How I Made a Fortune from the 2020 Bear Market  by@benhodlin

How I Made a Fortune from the 2020 Bear Market

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Ben Knaus  HackerNoon profile picture

Ben Knaus

Chief Growth Officer @ Sch0lar.io Merging Ed-Tech and Blockchain via Avalanche 🔺 Member of Forbes Technology Council

Like death and taxes Bear markets are a certainty. The good news is that since bear markets operate as part of a cycle, not only is it possible to survive them, you can also reap the rewards of your patience when they finally pass.

When the Black Thursday Crash of 2020 happened, it would ignite a major bear market across equities and digital assets alike.

This was the first Bear market the Dow Jones Industrial had seen in 11 years. The timing couldn't have been worse for digital assets who were already in a multi-year " Crypto Winter".

Full disclosure I'm in no way shape or form a financial advisor, and none of this constitutes financial advice. 

What's a Bear Market?

When Asset prices fall due to the influence of investor sentiment, economic conditions, interest rates, and many other factors. The Securities and Exchange Commission (SEC) defines a bear market as a broad market index decline of 20% or more over at least two months. In Digital assets the decline can be as much as 90+%.

According to the investment company Invesco, the average length of a bear market is 363 days. Investors should also realize generally if they have long time horizons sharp corrections or crashes end up looking insignificant on the charts.

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While there have been several bear markets in U.S. history, the economy generally spends more time expanding than contracting. This means that the market spends more time as a bull than a bear. Since less time is spent in bear markets than bull markets, they tend to become highly publicized occurrences.

I'm not saying we're in a bear market and I'm not concerned if and when we do enter a bear market. I think it's prudent to be proactive and have a plan. If you do, you'll avoid panicking when those events develop. Below is a list of rules I compiled retroactively.

Rule #1 - Take a deep breath

You only realize losses when you sell. Look back at previous bear markets on charts, don't get caught up thinking about portfolio percentages. If you have a long-time horizon, remember most crashes look irrelevant on the chart within a few years.  Realize the opportunity in front of you.

"Buy when there is blood in the streets, even if the blood is your own." - Baron Rothschild

Rule #2 - Trim the fat

If some of your positions failed to hit new all-time highs while most of the market goes into price discovery it may be time to detest. Determine if that allocation would be better used in a project with a budding ecosystem, rather than one with dwindling growth. Don't get married to your positions. Being disciplined makes you an investor. Being tribal/maximalist makes you fanatical.

Rule #3 Do in-depth research

I've spent hundreds of hours on social media looking for sentiment amongst founders, projects, builders, and speculators.

In research I focused on: 

  • Previous ATH (all-time high) delta percentage between current price and ATH 
  • Community growth 
  • Team
  • Native chain number of nodes and commits 
  • Community sentiment 
  • Staking ratio (if offered) 
  • Token velocity 
  • Roadmap 
  • Upcoming updates 
  • Insider ownership

Rule #4 Lower your cost basis

on the night of the Black Thursday crash of 2020. My DCA's of 2019 were down about 47%. I took the opportunity to lower my cost basis on projects I already believed in, like BTC, ETH, LINK, BNB, XTZ. XTZ would later fall victim to RULE #2 after a 2x.

Dollar-cost averaging is a great avenue to lower cost basis strategically and not throw large allocations at a falling target.

Rule #5 Find mistakes in the market

A few weeks after the Black Thursday Crash, I began looking for projects that seemed to be mispriced relative to their All-time highs or their position in their roadmap. Budding ecosystems, and major upgrades are more often than not major price catalysts. Before making any decision, I went through Rule #3 extensively.

I concluded ADA $.03, and VET $.005 to be mispriced. I went heavily into Both Projects. I liquidated real-world assets to build large positions in both projects. And added them to my weekly dollar cost average buys along with: BTC, ETH, LINK. I also found DOT along the way and added a decent position when DOT was just over $2.

When that wasn't enough, I did something no one should ever do. I used credit cards to purchase ADA/ETH/VET. At one-point transactions kept getting declined.

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I called my Credit card provider and they informed me they "Were blocking access to buy crypto because crypto was too volatile". Good old CC company looking out for me. On the same call I asked where the nearest location was that I could get a cash advance on my card, he told me and that's exactly what I did.

Within a day I was back it, and I repeated this with another card shortly after. Luckily things worked out and they got paid off. It could've easily gone the other way.

"I wouldn't do this again; in retrospect I had enough conviction to fill the ocean".

Rule #6 Drown out the noise

Don't concern yourself with the opinions of others. You've entered the most tribal atmosphere you will ever be in. From a personal asset perspective, I'm here to make money. Don't be lured in by clickbait YouTube or twitter posts predicting 90% drawdowns. You'll have fanatics of XYZ chain attaching ABC Chain and vice versa. The same people usually hold their 1-3 projects and become diamond hands memes. Holding all the way to the top and back down to the bottom.

Rule #7 Be Patient

By Mid-June ADA had hit $0.08 cents, and VET hit $0.01, and I felt like I was on top of the world. Every dollar I made was still being poured into digital assets. I remember buying 2 ETH per week, and when ETH climbed over 250$ per I had some serious reflection and felt like it was expensive. I forced myself to pull back to 1 ETH per week and continue my other DCA's along with it.

Seeing it sit just above $3K at the moment, the decision and wavering over the tiny price is comical. within a year I actually borrowed against some of my ETH on Celsius to buy more ETH when it was sub $1000

For every $1,000 I allocated to each asset in 2020, it turned into the following in 2021

  • ADA Per 1K allocated = 76K
  • DOT per 1k = 17.5K
  • VET per 1K = 28K
  • ETH per 1K = 23.52K
  • BTC per 1K = 5.2K
  • LINK per 1K = 15.4K

Throughout this price action I've stayed patient, and still hold a majority of my 2020 portfolio. However, I made sure to take profits. I got Lucky and exited LINK near its ATH. I exited BNB, XTZ, and a few other small positions. I still DCA to this day and am focused on a few new projects in budding ecosystems with great communities.

I do have some set sell points I'm getting close to. As market caps rise steadily so will the returns. So, I'll be trimming more fat soon enough. But make sure you take profits. Three mainstays in my portfolio will be BTC, ETH, AVAX.

My biggest takeaway: IF you put in the research, it's easy to be comfortable, being uncomfortable with your portfolio in a bear market. This gives you the ability to make strategic decisions as the rest of the market is in peril.

Did I mention, what I did shouldn't be constituted as financial advice? Please don't use credit cards and liquidate almost anything you can just to buy magic internet money that is on sale, (90% off) while the world is in turmoil.

Full disclosure I'm in no way shape or form a financial advisor, and none of this constitutes financial advice. 


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