Table of Contents
The word Crypto has been making itself known in a lot of places lately and while the unorthodox currency used to be somewhat taboo, it is now more commonly accepted and even celebrated in some places.
The mainstream popularity of crypto can be traced back to the buzz Elon Musk has created around Bitcoin and Dogecoin and while it’s been a wild alt-season, long term traders are now taking massive profits and newer traders are slowly adapting into this new form of investment. Cryptocurrency, although can be used as an investment, also serves different purposes depending on the coin.
Quite like stocks, each coin or currency backs up a certain blockchain platform (Cardano), company (BNB), or basically just an idea (Dogecoin). There are a number of different techniques to master but the most important one is to learn more about the coins you might want to invest in.
Mastering the cryptocurrency market cycle means learning how to take profit within volatility and not just when the market is generally bullish. While a lot of investors are optimistic about the market going up all the time, this does not always happen. Trading within the highs and lows of the market is what really brings the investors/traders profit.
What does a cryptocurrency market cycle look like?
There are different phases of the crypto market cycle all differing from one another depending on the coin used. Here’s what it might look like.
- Money comes in – this is when purchases are made when Bitcoin is at its low point. They are accumulated when Bitcoin is relatively affordable.
- Price increases – this is where the price of Bitcoin goes bullish.
- FOMO – this is where more and more people start buying Bitcoin out of FOMO or Fear Of Missing Out. This inevitably increases total Bitcoin prices
- Sell at high – this is when those that have been holding decide to sell their Bitcoin and take profits.
- Bitcoin bottom – this is the messiest pattern you might see on the charts as the price of Bitcoin goes down.
- Repeat – the process repeats itself.
Now, this cycle might be a complicated thing to analyze without knowing what proper term to use. Luckily, to the modern trader, the overall data is already present.
The market cycle is divided into these simple terms:
- Accumulation
- Greed (bullish)
- Distribution
- Fear (bearish)
Everyone is human and therefore they are vulnerable to the FOMO/Greed and sell low Fear periods. The key is to anticipate when these cycles are in order to make calculated decisions when executing trades.
The key to really making money off of the crypto market cycle is to anticipate how long the bull-and-bust cycles will last. The timeline has to be constructed and studied as it could be over 100-years, 10-years, a year, or even shorter.
Understanding Bitcoin
Before ever going into Bitcoin, or any cryptocurrency for that matter, it is important to understand more about the coin. Bitcoin, the first cryptocurrency, was created with a brilliant system which rewarded early miners when the demand was low and started halving every time new milestones were reached.
Basically, when Bitcoin was created, founder Satoshi Nakamoto decided to reward miners every time new cycles were achieved which is whenever 210,000 blocks are minted or about every four years. The good thing about Bitcoin is that it has a market cap which, unlike dogecoin, limits the total amount of coins that can be minted.
Every time 210,000 blocks are mined or minted, a mining reward is given. After every cycle, the reward is then halved. This reward is halved in order to avoid overcrowding the supply of Bitcoin. The last Bitcoin halved was on May 11 which resulted in a 6.25 $BTC block reward.
What flash crashes or recoveries could mean?
The volatility of Bitcoin is due to the amount of movement the currency experiences everyday. Have you ever noticed when looking at your charts random vertical spikes reaching massive heights before shortly recovering?
These are called flash crashes (when the line goes down) or flash recoveries (when the line goes up). The sudden plunge or spike in prices are actually caused by big players in the market. All the Bitcoins in the world are worth around $653 billion which means that it would take multi-million movements to cause spikes like these.
The spikes or plunges are caused by huge players and could be for multiple reasons. They could be because of the crypto whales thinking the price is high and they should sell, or the price is low and they should buy.
It is difficult to accurately pinpoint what is causing these flash crashes or flash recoveries but if you are following crypto whales, it could help in your research.
Are we currently experiencing the altcoin season?
Altcoin season is when more and more alt coins are being bought instead of Bitcoin. Alt coins is just another word used to describe any particular cryptocurrency that isn’t Bitcoin so basically all coins are Alt coins, except Bitcoin.
Why does alt season happen? Most of the time, this is when a halving event takes place. Every time there is a new halving event, there is then usually a bull run which is followed by a spike in Bitcoin prices.
When Bitcoin price soars and people start to cash in, the price starts to fall and investors could move towards other alternative cryptos. This thus brings the market into yet another alt season.
There are a lot of reasons why these sorts of things happen and one of them is the actual exchange fees. Basically if investors would want to sell off their Bitcoin for a fiat currency, they will then have to pay massive withdrawal fees which are oftentimes a percentage of the coin value.
How to prepare for alt season
Preparing for alt season can be done by checking the Altcoin Season Index. If 75% of the top altcoins are found to be performing better than Bitcoin, it could mean that altseason is already here. Here are some additional indications:
- Check the total Bitcoin market dominance. The largest alt season actually happened when the total Bitcoin dominance was found to be at 50%.
- Make sure to search for good parabolic Bitcoin price trends. These help signify that a bull run is coming to an end.
- Most retail traders start announcing market surges. These are usually crispy signs that major crypto whales often look out for.
Following the whales is oftentimes a good way to trade cryptocurrency. Since Crypto whales do not randomly make decisions, understanding the market cycle and whale movement will help crypto traders make more calculated trades.
Although indicators like RSI or MACD are all useful in trading, in order to truly master the market cycles, you’ll also have to understand the general psychology of what is happening to cryptocurrency. Understand when it is alt season, when it is Bitcoin season, when it is the FOMO period, when it is time to sell.
Listening to indicators and moving according to the market is important. Make sure your decisions are made based on what the market is actually telling you and not based on optimism.