We talk about the strategy of "investing despite" and the theory of market cycles.
Each of us would dream to buy bitcoins (Bitcoin) in 2013 year. Everyone knows that every dollar invested in them would have brought a fortune today.
Alas, the train is gone. The fever is over. The hype subsided.
Everyone heard these phrases. Probably, you yourself think that it is already too late to buy cryptocurrency. After the astronomical growth of Bitcoin in December 2017, investing in it is pretty silly right now, isn't it? The bubble burst, the bears reign in the market, putting pressure on prices.
But what if we tell you that now is the right time to invest in cryptocurrency?
For those who missed their chance last year, this is a real opportunity to enter the market. The media hype subsided, we experienced a three-month decline (protracted by the standards of the cryptocurrency market), prices returned to November levels (before the December rush).
But perhaps more importantly, how market sentiment is changing. Over the past few weeks there has been a clear shift in attitude towards digital currencies.
Look at the bitcoin chart from January 2017. It shows a sharp surge in December / January and the subsequent series of falls. Since then, the price has twice reached a local minimum - once in February, and once - in mid-April.
Now let's compare it with the classic market cycle and the associated psychology.
What happened to Bitcoin and the cryptocurrency market in the last six months, repeats its outlines.
In November, we witnessed unprecedented optimism; in early December, there was a frank rush on the market. As it grew, the third phase of the cycle coincided with Christmas and New Year. They talked about cryptocurrencies in the news, in bars, at family dinners and even during the festive Christmas dinner.
Fast forward to February. Negative sentiments prevail in the market, HODL memes are no longer relevant. The market continued to fall, and the cryptocurrency community began to look for the guilty. Mt Gox has sold a significant share of bitcoins! China has become embittered by cryptocurrency! Bitcoins futures expire! Some South Koreans were involved in insider trading!
Some of these events have really aggravated the fall, but no one will ever know to what extent. But if you take a step back and see what actually happened, it becomes clear: the usual market correction happened, which was brewing for a long time.
That which constantly goes up must one day go down.
So why now is the right time to enter the market?
Balance of fear and greed
To quote the great Warren Buffett, fear when others are greedy and be greedy when others are afraid.
That is why now is the right time to buy cryptocurrency. The worst moments of correction have passed, and the fear in the market is only beginning to weaken.
When people are afraid, they massively get rid of their positions and thereby put pressure on prices. When this fear subsides, it is replaced by the fear of missing an opportunity (FOMO), which leads to an increase in prices. At the most basic level, these two fears underlie all market movements.
The key to success in cryptomir is the use of crowd emotions to select a time to market and to understand the market cycle.
Investing contrary
This style of investing is essentially a decision in defiance of the crowd.
"A counter investor enters the market when others are overwhelmed by pessimism and the prices of assets are lower than their intrinsic value."
Contrary investing is one of the best strategies in cryptocurrency trading, because the market is still young and subject to significant influence from news, emotions, irrationality, fears, FOMO and excitement.
The counter investor is convinced that excessive emotions lead to excessive pressure on asset prices, making them very profitable to buy. It is for this reason that traders like to repeat so much that they should buy on drawdowns.
By investing money when others are afraid, you benefit from their fears and take a suitable position for further growth.
Market cycles and bubbles
All asset classes go through market cycles. Stocks, bonds, real estate are experiencing periods of ups and downs. (Australia, for example, has recently passed through mining and housing booms).
The cryptocurrency market (like any other) is also experiencing cycles, only they pass much faster. In one 2017, three cycles happened. In each of them, Bitcoin first grew and then fell (from $ 800 to $ 2500 in May, from $ 2000 to $ 4500 in August, from $ 3000 to $ 8000 in September).
Cryptocurrencies are in the bubble. However, in this case, the “bubble” is just a way of describing the market cycle, a series of ups and downs. The only difference is that the cryptocurrency market experiences a cycle every few months, while in the fund market it can take 10 − 15 years. Take a look at the history of the American Internet bubble:
Notice the similarities?
If you look at the Bitcoin charts and market ups / downs, it becomes clear that we are currently at the end of the cycle. Guess what happens at the end of the cycle? That's right, everything repeats again!
Still not believing?
Those who wish to rely on something more specific, rather than market sentiment, can pay attention to technical indicators and specific figures. As mentioned earlier, we experienced a pair of local minima in February and April. Currently, the third week of growth.
Daily bitcoin trading volumes are growing steadily. 10 April, this figure was 4,5 billion dollars, today it has grown to about 8 billion dollars. For comparison, on November 13 BTC trading volume amounted to 9 billion, on January 6 (at the peak of the bubble) it jumped to 22 billion. Do you notice a similarity?
Conclusions
Cryptocurrencies are not suitable for all investors, but if you were going to enter this market, now is the right time for this. The journey will not be easy, but exciting. Returning to our metaphors, the bitcoin train began to move, but did not move away from the station. You can still jump into it. Discard doubt and run while you have time!