How to Prepare for the Crypto Bull Run and Avoid Loss?

Legendary Japanese day trader Takashi Kotegawa, also known as BNF, had a routine of eating ramen, watching anime, analyzing market trends, and following a straightforward trading strategy: bet against the market and wait for a rebound. This approach proved profitable in the stock market, earning the trader millions. One of his biggest transactions resulted in a $12 million profit. However, BNF spent over 20 years honing his skills to reach this level of proficiency. So, what lessons can we draw from this trading legend, and is it worth following in his footsteps?

Global Bull Runs Typically Follow Bitcoin Halving

Takashi meticulously searched for patterns in price trends, explored connections between diverse assets, and analyzed the behavior of specific market sectors. Traditionally, a bullish cycle in the cryptocurrency market follows a Bitcoin halving where mining rewards are cut in half.

• The November 2012 halving reduced the reward from 50 BTC to 25 BTC, with Bitcoin trading at $12 per coin. Around that same time, a former Airbnb engineer launched Coinbase, one of the first cryptocurrency exchanges. The subsequent year, 2013, saw the initiation of the first bull run, driven mainly by speculative interest and the novelty of the new technology. By the end of that year, in November, BTC had astonishingly reached $1000, a previously unimaginable value.

During the 2013 Bitcoin bull run, the price peaked in November | Source: coinmarketcap.com

• The second Bitcoin halving occurred in 2016, with the price at $651. In 2017, the coin drew the attention of the CME Group, the world's largest derivatives exchange operator overseeing both the New York and Chicago stock exchanges. The market was abuzz with rumors of impending Bitcoin futures ETFs, and exchanges like Binance and OKX emerged. The growth was bolstered by the ICO boom and optimism about new technology, pushing Bitcoin's price over $19,000.
• The third halving happened in mid-2020, with Bitcoin valued at $15,579. Shortly afterward, in 2021, the bull run began, marked by rapid developments in DeFi, a surge in NFT sales, an altcoin boom, and the integration of blockchain into supply chains. Fueled by renewed rumors of Bitcoin futures ETFs, the BTC price reached a new all-time high of $69,045.

The next Bitcoin halving is slated for April 12, 2024, reducing the mining reward to 3.125 BTC. A report from Matrixport suggests that the bull market actually commenced in June 2023, with expectations pointing towards a Bitcoin price of $140,000 by December 2024.

As of October 2023, Bitcoin has weathered a ‘crypto winter,' with its annual low updating to $15,850. Subsequently, its price has been slowly but surely recovering to its 2021 levels. Another precursor to the bullish cycle has also emerged: rumors about the launch of spot ETFs, which, however, the SEC has yet to approve.

On the stock market, sentiments are leaning towards an impending bear cycle. Since 1987, the American Association of Individual Investors (AAII) has conducted weekly surveys of college graduates about the direction they believe the stock market will take in the next six months. In July 2023, 40% of respondents were confident of market growth; however, by October, sentiments had shifted, with 40% expecting a bear market.

For the first time since the beginning of 2023, the Fear and Greed Index reached 70. The higher this gauge, the stronger the market's buying sentiment, driven by the belief that ‘everything else is growing too!' Throughout most of 2023, the index hovered between 30 and 60, signaling a market with moderate appetites. Yet, in October, it surged to 70. Historically, such spikes often foreshadow a Bitcoin price correction, coming on the heels of its recent annual high at $34,864.

Dynamics of the Fear and Greed Index | Source: coinmarketcap.com

How to Avoid Loss While Preparing for the Crypto Bull Run?

Analysts frequently identify the start of a bull market only in hindsight, and the progression of events tends to be gradual. A defining feature of a crypto bull market is its extended duration, which can range from one to three years. The previous two bull runs, in 2015 and 2019, each extended for three years before transitioning to a bear cycle. If you're just coming across this article, don't worry – you still have time until 2025 you have time until 2025 to build your crypto portfolio.

Set your Expectations

The bull rally is drawing near, but to avoid losing money, you need to do some introspection.

• Remember, greed can be fatal. If the market has given you more than a 3x return, make sure to secure at least some of your profits. Stay grounded, and don’t hold out for a 100x gain. Reinvest a portion of your profits by experimenting with trading strategies, as this will increase your chances of earning more.
• Trade on the spot market. Futures and derivatives are more suited for day trading than for long-term position accumulation. Trading on the spot market minimizes your risks as well as potential losses due to volatility.
• Don’t open a position against the global trend. Before entering a trade, review the coin’s price chart on a weekly timeframe and verify the trend direction. For example, the crypto winter of 2022–2023 was a global trend during which there were sporadic bull rallies that wiped out high-risk short positions. During a bull market, correction phases can occur, and some projects may not gain sufficient momentum for growth.

