Bear market investment methods: mining, regular investment, DeFi

In the article a few days ago, I mentioned that when Ethereum was more than 300 US dollars last year, for the experiment, I mortgaged 10 Ethereum, and then used the borrowed DAI to buy 5 Ethereum. Many readers were very interested in this and asked many questions.

In fact, this is a relatively simple and elementary operation in DeFi. For novices, it is recommended that you use a small amount of funds to experience the operation first. Practical operation is the best way to learn.

One of the readers asked, what would happen if Ethereum fell if it was mortgaged into Ethereum? In MakerDAO, if the price of the mortgaged tokens (including Ethereum) falls and the total value of the collateral is very close to the funds borrowed by the mortgagor, if the mortgagor does not continue to replenish the collateral or return the loan, his original The collateral will be auctioned off to repay the loan.

This mechanism is actually the same as margin trading, and it is a measure taken by trading institutions to protect themselves.

If we think about it along this line of thought, we will find that the best time to carry out such a high-risk operation is in a bear market, when the price of Ethereum is relatively low. Because in a bear market for mortgage lending, the space and probability for the price of Ethereum to continue to fall will be much smaller than that of a bull market, and the probability of our collateral being liquidated will be much smaller.

I mentioned earlier that the best time for Bitcoin mining is the same in a bear market. It’s not that a bull market is not suitable for mining, but that in a bull market, as the price of Bitcoin gets higher and higher, the probability of it approaching the peak is the same. It will get bigger and bigger, and once it crosses the peak and falls into a bear market, it will be followed by a bear market that will continue to fall for at least several years.

At this time, not only the price of coins is falling, but also the price of mining machines is also falling. Many small and medium-sized mining companies will even withdraw from mining and sell their mining machines at extremely low prices. Therefore, compared with the bull market, the price of mining machines in the bear market will be greatly reduced, and will remain at a relatively low price for a long time.

I participated in Ethereum mining in January 2018. When I participated, the market had just entered a bear market. The price of Ethereum was about 1,000 US dollars, and the price of the mining machine I bought was 20,000 RMB. Later, in June 2018, when the price of Ethereum fell to $500, my mining cost started to exceed my income, so I wanted to quit mining, and when I sold the mining machine again , the recovery price on the market is only a few thousand RMB-the decline of mining machines far exceeds the decline of currency prices.

From June 2018 when Ethereum fell to $500, the price of Ethereum recovered to $500 in November 2020, which took two full years. In the past two years, the price of Ethereum has continued to fall, and has hovered within $300 for a long time. It is conceivable how the price of Ethereum mining machines will fall. If the mining machines bought at high prices in the bull market are used to mine in such a situation, can investors bear the pressure in their hearts?

Instead of this, why not simply wait for mining machines to be purchased at low prices during the bear market before mining?

The same is true for fixed betting. Now that we are in a bull market, it does not mean that fixed investment cannot be made now, but that the room for currency prices to rise will become smaller and smaller, and the risk will become higher and higher. Instead of making a fixed investment now, worrying every day whether the price of the currency will fall, and whether your fixed investment will lose money, it is better to hold back the temptation and wait for the opportunity of the bear market.

The same is true for investment projects. I found that as long as the fundamentals of the projects I invest in are not too bad, basically I bought them before the bear market or bull market, and I have almost no losses since I hold them, and I can make money no matter what.

Above I cited the four examples of mortgage lending, mining, fixed investment and investment, all of which illustrate the same truth: a bear market is a good time to deploy, and any of the above operations in a bull market will increase our profit margins. are extremely limited, and the potential risks faced are not small.