It’s been just over 5 years now since I started learning about and buying Bitcoin. It’s now been 4 years since I urged people to buy Bitcoin for the first time on this website when the price was less than half of what it is now.
If you haven’t read my initial post, I recommend starting there: Why You Should Consider Investing in Bitcoin in 2021.
It’s crazy all of the knowledge I’ve gained and all the ups and downs since then. I’ve been reflecting a lot lately, now that I’ve been through one full cycle, to figure out how to make this next cycle even more profitable than the last. There are certainly a lot of mistakes and pitfalls I’ll avoid in the future, especially regarding trusting centralized platforms and attempting to generate yield on Bitcoin holdings.
One thing that has been really intriguing to me over the last four years is how inefficient the Bitcoin market still is with the major hype cycles and volatility. You can feel the swings from euphoria to apathy in real time, and that makes it pretty easy to outperform a pure buy and hold strategy even if you don’t exactly nail the tops and bottoms. I decided early on in the last cycle to try to actively manage about 25% of my total holdings as an experiment, while just buying and holding with the rest in case I wasn’t successful.
I wrote in the past about using sentiment on social media to make buys and sells; and in hindsight, this worked out really well, even though it felt very uncomfortable to sell into the euphoria and buy when everyone was pessimistic. Going into the next cycle, I’m going to increase the percentage that I’m actively managing to 50% and hope I can replicate the success.
Backstory
I basically just accumulated Bitcoin for all of 2020 to build my initial position, and then started trying to do some timing in 2021. Here’s what I did last cycle that worked well and what I plan to do this cycle (just with larger amounts) to try to improve my return and decrease risk.
In order to not deal with tax headaches from buys and sells, I did all of the trading in retirement accounts using GBTC (ETFs weren’t available back then, so the closed-end Greyscale Bitcoin Trust was the only option for a retirement account). This actually worked out really well since the discount on GBTC increased drastically in the bear market (which meant buys at even lower prices), and then went back to par when Bitcoin ETFs were launched in January 2024 (which meant outperformance compared to spot bitcoin).
Planning
I have no interest in short term market timing, so I only wanted to make a couple buys or sells each year when the extremes in sentiment were palpable as a form of strategic rebalancing. I think everyone that was paying attention recalls the rocket emojis, meme coins exploding, and people spending thousands of dollars on NFTs for most of 2021, which were pretty obvious signs of irrational exuberance. Those were the times I wanted to watch out for and take advantage of if possible.
In addition to pure social media sentiment, I also used a couple of on-chain indicators to try to recognize times when things were overheated or undervalued. The MVRV Z-score and Net Unrealized Profit/Loss were the most useful that I found for this. I’ll definitely keep and eye on both of those indicators this cycle as well.
It’s a fools errand to try to exactly time the tops and bottoms, but in an asset class that increased 10x between March 2020 and February 2021, then decreased 75% between November 2021 and November 2022, getting anywhere near the tops and bottoms means massive outperformance versus regular buy and hold investing.
Here are all of the buys and sells I made in 2021 and 2022 after accumulating my initial position in 2020, based mainly on sentiment with help from the on-chain indicators:
I purchased the original 357 shares in 2020 over time for an average cost of $20/share, which was a total cost of about $7,100.
| Sell- 2/19/2021- 357 shares @ $57/share |
| Buy- 2/23/2021- 223 shares @ $44/share |
| Buy- 2/26/2021- 100 shares @ $43.50/share |
| Buy- 4/20/2021- 105 shares @ $47/share |
| Sell- 10/20/2021- 403 shares @ $52/share |
| Buy- 7/12/2022- 745 shares @ $12.50/share |
| Buy- 11/9/2022- 1,110 shares @ $9/share |
A few reflections:
After all of the buys and sells, I turned those 357 shares into 1,870 shares and reduced my per share cost basis at the same time. Had I just bought and held those 357 shares the whole time, I’d be up about 3.5x at current prices. With the buys and sells, I’m up about 30x at current prices based on the new cost basis, which is a massive difference and is why I plan to do this with more of my holdings on this cycle. This is all without perfect timing, although I did get lucky with my first sell at almost the exact peak for GBTC in February 2021 (the exact top was $58.22/share) before the premium to NAV started decreasing throughout that year.