Nervous? Leave Crypto to a Trading Bot

Many modern cryptocurrency exchanges offer trading bots to their users, providing an open-access platform for trading. Typically, these bots function by allowing you to allocate a budget, select a specific coin, define a price range, and determine whether the bot should open long, short, or mixed positions. From there, the bot independently executes purchases and sales of the coin according to its programmed algorithm. For instance, you could configure DiamondPigs bots on WhiteBit or explore trading algorithms on other platforms.

Investing in Coins Amid a Downturn: Smart or Risky?

While this is a prevalent strategy, backtesting and statistical data suggest that if a coin has been in a downturn for over two-thirds of its entire existence, it might be best to avoid that particular project. To make this strategy work, search for coins with a market capitalization exceeding $1 million and a history of more than one year, having endured one or several bull rallies throughout their existence and maintaining a global positive trend above 10 degrees on the chart. If you find a project older than four years with a capitalization of $2-3 million, its team has likely overcome most startup challenges, increasing the chances of the project's growth. However, be cautious as even the age of a project can be misleading; some scam projects continue to operate without being isolated by the crypto ecosystem.

Example of Tron maintaining its global positive trend | Source: coinmarketcap.com

Explore New Projects Through Audit Services

Certik provides an aggregator platform showcasing projects that have undergone smart contract and token code certification and audit. The platform, Skynet, is available to most users without the need for registration. Here, projects are displayed with one or more code audits, alongside results from independent evaluations. If the developers have either missed a vulnerability or attempted to hide something, it will be evident in the project’s profile on the site.

Code Differences Indicator Level between the Audit Time and the Last Auto-Check at Polygon | Source: skynet.certik.com

No Derivatives for a Coin? That’s a Positive Indicator

Many traders believe that futures contracts hinder the growth of the underlying asset. Due to the operational nature of these contracts, futures and perpetual swaps are often used by different market players to acquire short positions, a process more complex than spot purchases. This practice depresses the price, creating a counterforce to positive momentum—a situation that can be particularly precarious in the early development stages of a project when there are not enough buyers in the spot market for the coin.

Check the Community’s Status Before Buying

Make sure the community is active, with more than 10 diverse comments per week. This simple litmus test helps eliminate dead projects from consideration. However, the community might be concentrated on a particular Discord server, Telegram chat, or forum, so thorough research is essential. Coinmarketcap and Coingecko compile links to all of a project's active social networks and forum threads, providing a comprehensive overview.

Use Connections in Coin Growth

When Bitcoin is in an uptrend and its market dominance exceeds 50%, altcoins tend to decline. However, during a bullish market, if Bitcoin's dominance hovers around 50% without increasing, it's a common belief that altcoins will begin to appreciate. A true ‘altseason' is marked by Bitcoin's dominance falling below 50%, even as BTC itself continues to grow. In these periods, market volatility is notably high, and most coins experience a rally.

Monitor Major Portfolios

• As the case against Sam Bankman-Fried reveals new details about the FTX manipulations, it would be wise to pay attention to their top holdings.
• Explore the portfolio of Winklevoss Capital, established by the Winklevoss twins.
• Investigate the portfolios of Ethereum founder Vitalik Buterin and Justin Sun, and scrutinize the investment history of the Tron Foundation. Analyze how their holdings have transformed over time to evaluate the attractiveness of a project for investment.

Wait for a Correction Before Investing

Put simply, a correction is what usually follows a premature surge. It is typically characterized by a 10% drop in value within a week following a sharp increase. The coin receives this “adjustment” due to its overvaluation by the market. The price level after the correction is considered to be the optimal entry point for an investment.

Signs of Correction:

• The price has decreased by 10% in comparison to the recent peak.
• There is a noticeable spike in trading activity across all currency pairs of the coin.
• There is a sharp increase in short positions for the coin, accompanied by increased trading activity.
• RSI and MACD indicators are in the “overbought” zone, typically considered to be a level above 80 points.
• A fall in the price below the level of short-term Moving Averages (MAs) indicates the onset of a correction.

Monitor the Long/Short Ratio

This metric is straightforward: if there are more long positions, it suggests that the majority of market participants anticipate growth; if there are more short positions, it indicates that a decline is expected. Coinglass offers a handy visualization tool showing the trading positions ratio for specific coins such as BTC, TRX, XTZ, and others, across numerous platforms simultaneously.

Meet Airdrop Conditions of Projects You Invest In

Retroactive airdrops from significant projects like Aptos, Uniswap, and others have yielded substantial rewards for their holders even before the start of a bullish cycle. Make sure you have fulfilled all the prerequisites for receiving an airdrop from the project you have invested in. For example, create a wallet, exchange USDT for the coin using the required service, execute a couple of test transactions from your wallet to another one of your wallets, connect your social networks to the platform if necessary, and participate actively in testnets. Run your own node or stake coins from your personal wallet if the project operates on a PoS blockchain.

Accumulate Your Position Gradually

Divide your coin purchase into parts and accumulate your long position gradually. This strategy helps mitigate risks associated with potential scams or significant market corrections. Gradual accumulation reduces financial exposure to unforeseen market volatility, enhancing your investment safety.