were VERY different, and I suspect that if you spoke to those involved in bull runs prior to 2017, you would find that those also had a very different feel.

The first thing I want to get off my chest is this—No one knows what is going to happen:

Balaji talks about 1 million in 3 months Nobel laureates are saying it will go to zero Buffett and Munger(RIP) call it rat poison

Whoever you are listening to, no matter how long they have been in the space or how correct they have been in the past, IT DOES NOT MATTER. They have no idea what the future holds.

In investing, there is an idea called survivorship bias. Those who have been correct have survived, and they seem like geniuses because they have been correct. The VAST majority of those who have been wrong are forgotten. You don’t hear about them. I won’t throw anyone under the bus here, but there were prominent people in Bitcoin calling for MUCH higher prices when we were sitting at 68K in 2021. I’m not saying that they are bad people; I’m sure that they had a good reason to forecast these numbers, but if you had taken their advice at that time, you would have bought at the worst time possible and gotten crushed for YEARS.

In my view, there are different tiers of crystal ball holders out there, and the lowest tier is the technical analyst type. These are the dime-a-dozen people you see on Twitter spouting off about momentum, price levels, cup and handles, etc. These people were calling for 10K bitcoin when it bottomed at 16k. I’m not saying that TA is all nonsense; fundamentally, it is a system for predicting human action through probability. It’s a consideration at best. It should never be used in a vacuum to determine your allocations. If you use it in conjunction with fundamentals, it can be much more helpful. The point I am driving at here is there are GRAVEYARDS of TA analysts out there who told you to buy at 68K and not to buy at 16K. They are throwing probabilistic darts. Don’t put your financial future on someone’s educated guess.

The second brand of crystal ball aficionados out there are macro analysts. These people have more credibility in my view because they are assessing the general trend in the economy. They are considering interest rates, Fed movements, and economic data. These types are MUCH closer to base reality because they have their finger on the pulse of the economic heartbeat. But, as with TA analysts, these people can be TOTALLY wrong. Many said that Fed funds rates couldn’t exceed x or y, or the entire economy would collapse. Well, the interest rates have been elevated to levels well above their doomsday predictions, and we have not seen a collapse.

Whether you follow a TA analyst or a Macro analyst, they can be utterly WRONG because of a black swan. Nicholas Taleb—famously hated by Bitcoiners—coined the phrase black swan to label events that happen from time to time that simply cannot be predicted in standard modeling because they are so unlikely. Covid was a black swan. The war in Ukraine was a black swan. And guess what, there could be another unpredictable black swan tomorrow that could render all of the TA and macro analysts completely wrong. The world has a ton of randomness. By the way, black swans aren’t always bad. They are just as likely to be positive catalysts.

So does this mean we should remain paralyzed with fear and not trust anyone??

Absolutely not. It means we should make the effort to EDUCATE OURSELVES! You need to take responsibility for yourself and your decisions. You can take the information from the TA analysts and the macro analyst and make your own educated decisions. THIS IS OF THE UTMOST IMPORTANCE.

Educate Yourself

Bitcoin is an incredibly simple yet endlessly complex animal. Your education will never be complete, but you can incrementally expand your understanding. We did a 10-episode Bitcoin Basics Series with Dazbea and Seb Bunney, and I don’t feel like we even scratched the surface!

You want to be educated for resiliency. If you have a solid grasp of Bitcoin and how it works, you will not be easily shaken. The psychology here is VERY IMPORTANT. If you understand what you are investing in, and the market is hit by an exchange failure similar to what happened to FTX, you will understand a few things that the average person may not.

Bitcoin is unaffected The price drop is temporary and without merit Therefore, this is a great time to be accumulating Bitcoin

Now, the opposite of this is also true. When you see mainstream headlines fawning over Bitcoin, with the gains never seeming to end, and you feel like you should drop every bit of money into Bitcoin because its price is going nowhere but up—BE CAUTIOUS. I have found that my psychology is typical. I have fear when the price is getting crushed, and I have irrational exuberance when the price is rising quickly. If I do EXACTLY the opposite of what my monkey brain tells me, I find I’m often doing the right thing. That is to say, when you feel extreme fear, this is the time to buy, and when you feel elated, this is the time to sell.

