Cryptocurrency Market Cycles Explained
Understanding the market cycles can help you avoid FOMO and FUD
As you venture into the world of Cryptocurrency investing, you have to understand a few fundamental things about market cycles. It is a natural tendency of every investor or trader to feel Fear Of Missing Out (FOMO) when the price of an asset goes up and they don’t have an active position. It is also a natural tendency of every investor or trader to feel Fear Uncertainty and Doubt (FUD) when the price of an asset goes down when they have a long position in the asset. Then more you learn about market cycles then more you are able to control your emotions and make a rational decision about whether to buy or sell an asset.
Some Definitions First
Bitcoin (BTC) is the king of crypto markets.
Ethereum (ETH) is a challenger with its own unique characteristics.
Altcoins - any coins that are not BTC or ETH.
Market Cycle 1 - Bitcoin Steady Increase
We are experiencing this market cycle now. We can see a steady increase in BTC price against US Dollar. Of course BTC will always go up and down, but a steady increase within this channel would put around $14,000 by the end of October.
Usually, during this market cycle we look for lagging cryptocurrencies like LTC, BCH that should see their breakout against BTC. When altcoins see a breakout against BTC it means their price raises faster than BTC or falls less than BTC. The goal of a trader of altcoins during this market cycle should be to accumulate more Bitcoin. This means try to buy into the altcoin you think is going to run against BTC, ride the run up, and sell for BTC when you hit your target. A good example would be Chainlink (LINK).
LINK likes to appreciate roughly 100% in each pump against BTC. So, if you bought a few LINK using your BTC, and managed to sell it at around that wave top, you would have 2x the amount of BTC.
Market Cycle 2 - Parabolic Bitcoin Growth
When Bitcoin breaks out of the channel to the upside and starts to run parabolic, all other coins lose value. During such a BTC run all altcoins suffer. Stronger altcoins may hold their price in USD and decline in price against BTC. Weaker altcoins see declines against any asset (USD or BTC).
Notice end of November 2017 parabolic BTC run and a corresponding dramatic decline in ETHBTC pair? Similar dramatic decline can be observed for any other ALT/BTC pair during this time. Because of this market cycle, any alt trader knows to set stop loss orders against BTC. This ensures experienced traders not missing the BTC run and still take advantage of altcoins’ volatility.
Market Cycle 3 - Bitcoin Stagnates
Sometimes Bitcoin tends to move in a staircase pattern. It raises, then stagnates for awhile, then a small raise, followed by another stagnation. There isn’t enough upward or downward pressure to create volatility, investors get bored, and altcoins start to rise.
This is know as an “alt season”. Alt coins tend to do really well during this time and traders can multiply their Bitcoin holding by trading alts. As mentioned before, the key in trading altcoins is to measure your success in overall BTC holdings. “Stacking Sats” is the term used to measure your steady progress of accumulating more Bitcoin. More on Stacking Sats and other crypto portfolio accumulation strategies in my next newsletter.
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As usual, none my articles or charts here constitute a financial advice. You and only you are responsible for your financial decisions.