Few would disagree with the observation that Bitcoin’s current bull run is different from previous bull runs. Of course, it’s clear Bitcoin goes through cyclical motions marked by bullish and bearish sentiment, with its all time-highs, reversals and everything in between. However, in contrast to the uncertainty that characterized previous rallies, we are now in the adoption phase.
It therefore begs the question: do we need an exit strategy for Bitcoin or is it better to literally hold on for dear life – and our children’s lives, and our children’s children’s lives? In this post, we discuss a few different perspectives on the matter.
Ask Michael Saylor
MicroStrategy’s CEO, Michael Saylor, who has taken the bold step of converting the company’s cash reserves to Bitcoin, has been quite clear as to what his intentions are.
In his view, Bitcoin is to be held for the long term and never sold. Unless a better technology comes along that outperforms Bitcoin and exceeds Bitcoin in brand value, and market cap, there might be a reason to reconsider, but as it stands, he sees Bitcoin as the superior store of value and expects the price of Bitcoin to continue to go up with the passage of time – as demand increases and supply goes down.
This perspective is most in line with Bitcoin maximalism which sees a logical progression from inferior fiat-based systems to programmable money that is decentralized in nature, scarce and efficient.
If you follow Michael Saylor’s example, you would still diversify your portfolio, but you would regard your Bitcoin as your long-term savings account where you build up your wealth in Bitcoin rather than fiat.
If you do believe Bitcoin has this bright future, but you want to make sure that you don’t stress too much during long-term bear markets, then at some point towards to the end of this bull run, you could slowly derisk by gradually exiting your position and distributing your profits and initial investment across stablecoins and some altcoins that are not too strongly correlated with Bitcoin.
While it is very difficult to know where the ‘top’ will be for this bull run, gradual derisking operates on the basis of liquidity regions rather than exact price points. For example, if we see a lot of resistance at $120,000 USD and you believe we might be heading towards a reversal, you could slowly sell portions of your Bitcoin around that price area, keeping enough to enjoy further appreciation, and not keeping too much, in case indeed the market decides to start making its descent.
It is important to realize, however, that “descent” does not mean going back to zero. Bitcoin could theoretically of course go to zero – as could Tesla, Apple or the SP500 – but chances are incredibly slim, and to invest in Bitcoin while still doubting its resilience in the long term may not be the best way to approach this investment – if only because it’s unnecessarily stressful to wake up every day, wondering if Bitcoin still exists.
Alternating Between Bitcoin & Gold
Another option you might consider is to diversify across asset classes, with a particular focus on storing value. Rather than ‘derisking’ and making your way to perhaps risky altcoins, or parking your money in dormant fiat, you might also consider slowly converting your Bitcoin to gold.
Since you’re already in the crypto market, rather than physical gold, you could instead funnel your Bitcoin to tokenized gold such as PaxGold, AurusGold and TetherGold.
The assumption here would be that over time Bitcoin and gold might develop somewhat of a negative correlation — this is something that will need to be studied in more depth.
Perhaps the most dangerous and potentially lucrative option would be to switch your bias at some point, when you are convinced that Bitcoin hit the top.
Assuming the price of Bitcoin will be going down, you would sell your Bitcoin, convert to USDT, and enter a long term, low leverage, short position. If you were right, and say, you see 6 months of downturn, you would be setting yourself up for incredible gains, especially if you’re able to close on time, and buy back into Bitcoin with potentially double the money.
Of course, this is incredibly dangerous. Chances are, Bitcoin doesn’t go down as much and flips on you. You would then either have to close your position with loss, add more money to your position to raise your liquidation price, or risk liquidation — meaning, you would end up at the top of Bitcoin’s price with nothing.
For this one, you might want to read our article about former IMF economist, Mark Dow, who famously opened a short position for a futures contract on Bitcoin near to its peak and closed it on the 18th of December, 2018, right before it hit the bottom.
Keep An Open Mind
No one can tell what the future holds and what can we really say to people who think Bitcoin is just another bubble?
The reality is, it doesn’t matter. As investors in Bitcoin we need to pay attention to how Bitcoin is being discussed in the public square, what the macroeconomic context is like, and we need to keep an eye on the charts.
For the coming few years, interest rates are non-existent, or negligible. Stimulus packages are diluting the major fiat currencies. Big institutions and corporations are buying into Bitcoin and they seem to be doing so for the long term.
It might be that retail traders who have been in this space for a long time feel certain about how this bull run will play out, and as such are preparing for a way out.
But what if they exit, expecting another ‘winter’ to come, but instead, climate change abolishes such seasonality? What if Bitcoin never makes its way down again in any meaningful way?
Then the question becomes: what’s your entry strategy?