Five Things Thou Shalt Do About Crypto In 2023

Last year was a washout for crypto investors: bitcoin and ether crashed about 65% – and those were among the top performers of the bunch. But if you still believe in the blockchain’s long-term prospects and you’re a patient investor, 2023 could be a good year to build up your crypto stack at lower prices. Here are five things you might want to do this year to prepare for the next crypto bull run (whenever it may be).

1. Accumulate for the long term (instead of trading for the short term).

It’s one thing losing money when prices are falling, but it’s quite another when they're chopping around and going mostly nowhere. See, crypto bear markets are mostly boring: investments trade in much smaller ranges, going sideways for months before picking a clear direction. For short-term traders, it can be like pulling blood out of a stone. When margins are smaller, you might be tempted to over-trade or lever up your position size to squeeze out short-term gains. But as I explained here, that tends to lead to big losses over time.

So unless you’re already a consistently profitable trader, you’re better off gradually accumulating digital assets for the long run. You can do this by simply dollar-cost-averaging in (buying smaller amounts at set intervals) or by topping up on “red days”. At some point, there’ll be another prolonged bull market, and if you’ve picked good investments, you’ll reap the rewards if and when prices finally make their pilgrimage north.

2. Strategize your crypto portfolio.

Failing to plan is planning to fail, as they say. In my experience, it’s better to take time planning your ideal crypto portfolio when prices are down, than to wait for the market to turn before quickly piecing together a strategy. Crypto bull runs tend to be shorter and sharper than those of traditional asset classes like stocks, bonds, and commodities – it’s a much smaller market, after all, and a lot more speculative. So when bull markets start, they usually catch a lot of investors off guard and lead to a fair bit of FOMO (fear of missing out). That can stress you out, sure, but worse is the fact that you’ll be less likely to succeed without a clear plan already in place.

As for what your portfolio might look like, that depends on your risk tolerance. If you’re less comfortable with risk, consider sticking with bitcoin and ether – they’re more battle-tested than the rest and have the biggest networks and market sizes. You can consider adding altcoins to that mix if you're willing to accept more volatility for potentially higher returns.

3. Boost your knowledge.

There’s an old saying in crypto: “bear markets are for building”. In other words, when the hype dies down, entrepreneurs and developers can focus on building their products without being distracted by mooning token prices. But that also applies to investing.

Crypto is way less “efficient” than traditional markets, meaning it’s easier to generate alpha (i.e. beat the market) with good research. The big crypto earners usually live and breathe this market, so they can spot the next big trend before the herd. Imagine dabbling in decentralized finance (DeFi) in the summer of 2020, buying the right jpeg before NFTs went mainstream, or picking up Polygon’s MATIC token for fractions of a penny in 2019 (it’s going for around 80 cents now). Those investors might’ve had some luck on their side, but as the Roman philosopher Seneca once said, “luck is what happens when preparation meets opportunity”. I’m keeping my ear to the ground for new opportunities myself, so watch this space.

4. Make use of those losses.

If you sold crypto at a loss last year, you might be in line for a consolation prize: future tax benefits. It will depend on where you live and how much you lost, mind you. In the UK, for example, crypto investors need to file tax returns if they realized more than £12,300 ($14,960) in capital gains, or earned over £1,000 ($1,215) in crypto income (e.g. from staking) in the last tax year. And while you might not need to file a return if you lost money then, you might still want to: those losses could possibly be used to reduce your tax bill for this year. Theodora explained how it works in the US for traditional investments here, but you might want to seek crypto tax advice from an accountant, depending on your country and situation.

As for calculating your tax losses (or gains), don’t waste your time trying to figure it out yourself on a spreadsheet (even if you do use an accountant). It’s complicated, after all, as there are potential tax implications for every crypto trade you made last tax year. Instead, look into crypto tax tools like Koinly or Cointracking, which easily plug into most crypto exchanges and wallets using an application programming interface (API) to calculate how much tax you’re owed or owe. You’ll pay a fee to use them, but they could save you a lot of time and money.

5. Zoom out.

When in doubt, zoom out. Crypto is still a new asset class, and it’s likely to have many more booms and busts as it moves toward the mainstream. But it could be, as Dan Morehead of Pantera Capital believes, a multi-decade disruptive opportunity (I wrote more about that here). And if that’s the case, then it might be a good idea to ignore the short-term noise and play the long game instead.