Panic buying is dangerous. When you feel an uncontrollable urge to buy Bitcoin, take a deep breath. I can assure you that you will be able to buy some, and if you are feeling the urge this strongly, the market is probably ripe for a pullback. That is no guarantee, but in my experience, this has been the likely case. I am not advocating for trading BTC, not at all. I can honestly say that I have lost more BTC than I have gained by trading, and if most people are honest, they will admit the same. Trading is a skill and discipline that very few people master.

The typical psychological roadblocks that hang people up are fear and greed. Reflect on your feelings and recognize when you are experiencing these emotions. They will cause you to make mistakes. The simplest way to mitigate all of this is simply to dollar-cost average. Swan is the PERFECT place for DCA. Dollar-cost averaging takes all the stress out. Full stop. If you level into this asset at this moment and it drops to 30% overnight, ask yourself honestly: Do I have the stomach for that? Do I have the conviction for that? Do I have the educational chops to understand why the dollar price doesn’t matter in the short term? Will I panic sell? If you aren’t convicted, dollar-cost averaging will save you. You are getting the average price over a long period of time.

I have a little DCA tactic that is simple and works for me:

When the price corrects I increase my DCA, when the price gets frothy, I feather back and average in with less. Over months and years, this supercharges your average buy.

Don’t Feel Like A Sellout For Selling BTC

Have a plan and be ready to execute. My neighbor's plan is a solid place to start. Once you have doubled your money, take the initial investment out. There is a significant asterisk involved in this—What are you going to buy instead of Bitcoin? Inflating cash? The choices for where else you put your money these days are very limited. This might be controversial to many in the space, but I think it’s perfectly reasonable to sell some Bitcoin. If you have been holding for YEARS, and your stack could meaningfully make your life better, by all means, sell a portion.

Time is the one asset that is more valuable than BTC; we have a truly finite amount of time on this earth. If you hodl your BTC and then take a dirt nap, what was the point? If you can sell a portion of your stack and pay off your house, or get out of crushing debt, I think that is a sound decision. It may not be the BEST financial decision, especially if your house is on a low-interest rate loan, but it’s an understandable decision because of the peace of mind this could bring. However, you must also remember that selling Bitcoin will very likely be a painful decision in the long term.

Selling Bitcoin for toys on the other hand is not a great move. When you buy that 250k moon Lamborghini, which loses 50% of its value in 3 years while Bitcoin has gained more than that percentage to the upside, the regret will be unbearable. Robert Kiyosaki comes to mind. His book Rich Dad Poor Dad has been very influential on me, and his description of assets vs. liabilities hit home:

An asset generates cash flow A liability subtracts cash flow

If you buy assets, your net worth will increase substantially on an exponential curve. If you are buying liabilities, you are simply getting poorer. If you sell Bitcoin, you will likely regret it in the long term.

Time Preference

Time preference is a topic often visited in Bitcoin. Having a low time preference means you are willing to forgo niceties today for a better future. Every worthwhile cathedral, every classic piece of art, everything beautiful in this world has been built because people worked with an eye to the future, not the present. If DaVinci taped bananas to the wall we would have never remembered him. If the great pyramids had been built of clay, they would be gone. If Civilization spent all of its wealth on the here and now without investing in the future it would not last.

Bitcoin itself is a digital artifact that has been crafted to perfection by a mysterious architect. It is designed to last eons; if civilization lasts, it will have perfect fidelity into the future. Because no one can change it or control it, Bitcoin is anti-entropic. This is the epitome of low-time preference craftsmanship. Bitcoin is a Da Vinci in a world of bananas taped to walls. It's so apparent once the work is put in that it’s embarrassing more people don’t understand the value proposition.

In stark contrast to this Bitcoin masterpiece, we have the sand hills we call alt-coins or shitcoins. These have been built using Bitcoin's technology but introducing entropy. Fidelity is lost in altcoins because each has a founder or group who controls them. When humans can control something, they inevitably manipulate it to their benefit. And whether consciously or subconsciously, it will degrade. Most of these shitcoins have been designed from the outset to scam you. Some of these alt-coins have leadership that may be well-intentioned, but they are human and capable of being influenced and coerced. The problem is LEADERSHIP. Bitcoin and its time chain have been designed to remove the human element as a primary characteristic. Introducing humans into the mix causes entropy to destroy value through seigniorage.

