Today is February 26, 2025. It has been exactly half a year since Bitcoin plummeted to 49,000 on August 5 last year, and the market has entered a state of extreme fear again. I recall that at that time, the market was filled with predictions that the Bitcoin bear market had arrived, and it would soon drop to 30,000, 20,000, or 15,000. We all know what happened next: Bitcoin took nearly three months to gradually emerge from fear and reached a new high. Will this time follow the same script? According to psychological analysis, human nature is a combination of rationality and emotion. But almost no one can be purely rational all the time. When Bitcoin approached a new high of 110,000, no one in the market was shouting that Bitcoin would drop 30% next month! Instead, the calls for Bitcoin to continue rising to 120,000 or 130,000 were the loudest. Should I say I am lucky or unlucky? Due to some real-world factors, I needed cash and converted a significant amount into fiat currency when Bitcoin was at 105,000, which fortuitously allowed me to avoid this decline to some extent. However, the portion I did not sell also experienced significant pullbacks like everyone else in the market. People give up greed due to fear and ignore fear due to greed, which is driven by our emotional side. Now, what I will discuss is the rational part, which is the knowledge that has allowed me to survive in this market for many years. Let's do some simple math. Let’s set aside our fear and greed and purely do some arithmetic to see the risk-reward ratio. Mathematically, we like to set an unknown variable X. Let’s assume that the market conditions for the next year will also be X, looking at the risk-reward ratio when X equals bull or when X equals bear. Let's first calculate the bear market since the current fear and greed index is 21, indicating extreme fear, and everyone is more concerned about the bear market. Since we assume the next year's market condition X is a bear market, let’s calculate what the bottom price of the bear market will be. Historically, Bitcoin entered bear markets in 2014, 2018, and 2022. In these three bear market years, the lowest price of Bitcoin came close to the shutdown price of Bitcoin mining machines. Taking the most recent example from 2022, the shutdown price in November 2022 was 16,000 USD, and Bitcoin reached a low of 15,500 USD due to the FTX bankruptcy black swan event. I personally bought Bitcoin at 16,800 USD and have held it until now. Therefore, the bottom price of the Bitcoin bear market is quite evident, which is the Bitcoin shutdown price. So what is the current Bitcoin shutdown price? It is 68,000 USD. This means that if X equals the bear market, Bitcoin could still fall by 20,000 USD from its current price. If we buy Bitcoin now, we would lose 22.7% of our principal at the bear market bottom price. Now, let's substitute X with the bull market. If we assume that the next year is still a bull market, how much will Bitcoin rise? This is indeed a difficult question since the top price in a bull market doesn’t have a reference point like the bottom price in a bear market does. It’s all guesswork. When Bitcoin just broke through 100,000, the market fervently shouted that Bitcoin would rise to 180,000 or even 200,000 by the end of the year. Let’s estimate conservatively. Assuming the next year is still a bull market, Bitcoin could rise to between 130,000 and 150,000. Thus, Bitcoin could rise by 48% to 70% from the current price of 88,000. Now, let’s calculate the risk-reward ratio. Those who do business or trade know that when the risk-reward ratio of a business or trade is greater than 1, it is profitable and worth trying. When the risk-reward ratio is greater than 2, there is no reason to miss out. When the ratio is greater than 3, missing out becomes a lifelong regret. Now let's calculate the risk-reward ratio: if the next year is a bear market, we will lose 22.7% of our principal, and if the next year is a bull market, we will earn 48% to 70% profit. Thus, from the current price of Bitcoin, the risk-reward ratio lies between 2.11 and 3.08. With such a large risk-reward ratio, rationally speaking, holding Bitcoin spot until the second half of this year is advisable. This is completely based on the premise of setting aside the weaknesses of human nature. Yesterday and the day before, I advised some fans to take profits and exit. Even though I believe Bitcoin will reach a new high by the end of the year, I still recommend taking profits and exiting because a significant portion of fans are not diamond hands in Bitcoin. A large position in altcoins or contracts may lead to liquidation. Although Bitcoin is only 22.7% away from the bottom, if you add a 5x contract, it could lead to liquidation. Altcoins are even scarier; if altcoins drop by 50%, they need a 100% increase to break even. If they drop by 80%, they need a 500% increase just to get back to break even. Take Trump Coin as an example: if you do not hold Bitcoin and bought Trump Coin at 60 USD, you would need a 400% increase to break even when Trump Coin drops to 12 USD. This is also the reason I have always considered Bitcoin as my fundamental asset. In this circle, only Bitcoin has a risk-reward ratio that is always ≥ 1 during extremely fearful moments. This year has just begun; I wish every Bitcoin holder can reach the shores of financial freedom.
