We all wish we jumped on the Bitcoin train back in 2013. We’ve all seen the ‘If you invested a dollar in Bitcoin it would be worth a million today’ articles.
That ship has sailed. The cat’s out of the bag. The beans have been spilled.
We’ve heard it all before. You missed the boat and it’s too late to get into cryptocurrency. After the meteoric rise of Bitcoin and the cryptocurrency market in December 2017, it would be stupid to jump in now right? The bubble has popped and the bears have taken over, dragging the whole market down to zero.
But what if I told you that now is the time to invest in cryptocurrency?
For those that missed the rapid rise and hype in December, now is the perfect time to enter the market.
Mainstream media hype has died down, we’ve gone through a 3 month bear market (which is long for crypto of the past 12 months), and prices have corrected to November 2017 levels (pre-December hype).
Perhaps what is more important is that market sentiment is changing. If you happen to lurk on popular Telegram and Discord channels or browse cryptocurrency subreddits, you would have noticed a shift in attitudes over the past few weeks.
Take a look at the chart for Bitcoin since January 2017. You’ll notice the big spike at the end of the year in December and early January, followed by a series of falls. The price has bottomed out twice since then, once in early February and once again in mid-April.
Now let’s compare that to the typical market cycle and the psychology surrounding it.
What happened to Bitcoin and the cryptocurrency market in the past 6 months has followed this chart to a tee.
We experienced the optimism in November and belief in early December. As the market continued to surge, the thrill phase coincided perfectly with the merriment around Christmas. ‘Crypto’ made its way onto the evening news, we talked crypto at the pub, at dinner with the in-laws, and even over Christmas lunch.
Fast forward to February. Denial began to set in and HODL memes took hold. The markets continued to slide and we started to look for people to blame. Mt Gox sold a large chunk of BTC! China is cracking down on cryptocurrency! BTC futures are expiring! South Koreans involved in insider trading!
Some of these events may have contributed to the downturn, to what extent we may never really know. But if we take a step back and analyse what really happened, it was simply a market correction that was due to happen.
What goes up, must come down.
So why is now a great time to get into crypto?
The Balance of Fear and Greed
To quote the great Warren Buffett:
“Be Fearful when others are Greedy, and Greedy when others are Fearful”
This is the reason why now is the time to get into crypto. We have been through the worst of the correction and fear in the market is just starting to subside.
When people are fearful, they sell and put downwards pressure on prices. As this fear erodes away, FOMO begins to take over and places upward pressure on prices. On a very basic level, these are the drivers for upwards and downwards swings in the market.
The key to success in the cryptosphere is making plays on these emotions and timing your entry into the market by using a contrarian approach and understanding the market cycle.
Contrarian investing is essentially betting against the crowd.
“A contrarian investor enters the market when others are feeling negative about it and the value is lower than it’s intrinsic value”
Contrarian investing is one of the best strategies for cryptocurrency trading as the market is greatly influenced by news, emotion, irrationality, FUD (fear, uncertainty, doubt), FOMO and hype.
As a contrarian investor, you believe that excess emotion has led to the market overselling an asset making it a ‘bargain’ to buy. This is the reason you will often see ‘buy the dip’ being touted by traders.
By buying when others are fearful, you are capitalizing on their fear and putting yourself in a good position for the next bull run.
Market Cycles and Bubbles
All asset classes go through market cycles. Stocks, bonds and property all go through boom and bust periods. (If you’re an Aussie we’ve recently just been through the mining boom and the housing boom)
The cryptocurrency market experiences market cycles just like any other asset, only it happens at a much faster rate. In 2017 alone we experienced 3 market cycles with Bitcoin going ‘boom’ and ‘bust’ each time (BTC went from $800 to $2500 in May, then $2000 to $4500 in August, then $3000 to $8000 in September).
But cryptocurrency is in a bubble. Yes it is. But bubble is simply another way of saying market cycle, or boom and bust. The only difference is that the cryptocurrency market will go through a cycle every few months, whilst the stock market may go for 10–15 years. Take a look at this breakdown of the dot com bubble.
Seen anything familiar?
Now, if you look back at our BTC and market cycle charts, you will notice that we are currently at the end of a cycle. Guess what happens at the end of a cycle? That’s right, it starts all over again!
Check out Boom Bust Boom on Netflix if you’re interested in learning more about this phenomenon.
Still Not Convinced?
There are technical indicators and numbers we can look at for those that like to have something more concrete than market sentiment. As I mentioned previously, we have found a bottom twice in February and April, and are currently in the middle of an 18 day bull run.
If we look at volume, we can see that the amount of Bitcoin being traded is rising steadily from 4.5 billion on April 10th, to 8 billion today. To put that into perspective, volume of Bitcoin traded on November 13th was 9 billion, rising to 22 billion on January 6th (at the peak of the ‘bubble’).
See any patterns yet?
Cryptocurrency isn’t for everyone, but if you’ve been hoping to get into the market then there is no time like the present. It’s a bumpy ride, but an exciting one for sure. Now getting back to our crypto metaphors…
The Bitcoin cruise liner has left the port but it hasn’t left the harbour. So hop into your metaphorical dinghy and start motoring after that ship!