Bitcoin recently crossed its all-time high (ATH) and quite a number of altcoins have seen a sharp increase in their prices. Fundamentally, it all makes sense and the reasons are in this article.
Cryptocurrency price movements are cyclical, and most sharp rises or falls are accompanied by some major news or events. Let’s take a look at the four-year cryptocurrency cycles we have experienced so far.
As you can see in the above chart, we are currently at the cusp of a four-year bull cycle that has happened twice in the past, during Nov-Jan of 2013 and 2017. Each of those sharp rises ended with a dip and a prolonged bear cycle of a few months.
But this is not all, there are a few other bullish patterns that indicate we are coming towards a bull phase of this cycle.
1. On-chain metrics are Bullish
According to data provided by CryptoQuant, a South Korea-based blockchain analytics service, the amount of Bitcoin held in exchanges’ wallets dropped to as low as 2.379 million BTC last month, the lowest in more than three years.
It means that less than 20% of the total Bitcoins in circulation are available to trade on exchanges. If the trend continues, there could be a Bitcoin “supply shock”, with increased demand, that can skyrocket prices in a short period.
Last month, the number of wallets holding more than $100 and $10 million worth of BTC also reached their record high of 16.67 million and 10,510, respectively. It indicates that cryptocurrency demand appears to have been increasing across both retail and institutional traders.
2. Reddit planning to onboard 500 Mn new crypto users
According to Coin Telegraph, Reddit is looking for a senior backend engineer for a platform responsible for “millions of users to create, buy, sell and use NFT-backed digital goods.
Reddit may soon convert users’ karma points into Ethereum-based (ERC-20) tokens and onboard 500 million new crypto users in the process. It could lead to a massive influx of new capital into the space and wider adoption of cryptos among a new community.
3. Massive fundings flowing into the crypto space
Recently, Mark Zuckerberg announced the rebranding of Facebook to Meta, recognising a shift inside the company that’s already taken place. With that shift taking place, the role of crypto technology like NFTs and smart contracts will become critical in the metaverse. It will eventually lead to widespread adoption of the decentralised ecosystem in the coming future.
In recent times, several big organisations and institutional investors have invested in the crypto space. Here is a list of a few articles for reference.
- SoftBank leads $93 mln investment in NFT gaming firm the Sandbox
- Quentin Tarantino to offer seven uncut scenes from ‘Pulp Fiction’ as NFTs
- Solana Ventures, Lightspeed Venture Partners and FTX launch $100M gaming fund
- Sfermion Raises $100M NFT Fund Aimed at Accelerating the Emergence of the Metaverse
- Australia’s CBA offers crypto trading, breaks ranks with industry
- AscendEX Announces a $50mm Series B Raise Led by Polychain Capital and Hack VC
- Sam Bankman-Fried’s FTX crypto exchange handed $25 billion valuation in latest funding round
With so much going on in the crypto space, on-chain metrics and cyclical patterns suggest a bullish cycle upcoming. That said, nobody can guarantee if 2013 and 2017 will repeat this time. But if it does, having a sound strategy would ensure that we can make profits during this bull run and are well prepared for the next phase.
Take profits at regular intervals
One of the classic mistakes we all tend to make, and I have made them during the 2017 bull run, is waiting too long to take profits. Even if you have a small portfolio, taking profits at regular intervals will ensure that you are ready to buy back at lower prices if and when the market does go through a dip.
It also ensures that you can recover a significant portion of your initial investment and invest further in peace. The Crypto market is highly volatile. After every bull cycle, there is a sharp correction, and it gets difficult to sell when your coin prices are crashing. The most reliable way to trade is to make specific price targets and keep booking partial profits at regular intervals.
Sell at euphoria and buy during panic
Referring to the “Psychology of market cycle” chart below, we often get greedy during the “thrill” and “euphoria” phases. That is the time when we should be selling. Perhaps, it should start even before that.
If you can sell during the euphoria phase, you would be able to make 2–5x gains, and it will set you up to buy more at a lower cost, thus reducing your average cost price. Focus on buying smaller quantities during the dips regularly to dollar cost average (DCA) your investments.
Never chase a coin
We often get attached to coins or tokens for various reasons. Sometimes, I get emotional either because I strongly believe in the future potential or have been holding it for a long time. Remember, there are far too many coins available in the cryptocurrency market. If you miss the bus on one coin, there is always another coin that will perform far better or at the same level.
The market will always give you another chance. And if not, move on to something else. There is plenty of other fish in the sea.
Do not jump between coins
When the cryptocurrency market is booming, we tend to get excited and jump from one coin to another in hopes of making high profits. Our risk appetite suddenly increases, and that is a red flag. Always remember the “psychology of the market cycle”.
During the last phase of the bull cycle, most coins perform well and holding a basket of 3–6 coins might be a better idea to make profits rather than jumping from one coin to another for quick gains. It will also allow you to focus on booking profits now and plan for the next phase after correction.
Buy fear, buy panic, buy depression
Sell greed, sell FOMO, sell eupohoria
Follow your research not influencers
During the last phase of the bull cycle, several new influencers and “crypto experts” will erupt advising on the best altcoins to invest in to make 50–100x gains. When everything is going up, it is easy to make everyone believe that your calls are accurate.
But the real problems start when the market begins to dip, and you don’t know what to do next. The investment world is highly unpredictable, and if you are not aware of what you are doing, it can drag you down with it. So, always do your research and follow your gut. Most influencers do not know what they are doing and are just following the market trends.
Risk comes from not knowing what you are doing.
-Warren Buffet
Final thoughts
There are many factors, including the on-chain metrics, that suggest we are at the cusp of a bull cycle occurring every four years. Fundamentally, it makes sense and planning a sound investment strategy will ensure that we can make profits during this bull run and are well prepared for the next phase.
No one can say with certainty if history will repeat itself, but we must do our research and plan for the next few weeks. Make sure you only invest what you can afford to lose or don’t need for paying your bills and day-to-day expenses. Remember these five lessons that I learned from the crypto crash of 2018.
Crypto gaming and NFTs are the next phase of Web 3.0 that will eventually merge into the metaverse in the coming future. So, stay updated and start preparing now so you can crush it when the time is right.
Disclaimer: This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.
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