About Regular Investment and Regular Selling

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Some readers asked the following questions in their recent comments:

What is the basis for the dollar-cost averaging lines of BTC at $35,000 and Ethereum at $2,500? Can they be higher? Is there still a chance for BTC to reach $35,000 again in this round?

The settings of Bitcoin at $35,000 and Ethereum at $2,500 are largely based on my rough estimates from experience.

In all previous bull and bear cycles before the last bear market, Bitcoin has never dropped more than 50% from its peak to its trough.

During that market cycle, Ethereum experienced a bull market in three areas (DeFi, NFT, and blockchain games) and produced phenomenal applications. Such a fierce ecological explosion is unprecedented. According to the general rule of "the taller the vertical, the longer the horizontal," once this bull market collapses, the ensuing bear market will likely be quite severe.

Therefore, for the upcoming bear market, I speculate that the decline of Bitcoin and Ethereum from the peak of the bull market to the trough of the bear market is still very likely to exceed 50%.

Later, when we witnessed the collapse of the entire crypto market's bull run, the peak values for Bitcoin and Ethereum were determined: Bitcoin was just under $70,000, and Ethereum was just under $5,000.

Thus, based on conservative estimates, I chose half of $70,000 and half of $5,000. This is the origin of my choice of Bitcoin at $35,000 and Ethereum at $2,500.

Now, looking back at this estimation process, there is a crucial premise: that is, the decline of Bitcoin and Ethereum in the bear market cannot be less than 50%.

Without this premise, all subsequent estimates would not hold.

However, if we seriously examine this premise, we will find a problem:

What I am actually doing is guessing the price and then formulating strategies based on the guessed price.

Over the years, as my understanding has changed, I have increasingly questioned the validity of formulating strategies based on guesses. Because such a basis is difficult to stand on.

In the past, this strategy was executed because I guessed correctly, but this guessing largely relied on experience and intuition, which are hard to replicate permanently. Methods that cannot be permanently replicated are not long-term reliable methods.

So, I wrote a passage in an article some time ago, suggesting that I have been thinking about whether I should really try to hold onto the assets I am optimistic about indefinitely, or at least significantly increase the proportion of permanent holdings after this bull market.

As for whether the dollar-cost averaging price can be increased or changed?

Of course, it can.

Every investor has their own understanding and feelings about the market, and they can certainly find a suitable dollar-cost averaging price based on their own understanding and feelings, especially according to the risks they can bear.

Can BTC reach $35,000 again in this round?

This is a market guess, and I cannot answer that. I hope it can reach that. If it does, I will buy more; if it doesn’t, it doesn’t matter.

Having talked about dollar-cost averaging, let’s discuss fixed selling. This is also a question that many readers asked in their recent comments.

According to my previous approach, the so-called fixed selling refers to starting to sell when the market (for example, Bitcoin) drops 20% from its peak.

The implicit problem with this approach is actually the same as the premise for setting the dollar-cost averaging price:

That is, after the market drops 20% from its peak, it will continue to decline and will not break through the previous peak again for a relatively long period (at least 2-3 years).

This is also guessing the market and requires accurately predicting the market's performance over the next 2-3 years to formulate strategies accordingly. This is even more difficult.

What if the market drops 20% from its peak, then briefly hovers and consolidates, and then rises again to break through the previous peak?

Then fixed selling would completely miss the subsequent market.

A drop of 20% from the peak, leading to the conclusion that the market has entered a technical bear market, is a general rule in financial markets. This rule has been relatively effective in the past, but now, especially in the U.S. stock market, while it is effective, the duration of its effectiveness is becoming shorter.

Taking the S&P 500 index as an example, over the past decade, investors who sold everything after any 20% drop in the S&P 500 and waited for a significant correction (such as a drop of more than 50%) before re-entering have basically all been wrong; they would have missed the subsequent rapid recovery bull market.

Why?

Because although the U.S. stock market may drop and enter a bear market, the duration of such bear markets is relatively short, and the extent of the decline is limited. In this market, it is almost impossible to wait for sufficiently low prices; if one waits indefinitely, they will miss future opportunities.

Therefore, in the U.S. stock market, it is very challenging to set a dollar-cost averaging price and a fixed selling price with sufficient price difference.

In the U.S. stock market, the most suitable method is indeed to buy and hold for the long term—this is the experience summary that masters like Buffett and Fisher have taught us through their lifetimes.

Of course, what they mean by buying and holding for the long term does not mean never selling; rather, their selling criteria are not based on the kind of guessing market price highs and lows to determine selling points that we might imagine.

Will this trend and characteristic of the U.S. stock market one day replicate in the crypto market?

I don’t know, but at least I am becoming increasingly cautious about the behavior of guessing the market.