“Someone’s sitting in the shade today because someone planted a tree a long time ago.” With this quote, Buffett was speaking to long-term investing, but it applies to any venture worth pursuing. Instead of looking for easy gains or quick fixes, be prepared to put in the time it takes.
“Bear markets make people a lot of money, they just don’t know it at the time.”This quote from Shelby Davis may seem like a hard one to understand. How can we make money from the bear market? But the truth is that investing, or even trading, has never been about the present. Everything in life has an up and down, and the markets are hardly an exception. We need to take a broader view of the matter.
In 2017, we saw the breathtaking rise of Bitcoin that stunned the entire world; people sold their houses, took out loans, and maxed out their credit cards for the chance to profit from this most awesome market.
Now rewind the clock to just four years before all of this happened. From November 2013 to January 2015, Bitcoin collapsed 86%, its price fell from $1,163 all the way down to $152. For many, Bitcoin was dead. But for some of the few who believed in Bitcoin, or understood how the market dynamics worked, it was seen as a huge opportunity.
The price dropped to $152, meaning that someone must be selling off their bitcoins at that price, and someone is also buying them at that price.
If you told people who bought when the price was $152 and even still held bitcoin that they could sell their bitcoins for $20,000 each in less than two years, they would probably think you were crazy. It’s hard to convince people that now might be the best opportunity, but we can prepare ourselves for a similar situation.
This situation can only happen in a downtrend. This downtrend exposes several problems:
1 There are too many people in the market who are desperate to make a quick profit
2 There are too many Ponzi schemes in the market
3 Many exchanges are not currently equipped to deal with a crisis.
This downtrend shines a light on these scams and reminds people of the need for a more secure infrastructure.
Human tribal creatures, our first instinct is to behave similarly to each other in order to be accepted and thus increase our chances of survival. This simple instinct influences the market in a significant way.
When we see a person who holds most of that asset, is selling and causing the price of that asset to fall rapidly. We do the same thing and try to sell before the price drops further to cut our losses.
It is not until the price drops to a low point that is too low for buyers to refuse to buy that this situation begins to reverse itself.
It’ s true that cryptocurrencies and the blockchain technology built on them have the potential to revolutionise the Internet like never before, it just takes some time. It is important to realise that the drop is necessary for a bull market to occur. There can be no bull market without a bear market. Instead of avoiding the bulls, learn how to take advantage of them, as John Templeton once said, “there will always be bull markets followed by bear markets followed by bull markets.”