An Essential Guide to the Asset Accumulation Phase of Cryptocurrencies
In recent years, cryptocurrencies have exploded in popularity. As many as 420 million people worldwide now own crypto and more people are investing every day.
While cryptocurrencies can be great investments, there's also some risk involved. You want to gain a solid understanding of the crypto space before choosing an investment. One of the many areas to understand is the asset accumulation phase.
In this guide, we'll explore what happens in the accumulation phase so that you can make better investments. Keep reading for more.
What Is the Asset Accumulation Phase?
The crypto market works in cycles, and each cycle contains four phases. The accumulation phase is the first of these, and it’s followed by the markup phase, the distribution phase, and the markdown phase.
The accumulation phase often begins once the majority of sellers have left the market and typically results in a lot of volatility. As the phase of accumulation starts, prices tend to stabilize. This is similar to the stock accumulation phase, which you may already be familiar with.
Investors are typically not overly optimistic during this phase, so volume is often quite low. There isn’t usually a discernable trend, so asset spreads are quite narrow.
The Approach of Investors
Investors often split into two groups during the accumulation phase. Some will lose faith in the market and look to sell their positions. In many cases, they’ll sell assets for a fairly low price.
Others will have higher hopes, and this is a key part of their financial plan. They see this phase as a slump and can use it to their benefit.
If someone is confident the market will recover, they can take advantage of the low prices offered by those selling. A lot of assets will be bought by a small number of investors. These are the ones who are "accumulating" at this point.
Financial planning should involve developing a well-thought-out strategy. You can choose to invest during the accumulation phase as a part of your strategy if it aligns with your goals.
Benefits of Crypto Accumulation
As an investor, there are plenty of approaches you can take. You could develop a crypto accumulation strategy that relies heavily on this phase. This may offer several advantages.
Capital Growth
Perhaps the main benefit of investing during the accumulation zone with crypto is that you can grow your capital relatively easily. A lot of sellers will settle for low prices, so you can buy a lot of crypto at this time. If your faith in the market pays off, it won’t be too long before the value of these assets goes up.
Diversification
Any experienced investor will tell you that diversification is essential. Crypto investments are still considered very risky, and the value of an individual cryptocurrency can drop massively overnight.
There are also different types, so it’s beneficial to understand what these are. Many altcoins will experience a sizable drop in value during the accumulation phase. This gives you a good opportunity to invest in a range of coins and diversify your holdings.
Risk Management
This goes hand in hand with diversification. The lower your risk exposure, the less chance there is that you’ll suffer losses. Having a range of assets will help with this.
If you only invest in a single cryptocurrency and the value plummets, you could lose a lot of money. Conversely, if your funds are distributed between different cryptos, one of them crashing won’t be a major issue. The rest of your portfolio can still hold firm so that your losses are minimized.
Challenges of Crypto Accumulation
While the above benefits may sound good, no investment strategy is perfect. There are some challenges that come from investing during the accumulation phase.
Market Volatility
This is one of the biggest issues for many investors when it comes to crypto. It may be even more of a concern during the accumulation phase.
Cryptocurrencies are very volatile. When investing in crypto, you can experience very rapid gains and very rapid losses.
Higher volatility means increased risk. If you’re trying to keep your risk exposure to a minimum, you may want to be cautious about investing here.
Complexity in Choosing Investments
Another major issue with the crypto market is the complexity of it. There are currently more than 21,000 different cryptocurrencies on the market. This can make it difficult to know what to invest in.
There are popular coins like Bitcoin and Ethereum that are well-established. These are generally considered to be safe investments. The drawback, however, is they don’t have as much potential for growth as smaller coins.
The biggest gains are often made from smaller coins that explode in popularity. Predicting which coins will do this, however, is incredibly difficult.
You need to think about your investment goals and the level of risk you’re willing to take on to make the best decisions for you. You should also thoroughly research any coins you’re interested in to find the best crypto to accumulate for you.
Final Thoughts
The foundation of successful investing is having a strong strategy. This can take a long time to develop, but it’s far better than going in without knowing what you’re doing.
There are plenty of sources of information online that can help you with investing in the accumulation phase. When it comes to investing, research is vital, as some sources will be more reliable than others.
Following others can be helpful, but don’t rely on this approach. Research assets and fine-tune your strategy so that it works well for you.
DropsTab has the latest market prices, and we offer valuable data and insights relating to the accumulation phase. Our crypto accumulation chart can help you see which coins may be best to invest in, depending on your goals.
Best Practices
Investing in the asset accumulation phase can prove very rewarding, but make sure you always know what you’re investing in. Budget yourself and only invest money you can afford to lose just in case your investments don’t work out. Always keep your long-term goals in mind, and manage your risk well.
DropsTab provides the latest information to help you stay up to date with the crypto market. Take a look at our accumulation data page to help you build your strategy.
