Market Cycles And What That Means For Your Buying Opportunity
By now you’ve most likely looked at the Bitcoin chart and have seen the massive rise, and subsequent fall since it hit $20K per coin. Although this can seem scary and like Bitcoin’s rise is over, this is actually an amazing opportunity. To help you visualize that we wanted to touch a bit more on market cycles.
I’m sure you’ve heard the saying “what goes up, must come down”, and cryptocurrencies are not always an exception. Bitcoin started at about $1,000 per coin in the beginning of 2017 and ended the year at around $13,000 per coin. However, as of February 11th, we are now trading at approximately $8,000 per coin - a 60% fall from the all time high. Keep in mind that this is still an 800% rise! Eight. Hundred, Percent. So yes, Bitcoin “plummeted” from $20K to $8k, but that doesn’t mean it’s dead. On the contrary, this is where our knowledge of market cycles come into play.
In a new and unregulated market that is not driven by P&L’s, political BS, or Wall Street whales, a lot of the price action is actually driven by emotion. As the average Joe saw Bitcoin rise from $4K to $8K over a few short months, they saw their opportunity to get in and make some serious money. As more and more of these people bought into the excitement, it kept driving the price up - all the way to $20K. Then, some big players started to take profits. The price came down a little. All is good. But then it came down a little more and those average Joe’s started to worry and wanted to sell before it went down further, which kept driving that price down. Then, the small drops continued until we hit mass panic, which kept the masses selling until we reached $6K. That is totally normal human thought and I would have been surprised if we didn’t have mass panic sell off at a certain point.
Now that we’ve had this huge sell off where big players took their profits, the newbies sold at a loss to salvage whatever money they had left, and the true believers are still HODL’ing, what comes next? Ask 100 people in the crypto space, and you’ll likely get at least 50 different answers. We may continue to decline somewhat, but I believe that overall, we’ve seen the bottom and are going to trend North. Taking a look at the chart below on Market Cycle Psychology, we can guestimate where Bitcoin falls on the spectrum. Some will say we’ve hit ‘Capitulation’, but I believe we are just getting to ‘Hope’. Looking at what is happening in the Bitcoin and cryptocurrency world, the skeptical nations are being shaken out (for now), the news is beginning to cover cryptocurrency on a regular basis, and banks are taking notice in a very serious way. Looking at the technology, we have projects that are making cryptocurrency feasible for everyday use. Bitcoin developers are improving on and implementing the Lightning network to help lower fee’s and speed up transaction times. Litecoin is continuing to develop LitePay. VeChain is continually adding partners and improving upon their technology. This is no longer just a speculative market that creates ideas, hoping to one-day make them a reality. We are starting to live in those realities.
You may be reading all of this and say, “All of that is great, and that market cycles chart is nice, but all I’m seeing is the price fall. Nothing is showing me that it is going to come back up.” If that is you, I actually applaud that kind of skepticism. It’s necessary for someone to be a successful investor and trader. But to provide an example that shows how well the chart models real-world market outcomes, I want to point out DOGE. Love it or hate it, DOGE is a long-standing cryptocurrency created in an almost ironic fashion of a Shiba Inu - with no other purpose that being a meme coin. However, due to its longstanding nature in comparison to most altcoins, it has much more trading history and is a great example to show the rises and falls of a price. Below you’ll see DOGE’s price (trading against BTC) since 2015, and you’ll see a systematic rise and fall every few months. Now take a look back up at the Psychology of Market Cycles cheat sheet. Anything look familiar?
“But, then why doesn’t Bitcoin look like that?” Altcoins are even more susceptible to price volatility than Bitcoin - usually being traded to make quick profit in recent history (due to their very speculative nature). The result is much quicker price action in both directions, and therefore quicker completions of a market cycle. Because Bitcoin is the name everyone knows and has the longest rate of adoption, the market cycles are slower. This is why I believe we are still just getting started and are at the ‘Hope’ phase.
You may believe in psychology, economics, finance, voodoo, or maybe something else. But regardless of what you believe in, the evidence is there. Markets go up, and markets go down. We’ve recently come down, but what comes next? If you have the available funds, I would recommend you start taking some of that extra cash and consider making incremental investments. As always, do your own research and never invest more money than you would be comfortable losing. Don’t go all in at once - make a series of smaller buys at prices you are confident will be lower than what future prices will be. That way, if the price drops a little bit, you can take advantage of getting cheaper coins. If the price continues to go up, you will be catching some of the lowest prices at the time of each buy and will have made a profit before the next buy.
Don’t underestimate how much your emotions will try to control your rational brain. By creating strategies that always work in your favor, you will continue to gain confidence in your abilities and be able to make better and better decisions.
Thank you for making the decision to join The Blockchain Buzz in our cryptocurrency journey as we look to research, teach, invest, and make life changing money. Continue learning and joining us in our weekly podcasts as we stay up to date on the market. We look forward to all of our success together. Thanks and Buzz On.