After the main crash followed months of relative weakness, The crypto market entered a violent, but orderly, bear market rally, reaching down to the $97 billion market cap level. Despite a few altcoin rallies. the bearish long-term trend remained dominant with oversold long-term momentum readings up to the end of 2018.
We’ve all heard of market bubbles and many of us know someone who’s been caught in one. Although there are plenty of lessons to be learned from past bubbles, market participants still get sucked in each time a new one comes around. A bubble is only one of several market phases, and to avoid being caught off-guard, it is essential to know what these phases are. An understanding of how markets work and a good grasp of technical analysis can help you recognize market cycles.
Cycles are prevalent in all aspects of life; they range from the very short-term,
No matter what market you are referring to, all go through the same phases and are cyclical. They rise, peak, dip and then bottom out. When one market cycle is finished, the next one begins.
The problem is that most investors and traders either fail to recognize that markets are cyclical or forget to expect the end of the current market phase. Another significant challenge is that even when you accept the existence of cycles, it is nearly impossible to pick the top or bottom of one. But an understanding of cycles is essential if you want to maximize investment or trading returns.
The pattern guiding Bitcoin’s path is none other than the mirror image of our collective psyche’s relationship with greed and fear.
Each stage has its own unique set of market dynamics, and poses a different set of emotional and psychological challenges to market participants.
History doesn’t repeat itself, but it does echo and rhyme.
Currently, we are the stages pass returning to the mean in somewhat of a disbelief. After enduring much blood.
However the trend has shifted At this stage, the market has been stable for a while and is beginning to move higher. The early majority are getting on the bandwagon. This group includes technicians who, seeing the market is putting in higher lows and higher highs, recognize market direction and sentiment have changed. Media stories begin to discuss the possibility that the worst is over, more investors jump on the bandwagon as fear of being in the market is supplanted by greed and the fear of being left out. There is a clear trend direction. It will take some time to work out all of the sellers in the market. This phase can take weeks and months to complete, so have the patience for the right entry.
The longer the period of consolidation and basing, the more likely that the market bottom is in, and you can know for certain the accumulation phase is about to end. Negative news will often no longer affect the market.
Volume has started rising although
- Volume on exchanges is a good indicator of the health of the space, but faking volume skews the numbers
- By only tracking the volume of exchanges known to not fake the majority of volume, we get a good proxy for volume of the whole sector.
- Traded volume is a lagging indicator of price; as the price increases, more people start trading and volume increases
Traded volume on cryptocurrency exchanges is perhaps the best indicator of the health of the space. The problem is billions of dollars in volume is faked every day. Several exchanges fake volume to create an illusion of interest in order to lure in more customers.
Knowing how to operate effectively as a crypto investor is predicated on awareness of one’s position in the cycle.
Though awareness of one’s position is not a guarantee of profitability. Far from it.
Just like following the north star doesn’t mean you’ll find your way.
But awareness of the star’s presence paints a frame.
After Bitcoin extensive run from the 3500s. We have returned to the mean and surpassed with force. A great amount of absorption which has produced a higher level of confidence across the market.
Whenever we think about the future, it’s important to remember the one and only thing about the future we know for sure.
Which is: we don’t know what’s going to happen.
This forces us to think in probabilities.
Picture a financial instrument: from its inception, it has done one specific thing, and done it cyclically, four times in eight years, at ever-increasing rates of scale.
Absent poor fundamentals, an object in motion tends to stay in motion.
And Bitcoin’s fundamentals have literally never been stronger: the New York Stock Exchange announced it will offer cryptocurrency custodial services and a Bitcoin futures contract; Goldman Sachs announced it’s opening an institutional crypto trading desk, and spent $300 million to acquire Poloniex, a top cryptocurrency exchange; Japan, South Korea, Singapore, Switzerland and the UK continue to lead their regions in crypto-friendly regulation; Mastercard just filed a patent for a cryptocurrency fractional reserve system (what could go wrong?); the SEC continues to deliberate on a Bitcoin exchange-traded fund; and the Lightning Network continues to grow, having already made Bitcoin transfers between institutions near-instantaneous.
The highest probability scenario is that the market cycle repeats itself a fifth time.