There are many who have started investing in crypto currency during the last six months. Every Bull Run comes with increased news coverage about insane returns from crypto currency. Some get interested enough to join this run. Those who joined in Nov/Dec 2020 were already in the midst of a bull run and have reaped good gains from the market. As most run after the immediate gains so they seldom study the long term behavior of market which is a big mistake. So this will be my effort to bring perspective about market cycles for these people.
It is said that the bull market starts with ‘halving’ of bitcoin output. The recent halving has been in first half of 2020. As the output gets halved so the incremental new bitcoin flowing into the market is reduced. This creates a situation of lower supply and therefore higher demand and this spills over to all other coins thereby starting another bull run. This Bull Run continues for about one and a half years when the market gets overpriced and the final profit booking comes leading to a severe correction in the market and followed by a prolonged bear market. In this case it is supposed to extend till early 2024 when the next ‘halving’ will take place. This is the most layman description of a market cycle.
This Bull Run consists of several ups and downs till the market top is reached. Traders use this to go long or short. Same is the case with the bear phase which also has several ups and downs which are played by traders. But those long term hodlers just ride the waves and accumulate more when prices are less which is called dollar cost averaging. This group of people don’t play with the short term trends, they move from one market cycle to the next. Both the traders and hodlers know that the market will ultimately tank 70-80 percent in the bull market wiping out most of the gains. And the next market cycle will be making many times more ‘all time high’ than this one. But this journey of a market cycle is an emotional roller coaster ride, let’s see.
Disbelief. When the previous bear run is coming to an end then the market starts making upward movement but most will not believe it and consider it as the minor waves on the chart. It is difficult to identify which set of green candles will mark the beginning of the bull market.
Hope. When the price starts going above the bear market price band then the hope comes that an overall recovery is coming. In charts people study the accumulation bands and when the price starts staying above the accumulation band for some days or weeks then the hope is cemented that we are actually seeing the first lights of a new bull run.
Optimism. When this happens then optimism sets in the market and people feel confident in pouring in new money into the market thus the price starts to pump. Here you will see lots of you tube videos coming with chart analysis of the upcoming Bull Run.
Belief. This optimism transforms into belief after more confirmations of green candles and other technical indicators. This is when more money comes in pushing prices further high.
Thrill. This is the stage when the market prints long green candles day after day and the unrealized profit in their portfolio tracker shoots up. Now people who have exhausted their funds start playing with margin money which is a dangerous thing.
Euphoria. Many late comers actually join here when the market is in euphoria and shooting up like anything. This is the stage of fear of missing out. This is where many toss aside their plan and ride the emotional wave. Media shows the amazing Bull Run with interviews of the new crypto millionaires. But knowledgeable ones have actually booking some profits. They sense the mood of the market and start booking profit when the market is still going up and will do so when it starts going down.
Complacency. So ultimately the time comes when the market corrects from the top. Now it may make sideways movement or an immediate dead cat bounce. But people stay hopeful that this is just a dip and the market will recover again and make newer highs. Now we may be just in such a situation. The mindset of most is still in the euphoria state.
Anxiety. This is when market falls further and the realization starts to set in that ultimately the Bull Run is over. We have reached the market cycle top. Now traders are more into shorting the market bringing the price further down. The hopefuls still hang on eventually losing more of the gains they made.
Denial. Many still refuse to heed the signs and stay hopeful, hoping for a recovery. Some start selling with a remarkable reduced gains or even loss.
Panic and anger. This is the stage when panic selling starts when everyone is convinced that the Bull Run is over and try to recover whatever gain or loss they get. Most here sell at a loss thus ending their dream in crypto and then vow never to come back.
Depression. This is the time when the market touches the bottom. Those who entered with borrowed money are ruined. Those who entered with life savings are ruined. This actually marks the beginning of the accumulation zone for the next Bull Run and this period can be a long one, more than two years. But smart investors recognize it as an opportunity to make millions in the next run up. The stupid ones stare in disbelief.
This amounts to the end of a highly emotional drama where the smart ones enjoy it and the foolish ones crib and cry. Those new ones should be aware of this whole cycle and be mentally prepared to face it. If you cannot bear the down market then you do not have any right enjoy the bull market.
