Imagine that we are at the end of 2021, Bitcoin has just hit its all-time high and is showing no signs of slowing down. Some altcoins have skyrocketed to 10x, or you happen to be holding a substantial amount of one or more of these altcoins. The destination is clear, the moon.
Is clearly in sight and now that you are so close to it, you start to realize that you never took the time to seriously think about the most important question in cryptocurrency investing. When should I sell?
Perhaps you fly past the moon and you panic as you find yourself watching in shock as all your gains get burned up of the FUD.
The world economy consists of multiple financial markets such as real-estate markets, foreign exchange markets, stock markets, and thousands of others. Almost all these markets follow some kind of visible cycle. It can be a one-year cycle, a four-year cycle, or even a 12-year cycle. In some cases, these longer cycles contain even smaller cycles that last a few months or even a few weeks. These cycles can also change over time. Usually becoming longer as a given market matures. The cryptocurrency market is very young and that makes it very volatile. This is simply because nobody knows for sure what the actual value of the market is.
Not only that, but cryptocurrency markets are not restricted to suit and tie traders. All you need to participate in is an internet connection and that means a lot of inexperienced investors. This makes the cryptocurrency market even more volatile and irrational on a day-to-day basis. Despite all the daily chaos in the crypto market, when you step back you can see a pretty clear market cycle. This cycle seems to last around four years and consists of a two-to-three-year bull market, followed by a one-to-two-year bear market depending on how you draw your indicators.
As it has been mentioned in the previous section, the cryptocurrency market cycle seems to be caused by Bitcoin halving. The Bitcoin block rewards for miners are cut in half every four years. Assuming demand stays the same, the sudden decrease in supply eventually leads to a spike in Bitcoin's price. Since most altcoins are highly correlated to Bitcoin, they also see a massive swing to the upside around that time. This explosion in value makes it to the media which brings even more money from both experienced and inexperienced investors into cryptocurrency markets.
In contrast to the two previous cycles, in the current one, there is more smart money from financial institutions and experienced retail investors in the crypto space than ever before. This is in part due to governmental regulators around the world who have started doing their homework and realize that there is much more to cryptocurrency than Twitter hacks or ransomware attacks.
So, what is the answer to the hot question? Most people speculate that the current bull run will last till November, other assume a longer duration, till 2022, while others believe, and for good reason, that some kind of crash may take place during Summer. Think about it. Covid's overall economic situation, which includes lockdowns, restrictions to business activity, and unprecedented amounts of central bank financial stimulus to help firms and keep people working (printing fiat at its finest). As a consequence of the impact on currencies, savers and investors will be searching for safe havens as inflationary hedges.
So, the BTC crash is inevitable, that is market mechanics after all. But will it be as harsh as the previous one ? Probably not. Institutional investments are the holy grail of this bull run.
