Risk Management

Set a maximum size for any single order so one decision can’t dominate your results. Capping each trade at, say, 25% of your trading allocation keeps you from going all-in or all-out, reduces risk, and preserves flexibility. If the trade works, you still have room to add on confirmation; if it doesn’t, the damage is contained, and you can adjust without scrambling.

Example: Going back to the example with Maria, if she had only sold 25% of her trading allocation she would have been in much better shape. Continuing in the scenario after she sold all her Bitcoin, if she had only used 25% of her cash funds to make her initial repurchase when Bitcoin was at its top, she would be able to perform additional purchases after Bitcoin was 20% lower off its peak.

Let other margin traders create opportunities for you by pushing prices to higher tops or lower bottoms due to margin calls. A slow, steady uptrend can flip into a sharp spike as leveraged shorts are forced to cover. This will provide opportunities to sell some of your holdings during price peaks. Conversely if too many traders are leveraged long, and the market declines, they may be forced to sell to close their positions creating exaggerated low prices that create buying opportunities.

Pump: Don’t try to predict the exact top. Many sell 100% at what they think is the peak only to watch price continue to spike higher. A safer approach is to sell a portion of your holdings, not all of your position. If price runs higher, you still have an active position and may sell another partial position. If the price reverses lower, you’ve banked gains and can buy low with the sale proceeds.

Dump: When the market turns negative, add caution. If prices break support, risk-controls may be needed: reduce higher-risk coins, raise cash/stablecoins, or rotate toward safer assets (e.g., Bitcoin). Calling the exact bottom is just as hard as calling the top—avoid “catching a falling knife.” Before buying low, wait for signs of a base or some sideways stability, then Dollar Cost Average (DCA) in instead of going all-in.

Adaptive Capital was a cryptocurrency hedge fund managed by Murad Mahmudov, a Princeton graduate and a former employee of Goldman Sachs. The fund described themselves as a "multi-strategy cryptocurrency hedge fund with a deep focus on on-chain analytics." In an interview, Mahmudov said Adaptive Capital had raised 20 million dollars from investors.

On January 13th, 2020, Mahmudov tweeted a chart with his bullish analysis and wrote "bears are deluded at best, dishonest at worse". On February 28th, Mahmudov had a positive Bitcoin tweet that included "Could BTC be coiling in preparation for something huge?"

On March 13th, Adaptive Capital was wiped out when the price of Bitcoin lost over 50% of its value at the market low. According to reports, the fund had far too much exposure to margin trades, and the price drop ruined them. Officially Adaptive Capital blamed "infrastructural insufficiencies" for their failure to react to the Bitcoin dump, likely referring to the fact that crypto exchange BitMEX reported a 45-minute outage in their services while the price drop occurred.

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