Why the surprise about the bitcoin fall?

All the commentators are gleefully talking about how bitcoin is down again this week and we’re starting to hear the usual suspects talk about how it’s not really an asset class and this price drop “proves” that bitcoin is just a passing fad.

New entrants in the market are wondering if they’ve made the right decision investing and people who were thinking of investing are having second thoughts.

For those of us who have been through a few of these cycles this is nothing new, more to the point the real surprise is that people are shocked by the latest market action.

Panxora Labs research published last year shows that the bitcoin price has fallen on average 40% from it’s high every year since it’s launch before then recovering to new highs.

While markets were flying high earlier in the year we were suggesting that people may have a better buy point later in the year. By the same reasoning, now that we have that better buy point you are reading endless comment from people that are considering whether now is the right point to exit that position. For those who held back for a better buy point well done, now the hard part is pulling that trigger when the world is starting to say it’s all over.

While we can’t say whether we’ve seen the low or not, history indicates that we may be approaching that point. Nobody can say with certainty when a market has hit the absolute low and we haven’t yet had that complete capitulation that tends to happen when the market low is reached … but we’re probably close to it and if you believe in the long term growth in bitcoin then we’re certainly in the buy zone.

This naturally moves to the second point I want to highlight — the lack of active risk management. The signs were clear by late March / early April that there was some internal conflict in the market. While there was no guarantee that the market would fall there was sufficient indication that the market was vulnerable — this should have led to at least a lightening of exposure to reflect the market condition. Judging by discussions we’ve had this didn’t happen. Perhaps swayed by the “Hodler” community people stayed maxed out, or in some cases increased their exposure at just the wrong moment.

Risk management isn’t just something that large institutions can benefit from. Using a rational risk management approach allows anybody to reduce the volatility of returns on their investment — something that’s helpful for all asset types but critical for crypto where volatility is so high. And for those that think risk management is too boring to consider for their crypto holding. If you had sold half your holding back in April you could now buy back 1.5 BTC for each BTC you sold.

The technique used doesn’t need to be excessively complicated. While we use AI modelling to identify risk zones for the markets you can get good results just by rebalancing your portfolio around a central regression line (email me at research@Panxora.io and I’ll send you a one page article on how this works).

And for those of you that want to hit a home run — good risk management allows you to leverage your holding without increasing your overall risk. To put it in perspective our portfolio has fallen a little over 5% because of good risk management — we could have implemented 5x leverage during the upswing and still lost less during the downswing than most participants.

Please understand I’m not recommending leverage (we don’t use it with our funds) but it puts good risk management into perspective — and you’ll still be in the game when the next big move happens.

I hope that’s provided some food for thought. Even if you decide Hodling is for you, try and use the natural and regular declines as your entry point for new capital and for those of you experiencing your first bitcoin decline — it’s not the market’s first and won’t be the last but the long term benefit case for bitcoin is just as strong as it was 3 months ago. Good luck.