Bitcoin's invention was that of NON-INTERVENTION by humans.

These are insights that take years for many people to understand completely. If you want the TL;DR on altcoins, it’s simple. Just don’t bother. You are better off taking your money to a casino and playing craps. The deck is stacked heavily against you in the crypto world; you are simply getting lucky if you make money. Take the low-time preference route and stack Bitcoin while learning as your investment grows. I can confidently say that you will be much further ahead in 5 years dollar-cost averaging into Bitcoin than you will be gambling on shitcoins.

5-Year Outlook Minimum

Most people get interested in Bitcoin during one of its parabolic bull runs. I was one of them. We are all interested in getting ahead financially, especially with the specter of inflation hanging over our heads.

If you are new to Bitcoin and this is your first foray, make sure you are prepared to hold this asset for a minimum of 5 years. You are likely here during a bull run, and unless you got lucky, it’s probably on the trailing end of the bull run. As of the date of writing in December 2023, I believe we are at the beginning of the next bull market. With the ETF approval, the halving in April 2024, and the Fed poised to turn dovish, many catalysts are aligned. This does NOT make it inevitable. Black swans are always a possibility. With that black swan caveat aside, we seem poised for massive price appreciation in the next few years.

Self Custody

The first time you buy Bitcoin at the exchange of your choice, it will feel like buying any other asset at a brokerage. You buy Bitcoin, and the number on the screen reflects the amount of bitcoin you now “own.”

It is critically important that you take custody of your Bitcoin. We have seen exchange failure and downright fraud go on very recently. When these frauds are uncovered and prosecuted and the price of Bitcoin gets hammered because many people associate the asset Bitcoin with the exchanges that sell it, this becomes a HUGE buying opportunity. When FTX failed 1 year ago, the price of Bitcoin was negatively affected, and those who understood that Bitcoin had no fundamental problem loaded up. They understood that fear was coursing its way through the market (back to why being educated is SO IMPORTANT in this space). If you bought Bitcoin at that time (around 16k), you secured well over a 100% gain in a year!

Think of seed keys as the password to your Bitcoin, which must be protected because if anyone else gets it, they can take possession of your Bitcoin—no bueno. Bitcoin Seed keys are generally protected by a hardware wallet or signing device. This device protects your seed keys from hackers or bad actors. I have been using Coldcards for years, and they are some of the best devices for protecting seed keys. It works very simply. You create your secret keys using the device; it saves them and keeps them offline, never connected to the internet. That last point is IMPORTANT. You do not EVER want to save these words on an internet-connected computer. The only place to safely store your Seed Keys is on a device designed for them. If the computer is compromised (and believe me, it is VERY LIKELY COMPROMISED) the signing device will protect your Bitcoin.

This may all sound very difficult and complex if you have never done it before, but trust me, it’s easy. I would recommend that you watch BTC Sessions videos about using the signing device you choose. He has incredible walk-through videos on YouTube that explain how to do everything in detail.

Collaborative custody with a company like Swan Bitcoin or Unchained Capital is also a good idea for those new to the space. They will hold your hand and protect you from making simple mistakes that can cause issues. Collaborative custody is worth the cost if you are worried about losing your Bitcoin. Unchained offers a collaborative custody product that can hold multiple keys and can help your relatives retrieve your Bitcoin in the case of your demise.

DO NOT BRAG ABOUT YOUR BITCOIN. There is a temptation to brag about success. If you stay the course for five years, you will likely have it. You are proud that you have had the discipline and self-control to master yourself and successfully acquire what you view as a significant amount of Bitcoin. Don’t share how much you have with others. This should be obvious, but there are people that may not be so excited for you. They may tell their friends, and sooner or later someone who you don’t know, who may have the capacity for violence, may decide you are an appetizing target. This is yet another reason to use a multi-sig setup. Even if someone obtained 1 of 3 keys, they cannot steal your Bitcoin.

Don’t Buy Bitcoin That You Don’t Control

Don’t purchase the shiny new ETF Wall Street is offering. Buy Bitcoin only at places that allow you to take actual custody of your Bitcoin. Don’t put your Bitcoin on any kind of service that offers a yield, especially if that yield seems unrealistically high. As a general rule of thumb, just don’t do it.

