DeFiChain

Hello everyone,

today there is an extra post about #krypto . We are all enjoying the consequences of the "Trump wave", which has lifted our portfolios since his election victory, but above all our cryptos.

Of course, some are now rightly asking themselves when the time has come to exit (assuming you want to realize profits).

Today, I will write about my basic assumption, my strategy and my price exit targets.

My basic assumption:

I still see crypto (leaving aside the technical aspects) as a zero-sum game. During the holding period, no current income is generated by crypto in the currency in which I can pay my bills, such as dividends or interest. That's why staking is strictly no current income for me either (other views permitted). The consequence of this is that the profits of one always are always the losses of the other and vice versa. So we have to make sure that we are not the ones who suffer the losses by being in the game and providing the exit liquidity for the winners. We can only do that by playing the crypto cycle, or HODLing forever. The perpetual HODL might be tempting, but it doesn't fit my picture because I don't have the current returns. So let's play the cycle.

The crypto cycle and the debt cycle

To support my sell thesis, I have to make assumptions that are conclusive to me, so understand the following as my opinion, but not investment advice or recommendation.

The crypto cycle simply expresses the fact that cryptos, measured in FIAT currency, also go through their seasons. This lasts exactly as long as the maturity of 4-year US Treasury notes.

The USA is heavily in debt. How can the state reduce its debt burden? By repaying it, that would be logical. But we all know that the USA is no longer in a position to do this. If the state also uses debt correctly by investing it in projects that will later generate new income and returns, then it would not make sense to pay off all the debt completely, as the returns from the investment always exceed the interest burden. A bad example would be if the state were to incur debt and throw the fresh money out of the window as transfer payments or invest it in absolutely pointless projects that generate no returns.

The USA therefore issues new government bonds (including those mentioned above) to continue financing old liabilities, which can then be bought by private individuals. This increases the amount of money in circulation, which is the process we simply call "printing money".

The "freshly printed money" naturally finds its way towards material assets. For example, by going out as a transfer to the citizen and investing it, or by going to a company as a subsidy and the company investing it, or by distributing it to the citizen as a wage/salary and the citizen reinvesting it. There are a number of conceivable ways in which the money can find its way to a tangible asset. Of course, the money also flows into crypto.

If we get into a situation in which the USA has a high debt burden to pay off due to maturity, then they will really start the printing press. I see this effect as the cause of the sharp price rises in crypto. And, of course, other external and, above all, surprising, non-injected effects. But not the halving itself, because it's not a surprise - after all, you can predict it pretty accurately.

What other assumptions do I need to make?

• The price increase in the bull market and the price decrease in the bear market is getting weaker from cycle to cycle for Bitcoin. This is because more and more people are participating in this asset and therefore more and more capital is required to move the market significantly.
• In the very long term, Bitcoin will always rise, measured in FIAT. This is due to the debasement of traditional currencies through money printing. This also means that the top of the current cycle will be above that of the previous cycle and below that of the coming one. Equivalent for the lows.
• The low of a bear market will always be below the top of the previous bull market. If this were not the case, the cycle and its seasons would be invalidated.
• Each top of a cycle is always higher than the previous one. The same applies to lows.
• The length of a cycle remains somewhat the same. I think this is due to the duration of the debt cycle. However, I lack proof here, e.g. a fixed correlation between the two, which is why I took the 4-year government bonds as a basis. :)

My strategy for selling

And we can make wonderful use of this great cycle to siphon off profits. We just have to switch off our emotions, otherwise we will miss the exit or give away too many profits. The fact is, however, that we don't want to be the one who provides the exit liquidity for others and thus takes the losses.

There is no doubt that, despite price forecasts, we cannot estimate 100% where the top in the bull market and the low in the bear market will ultimately be. We can only ever see this by looking backwards. Of course, indicators can help with an approximation.

That's why it's worth approaching the exit (and re-entry) step by step. This ensures good entry and exit prices. In my example, I have bought a little bit of crypto every month since the last bull market in 2021. And this crypto winter was really long. A lot has happened. Bans on mining and crypto itself, the FTX bankruptcy, SBF, BTC as a legal tender in El Salvador and much more.

