Crypto Market Update (Oct 21, 2021)

Watching For A Market Blow Off (What I'm Doing & Planning To Do)

Myles Dunphy
October 19, 2021
Where are we now?

We're going well. Thesis hasn't changed.

  1. Bitcoin is going to $100,000 and beyond, and is here to stay for the long term.
  2. Ethereum is tracing Bitcoin's path but a few years later. It is a higher risk, higher reward long-term play.
  3. Most altcoins are going to zero, but many will stop by the moon for an indeterminate period of time first.

I'm less confident in predicting any specific prices or timing but I am highly confident in the above three points. Altcoins are a high risk, high reward play that require much more active management.

What should I do now? / "Should I wait for a dip?"

Yes, but we were just in a 3 month dip so that would have been the time to buy. Why didn't you?

Please, before doing anything else, start an investing journal and record your thoughts as you navigate the markets. Record the actions you took or didn't take, your thoughts and especially your emotions along the way. Then look back every few months and compare what you did/didn't do and what you felt/didn't feel, with what the market did.

You'll probably find your behaviors, thoughts and emotions mostly lead you to do the exact opposite of what you should have done in hindsight. This is a valuable lesson! Now, just learn to do the opposite.

As of 21st October 2021, these are my thoughts:

  • If Bitcoin continues to run, don't chase it.
  • If Bitcoin drops to low $50ks, that might be a decent entry point. But you did just miss a much better period to enter.
  • Consider buying your preferred Ethereum / Altcoin plays that aren't yet chasing Bitcoin.
  • Once they start running too, stop buying everything.

See the next section for my reasoning and where I would look at selling.

One more thing. It seems quite reasonable that in the bottom of the next bear market (in a year? 2 years?) prices could easily revisit $40-50k levels for Bitcoin, $3k-4k levels for Ethereum, etc. So depending on your investment horizon and risk tolerance, it may or may not make sense for you to wait it out from here.

How The Market Tends To Blow Off

The trends over this most recent bull period (end of 2020 - May 2021) were pretty similar to what occurred in 2017. This is pretty much it:

  1. Bitcoin gathers momentum and runs to new highs. Nothing else does anything notable during this period.
  2. Bitcoin makes a final high & starts to lose momentum. Momentum shifts to Ethereum & other alts.
  3. ETH pumps hard and other alts enter a manic phase, making 2x gains or higher in a period of 2-4 weeks.
  4. Basically, everything crashes including BTC, ETH and almost all alts.
  5. A few weeks after the crash, there is a dead-cat bounce.
  6. Prices continue dropping and are dragged slowly lower over time.

I'm not saying it has to play out exactly like this again but there is a good chance that it will look similar. If it does, good - these signs are easy to spot.

  1. Look for the Bitcoin top.
  2. Note where Ethereum & other alts are on this date.
  3. Watch over the next 2-4 weeks as Bitcoin fails to make new highs while everything else makes a final 2x or more. The worse the quality of the underlying project, the harder it will pump. Pay close attention to DOGE and memecoins.

Depending on your risk tolerance/YOLO tendencies, and/or desire to experience regret, you could begin exiting prior to step one, or wait for step 3.

If you miss step 3 and hit the crash with your entire position intact, look for your second-chance exit: the Dead Cat Bounce. Look for a relief rally about 2-4 weeks after the initial crash. This may take Altcoin prices more or less back to where they were before the final 2x, i.e. quite close to where they were at when bitcoin peaked. If you want to bail but didn't until now, here is your last chance to bail.

Or just hold everything for a few more years, watch as most of your alts slowly trend down against Bitcoin, some vastly outperform, and the crypto space as a whole continues to grow!

What I'm Doing (& Planning To Do)

Prior to August, I had exposure to two primary bets: Amazon and Crypto. Between August-October, I did the following:

  1. Closed out the Amazon bet (sold my business); and
  2. Increased the crypto bet.

My bets are placed. I'll be watching for the blow-off signs above.

I will re-iterate that in the long-term (5-10 years) I see no reason not to be exposed to crypto, and few good reasons to be exposed to much else unless it is generating cashflow that allows you to increase your crypto position.

Resources I'm Following

For investment/market updates. I'm almost exclusively using Ben Cowen's premium subscription product. His dynamic risk levels work. I am unaware of anyone else in the space who gives advice based on risk AND can quantify that risk. Get more details at his Youtube Channel.

For learning, pick a specific topic that interests you and dive in. See my previous article for other resources.

I try to spend more time learning than following the market.

Closing Thought

I really think crypto is like the internet in the late 90s. By that I mean - there's probably a big crash coming soon. But where it goes in the next 20 years is something that very few of us today could hope to understand.

It's an exciting time to be alive.