The first and most important reason you should take custody of your Bitcoin is that you have absolute and complete control of it. There is a saying in Bitcoin, “not your keys, not your coins.” If you do not have custody of your Bitcoin, you simply have an IOU. This is the entire reason for Bitcoin’s existence. To remove middlemen and allow people to control their financial destiny.

When you have custody, you do not incur a fee like you would with an ETF. These fees can seem low, but over time they can be SIGNIFICANT. GBTC is a trust that is the most similar to a Bitcoin ETF. GBTC charges a 2% fee PER YEAR (now 1.5% with the ETF). Over time this can be significant. Additionally, the ETF products that Wall Street is selling don’t allow you to EVER custody the bitcoin. An ETF could make sense for some people in some scenarios, but for anyone who can confidently build a Lego set, taking custody of Bitcoin is of similar complexity. Just do it yourself.

As Bitcoin becomes more mainstream, it will be possible to use it as collateral. Yes, I understand that using your Bitcoin as collateral takes it out of your possession and requires trust in a 3rd party. This is another case where you should educate yourself and be SURE that you have chosen a lender that is trustworthy and will not go bust. Always defer to self-custody if in any doubt.

Borrowing against your Bitcoin is impossible if you don’t have custody of it yourself. You cannot lend the Bitcoin that Blackrock is holding on your behalf. This is significant. There are tax benefits from borrowing against Bitcoin instead of selling it. If you don’t control your Bitcoin, you are boxing yourself out of some predictable use cases in the near future and many unpredictable uses that have yet to be invented. Programmable money is not useful if you don’t have custody of it.

The final reason you should hold your Bitcoin is a bit darker. Bitcoin was designed to be uncensorable and unconfiscatable. When it becomes apparent to the state that it is losing control of the money, it will likely come for yours. This has precedent in U.S. history. In 1933, Executive Order 6102 made it illegal to own gold for U.S. citizens. They compelled people to turn in gold and receive $20 per ounce. The government then repriced gold at $35 per ounce. You could get jailed for owning gold coins in the U.S. from 1933 until the mid-1970s. This could happen again, and you have optionality if you hold Bitcoin yourself. Custodians WILL be compelled to give the government your Bitcoin in this scenario. What you do with your Bitcoin in this situation should be YOUR call, not a custodian’s.

Responsibility

If you take the steps to self-custody your bitcoin, you are responsible. This is a type of radical responsibility that can worry people. If you lose your seed keys, your Bitcoin is lost forever. There is no number to call, and no one who can help you. IT. IS. GONE.

In 2017, one of my friends at the firehouse lost what was then $1300 worth of bitcoin because he put the Bitcoin on a paper wallet. These aren’t used anymore because they are so insecure, but you can print out a QR code that will hold your bitcoin. He left the piece of paper in his car. He then cleaned out his car and vacuumed up the paper wallet. That Bitcoin is gone forever. It is now worth somewhere in the range of 4-5 thousand dollars, and it's just gone. Well, it's technically not gone, it's still there; just not accessible to anyone. Without the password, no one can move the bitcoin, so it’s effectively bitcoin that is frozen forever.

Another good friend of mine lost a significant amount of Bitcoin at a company called BlockFi. This was an exchange that offered yield on Bitcoin kept at their exchange. That Bitcoin is not frozen, but it is now locked up in litigation for the foreseeable future. To add insult to injury—because the Bitcoin when held by BlockFi was not technically his, it is theirs based on the “agreement” he signed when opening the account, he will at some future date get the dollar value of that bitcoin at the price when BlockFi went bust—which is 16 thousand dollars—we have rounded squarely back to why you should take self-custody seriously!

The old saying in bitcoin is “Not your keys, not your Coins.”

Bitcoin is an endless learning journey. If you want a rabbit hole to explore, you are in luck! The amount of solid content offered in the space is light-years better than in 2017. You can go from zero to proficient in a fraction of the time it would have taken back then. As was alluded to above a couple times, we have curated a Basics Series at Blue Collar Bitcoin that you can use to get started. The list of great content creators and resources is so long that we can’t name them all. Just go exploring and be careful to verify, not trust.

Continue learning, and above all—think for yourself!

Remember the wisdom of Matt Odell: “Stay humble and stack Sats.”

This is a guest post by Josh. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.