I then stopped my regular crypto purchases in December 2023, as I was expecting a top at the end of 2024, beginning of 2025. After all, I want to sell outside the tax holding period. I only bought some Solana this year. Small enough in total that the tax-free limit should be sufficient after disposal.

Using Bitcoin as an example, Bitcoin rose by 3,300% from the bull market in 2016/2017 and by 1,600% in 2020/2021 (data from Copilot, figures may be incorrect). The growth factor has therefore roughly halved. One could therefore estimate that the last 16x will only become a 7x - 8x (or less). If I apply the 8 to the last low, I end up with approx. 120,000. With the 7 at only €105,000. You can certainly determine this much more precisely, but that's not the point. It's about the procedure. So I know that I want to get somewhere around 105K and 120K step by step. So I have set myself price alarms in 4 steps to then sell 1/4 at a time. If something is left over because the new cycle top falls earlier than my last level, then that's certainly not a bad thing for BTC. However, this approach only works for coins where my assumptions work. That could still be ETH. But the vast majority of altcoins are out here. I still have XRP, for example. Here, the tops of one cycle have never exceeded those of the previous one. I have to take a different approach here.

My strategy until the re-entry

What do I do now until the re-entry is worthwhile? What should I do until BTC returns to prices that characterize the new bear market? Most people would switch to stable coins. I don't do that because they don't generate any cash flow, see above. Others go into ETH after the BTC hype and then into altcoins to ride the wave through the crypto market. That certainly makes sense from a return perspective, but I don't want to do that. It's too complicated for me with the tax issue. If only there were an automatic tax deduction for German crypto exchanges, but that can't happen as long as cryptos are not subject to capital gains tax or their own flat tax rate, but to the personal income tax rate.

So I'm getting out of crypto altogether with my gains realized for tax purposes outside the holding period (except for a bit of Solana) and putting them into "tax-simple" dividend stocks and distributing ETFs in a separate custody account. As long as I don't get back into crypto and accumulate new BTC, I reinvest the distributions.

My strategy for re-entry

As soon as we are back in the bear market and have a sufficient percentage price drop behind us (calculation equivalent to the rise), I simply use the regular distributions to accumulate new BTC. And I do this gradually until about 1 year before the top. What is the advantage? I no longer have to finance the regular purchases from my net salary! The cash flow does that by itself. My net salary can continue to feed my normal share and ETF portfolios. For me, these have absolute priority over crypto.

And so both asset classes feed each other.

My price exit targets

My exit levels for Bitcoin are 98K, 110K, 122K and 134K. If the top is even higher, then I have not hit it, but I will still go home with a good profit, which will then be invested in my cash flow machine described above. If it's lower, I'll be left with residual holdings, which I'll liquidate manually on the way down or not sell at all. After all, I want to come back to this party. Despite the fact that I will place corresponding orders in the market, I reserve the right to make adjustments. Perhaps there will also be 5 exit levels. Based on my figures, however, you can also see that I assume that we will see the top somewhere up to 134K. I see further increases in the coming bull market.

Miscellaneous

Perhaps the benchmark for determining the exit could also be the difference between the halving and the top of the previous cycle. And then shorten this distance by a factor. I think there are many different methods here. In the end, it is not an exact science, subjectivity always plays a role.

For the dear Maxis

For the dear Maxis among you, I think statements that could come out like "those who sell have understood nothing" are absolutely OK. In the end, they are based on the counter-thesis to my thesis of the zero-sum game and also have their legitimacy. I see BTC as particularly useful in places where you can't even get a bank account or are suffering from hyperinflation. Perhaps Africa, or Argentina in particular. Hopefully it will always be different here.

But I'll also let you know that my current crypto portfolio only comprises a small 4-digit amount, which is rather insignificant in my overall asset allocation. Nevertheless, what I like about crypto is the predictability of the cycles (see my assumptions), which is why, unlike equities and ETFs, I play this game with an active approach.

Also: Sure, I can take my BTC with me everywhere, I just have to memorize my words, but I said at the beginning that I leave the technical aspects out of it completely.

And now you!

What are you doing? Do you do the same? Let me know in the comments. I always welcome a good exchange of views.