Crypto is a high-risk, high-reward kind of market. Many factors such as public sentiment, social and political issues, or even tweets from Elon Musk can affect their prices.
All assets go through their respective market cycles. As a trader, it is essential to know the market cycle of the asset you are interested in to make better investments.
But, what are crypto market cycles, and how do they impact Bitcoin prices?
What Are Crypto Market Cycles?
A crypto market cycle is a period between the subsequent rise and fall of the market. It also describes the stages in between. For example, a traditional market sees four phases – accumulation, mark up, plateau, and markdown.
Initially, there was hype in the market about the financial asset. As more people start buying, the prices go up. After significant distribution, the prices begin seeing a markdown, the market is shorted, and investors may lose money.
Over time the market stabilizes, and the cycle repeats itself. As a trader, if you know what stage of the market cycle the asset is in, you can make informed and smart decisions.
How Does Crypto Market Cycle Affect Bitcoin?
If we consider Bitcoin, the market cycle of this crypto asset is around four years. Launched in 2009, the asset reached its first peak in 2013, then in 2017, and more recently in 2021. According to a Statista report, Bitcoin prices reached an all-time high in November 2021, exceeding $65,000.
The most popular theory regarding the Bitcoin market cycle relates to its programmatic halving. Approximately every four years, the rewards for mining Bitcoin are reduced by half. This means a reduced supply of Bitcoin in the market.
If the demand for the crypto asset remains the same, the reduced supply will drive up the prices. Bitcoin, to date, has three halving events, the recent one being in May 2020. The next halving is expected in 2024.
After the peak in November 2021, the prices fell by almost 50% in the subsequent months. The market is now on its way to recovery, with the Bitcoin process being around $45,000.
What Investment Strategies Can You Use to Invest in Bitcoin?
When investing in a volatile asset like crypto, the market strategy of dollar-cost averaging can be comparatively safer. For example, you keep investing in small amounts in the asset regularly, regardless of the market condition. You may miss out on buying heavily initially, but it is a good strategy for investors with a minimal risk appetite.
When the market is in recovery mode, and you have the knowledge and experience of identifying dips even despite the upward trend, that is the right time to buy the asset. The strategy should only be used for crypto assets that have established their worth, or you could lose money on a downward trend.
If you still have the question, “what are crypto market cycles?,” make sure you do some research and learn more about it before buying into the crypto craze. You can register with a crypto exchange and leverage the demo mode to understand the workings of the crypto market.