In 2021, I got too excited and bought back my shares in February and April after a small drop, but had no idea how much further the price would drop in the summer, so I missed that big opportunity completely. The low for the summer of 2021 was $24/share, so had I waited to purchase those shares back until the summer, I would have been able to buy twice as many shares as I did in February and April. My sell in October was a little premature as well because the price went above that in early November of 2022.
My purchase in July of 2022 really felt like the bottom of the market to me. Sentiment was terrible and the on-chain indicators were saying it was a bargain buying opportunity, but alas the price went even lower in November. So, had I waited and made one big purchase in November, then I would have been much further ahead as well. But, hindsight is always 20/20, and there was no way to know.
Strategic Rebalancing in 2025
Although I did really well overall with my timing in the last market cycle, I’m not fooling myself into thinking I have it all figured out. Much of the timing was certainly luck, and I didn’t expect that dip in the summer of 2021 at all (no one did it seems) which caused some panic during that time. Although, it ended up being a blessing to a degree, because I was able to sell in February and buy those shares back at a lower price.
While I plan to increase the amount I’m actively buying and selling this cycle as part of my strategic rebalancing, I’ll never go over 50% for a couple of reasons. First, I really think that at some point there will be a supercycle where price doesn’t have a big correction and continues much higher than anyone thinks. Whether that’s this cycle, next cycle, or 20 years from now, I have no idea, but trying to time and sell everything at the top could mean a big opportunity cost eventually. Second, with buying and selling larger amounts, the panic I feel when wrong (like summer of 2021) and euphoria I feel when right (like February of 2021) increases significantly.
Already right now my Bitcoin allocation is significantly above my target due to the 6x increase in price from the bottom in the fall of 2022. I want to rebalance, but instead of doing it right now, I’m going to use sentiment and indicators to do it when I feel like we’re close to a top to get the most out of this cycle. I’m watching social media closely like I did in 2021 to try to gauge when people are getting euphoric. I’m also expanding the indicators that I’m going to use to aid in timing this cycle. In addition to MVRV (market value compared to realize value) and NUPL (net unrealized profit and loss), I’m also going to watch the Pi Cycle top Indicator, Long Term Holding SOPR (spent output profit ratio), and the monthly RSI (relative strength index).
Here are the current charts of all of these metrics:
Right now all of these metrics are elevated but no where near euphoric or historical top levels. Here’s what I’ll be watching for with all of them:
- MVRV- Above 2, all prior peaks have been above this level (at 1.2 currently).
- NUPL- Above .7, all prior peaks have been .75 or higher (at .62 currently).
- Pi Cycle Top Indicator- When the 111 day simple moving average approaches the 350 simple moving average x2. In all prior cycles, the top has been when these lines crossed but I’ll be selling before that point this cycle in case the past doesn’t repeat again (nowhere near each other currently).
- LTH-SOPR- When Z-Score is above 1.2. All prior tops have been at 1.4 or higher (at .16 currently).
- Monthly RSI- Above 85, all prior peaks have been above 90 (currently at 65).
I’m purposely planning to sell this cycle at more conservative valuations than were reached in prior cycles, because in the past there have been diminishing returns (weaker strength cycles) for each subsequent cycle. I’d rather sell early and miss out on some upside than to sell late and miss my opportunity. I’m also only looking for 4 of the 5 outlined above to hit before selling for the same reason. It’s possible that this cycle is weaker than planned and not all 5 are triggered despite them being conservative. If sentiment feels exuberant and 4 of the 5 above are hit, then that’s good enough for me to trigger selling to rebalance back to a more reasonable Bitcoin asset allocation.
If you plan to do something similar, please do not try to time things exactly or buy/sell with your whole Bitcoin holdings. Bitcoin is historically volatile but also has insane average yearly returns with just a normal buy and hold strategy. Risking too much to try to time the market or strategically rebalance could really backfire if the price goes much higher than anyone expects, and you could end up underperforming where you’d be if you just bought and held. I know this is a real possibility for me this cycle as well but am willing to risk it with around half of my holdings and hope I’m able to come anywhere close to matching what I was able to do last cycle.
Best of luck with the upcoming bull market!
***Disclaimer: I am not a licensed financial advisor and nothing contained in this article is meant to be specific advice. I’m a physical therapist by trade with a strong interest in financial independence and personal finance. I have done a significant amount of research to come to the conclusions stated above for my personal situation, but I am not offering specific financial advice. It’s important that you do your own research and if in doubt, to consult a financial advisor about your own personal situation. Invest at your own risk!
Fifth Wheel Physical Therapist 