As the festive season approaches, your ‘crypto credentials’ will be put to the test by curious relatives seeking advice on joining the bull market. Are you prepared to dazzle with eloquent arguments on decentralization and monetary sovereignty or crumble under the holiday spotlight?
You’re Not a Crypto Guru: The Importance of Humility
The first step in guiding your family and friends through the crypto conversation is to make sure they understand that any action taken ‘is their responsibility.’ Inexperienced investors might mistake you for a crypto guru, but let’s be honest – that’s probably not the case.
Chris Burniske, partner at venture capital firm Placeholder and former blockchain products lead at ARK Invest, puts it succinctly: "No one knows anything for sure about markets. The only people you know for sure are lying, are those who say they ‘know for sure.’"
When crypto markets roar in a full-blown bull run, everyone feels like the next Warren Buffett. Stay humble – admit you don’t have all the answers. Remind them not to follow your footsteps blindly like a herd of sheep. Caution is key, even in the frenzy.
Give Them Context on Where We Are in the Bull Market
Retail investors are often desperate to get in fast, driven by the overwhelming hype where everybody seems to be becoming rich with crypto. However, successful crypto traders counter their human instincts – they buy when crypto attention is low and sell when euphoria sweeps the market.
Burniske explains that the "painful reality" is that rising cryptocurrency prices inevitably draw attention, which fuels further buying. The feedback loop, which he nicknamed the "attention cycle," accelerates when prices become extraordinary. "The later we are in that attention cycle, the worse the entry," Burniske advises.
Understanding the Attention Cycle and the Bull Market
Burniske believes the market has been in a bull run for two years and may now enter its final stages. So, what should you do when their ‘appetite for crypto exposure remains insatiable,’ even if it’s possibly the wrong time to enter? Burniske recommends that they should enter with an equal proportion to Bitcoin, Ether, and Solana with a ratio of 50%/25%/25%.
If they’re tempted to dive into altcoins or memecoins chasing get-rich-quick schemes, Burniske recommends against it. "This is generally a horrible idea," he cautions. Instead, teach them to place their gains out of the crypto market for 12–18 months in traditional accounts, which can provide some interest (crypto stablecoins have additional risks). This reserved money will be used to pay tax liabilities.
The Psychology of Market Cycles and Tax Obligations
As an experienced crypto investor, it’s crucial to help guide new investors to avoid repeating the same mistakes in the next bull market. Encourage them to get interested in crypto when the attention cycle is low – or non-existent. If done right, they’ll be well-positioned to educate other newcomers who might jump in during the next wave of hype.
Burniske acknowledges that "ETFs and potential sovereign buying ‘could’ mean we don’t have as brutal a bear in the future for BTC." However, he cautions, "Anything that goes 100x quickly is prone to at least an 80-90% crash at some point, structurally — too many people sitting on profit."
Conclusion: Educating New Investors and Avoiding Common Mistakes
Armed with the knowledge you’ve given them about what to buy and when to sell, there are still further common mistakes investors can make. Teach new investors to resist FOMO and avoid reinvesting profits in an attempt to chase further gains. This practice is risky because if the market suddenly collapses, investors could owe more taxes on realized gains than the value of the assets left after the crash.
By guiding your family and friends through the crypto conversation this Christmas, you’ll not only help them navigate the complexities of cryptocurrency investing but also equip them with valuable knowledge to avoid repeating the same mistakes in the next bull market.
