Context

To put it kindly, 2022 was not nice to the crypto industry. To put it bluntly, 2022 was a biblically bad year for crypto. With Bitcoin and Ether shedding approximately two-thirds of its value, stablecoins TerraUSD and LUNA de-pegging, and the collapses of various crypto firms including Three Arrows Capital, Celsius, and industry darling FTX, many investors have scrambled to sell their digital assets. This has caused a severe liquidity crisis for many firms including Temasek-backed crypto shop Amber Group and perhaps for many investors, a renewed examination for the claim that crypto serves as a good hedge against inflation.

But if you remain a devout believer in crypto investing, decentralised finance (DeFi), and the fundamentals of blockchain technologies, then the following five suggestions may help you prepare for the next crypto bull run whenever it may appear.

1. Accumulate a Long-Term Position

Most day-traders lose money during even when markets are healthy. So, unless you are confident in your abilities to consistently generate positive returns in the short term, it may better to gradually accumulate a position of the digital asset for the long term. The simplest method would be to dollar-cost averaging (‘DCA’) or buy more of a designated asset during its red days. If the fundamentals of your investments are strong, you will reap the awards if and when the prices begin to go up.

2. Stay Informed

Crypto enthusiasts will undoubtedly be aware of the saying, ‘bear markets are for building’. This is because during a bear market, the focus shifts from a game of prices to the actual community. Those who were only in the game to get rich have mostly left the space, leaving primarily only those who genuinely care and believe in the what the future of the digital asset space, including crypto, NFTs, and Web 3.0 have to offer. Accordingly, the bear markets fosters a renewed focus on the community rather than price. This is vital for maintaining healthy price movements and developing a strong culture around the fundamentals of the asset class for helping to propel it into the next period of growth.

It is also often voiced in traditional finance and academic literature that whilst traditional markets are not perfectly efficient, it is, as a minimum, reasonably efficient as evidenced by the fact that most actively managed funds consistently underperform the market. The good news for the true believers of crypto is that the crypto market is significantly less efficient than even traditional stock market. This makes it easier for investors to generate an abnormal rate of turn or ‘alpha (α)’ in excess of benchmarks or predicted rate of returns as would be suggested when employing equilibrium models such as CAPM. Accordingly, if you want to join the big league of crypto, maintain and open mind and truly immerse yourself in this space. You just might spot the next big trend before the masses catch on. Afterall, ‘success is when preparation meets opportunity’.

3. Strategise Your Portfolio During Times of Uncertainty

Whilst past performance is not indicative of future results, it certainly does not hurt to look at past trends, especially in an asset class as new as crypto. The fact of the matter is that bull runs in the crypto market are much shorter in duration with significantly more dramatic price movements when compared to traditional asset classes such as equities, fixed income, and commodities. This can be attributed to a much smaller market and the high levels of inherent speculation. Accordingly, many investors are often caught off guard when the bull market returns, leading to a fair amount of FOMO. It is therefore submitted that the best time to formulate a sound crypto investment strategy would be now, during this time of uncertainty.

In accepting the above, we advocate the key to a successful and sustainable investment strategy is to know yourself by understanding your risk appetite. This is because risk and return are irrevocably related. If you classify yourself as a relatively risk averse investor, it may be wise to stick to the big names such as Bitcoin and Ether since they have existed for the longest and have the biggest networks and market sizes. If you are relatively risk loving and can tolerate more volatility, you may consider adding altcoins to your portfolio to potentially stand for higher returns.

4. Capitalise on Losses

If you were forced to sell crypto last year at a loss, you may be able to use the loss to help reduce future tax liability. Mind you, tax codes are complicated and tax regulations aimed at crypto are even more convoluted so it would be wise to consult crypto tax advice from an accountant to take into account your place of domicile and economic situation. In the UK for example, an individual is generally only required to file tax returns if they realised more than $12,300 in capital gains or over £1,000 in crypto income in the previous tax year. Therefore, even if you are not required by statute to file a tax return, you may still wish to do so to reduce your tax bill for this year.

As for calculating your crypto tax liability, we do not recommend using excel as it is complicated and there may be a tax implication for every trade you made last year. Instead, try CoinTracking. Whilst CoinTracking does charge a small fee, it is compatible with most competent crypto exchanges and wallets by using an application programming interface (API) to calculate your net crypto tax liability.

5. Don’t Miss the Forest for the Trees

It is undeniable that crypto remains a new asset class which contributes to its unpredictability. But there are those such as Dan Morehead of Pantera Capital who believes that crypto is here to stay. If you, like Dan Morehead, remain a devout believer, then it would be wise to play the long game rather than fret over the short-term noise.