It’s coming! The most exciting time in the crypto market happens about once every four years, and it's dead ahead. It’s the payoff for struggling through what seems like an endless bear market. Surviving a brutal bear market and disastrous 2022 that saw crypto contagion claiming one crypto project after another has to have a payoff. Otherwise, what’s the point?
Experiencing a crypto bull market is unlike anything in the investment world. When it happens, it washes away all the stress and doubt that built up, watching prices do nothing but head lower. It is also a surreal experience seeing the price of Bitcoin shoot up by thousands of dollars, sometimes in a matter of hours.
The sheer craziness is what keeps investors coming back. But it can also be a dangerous time for new investors in the crypto market. It is easy to get caught up in the craziness and believe prices can only go up. This kind of thinking can be dangerous because even during a bull market, significant pullbacks of 20% to 30% can rock the market. Investors unfamiliar with normal Bitcoin price action who buy at the wrong time can panic sell during a pullback and lose a lot of money.
The other exciting part is not knowing just when the craziness will begin. It’s possible to get a general idea by studying Bitcoin’s market cycles, but it is still unknown. There is nothing like the feeling of knowing that something incredible is coming but not knowing when it will hit. Most likely, there are still many months before it begins, but that only increases the anticipation for what is to come.
Is the Bear Market Over?
Although it appears that the low set on Nov. 21, 2022, was the bear market bottom, Bitcoin could still go lower. Based on the timing of past Bitcoin cycles, the bottom in November would make sense, but it’s still good to keep an open mind.
As you can see above, November is the most popular month for tops and bottoms, followed by December.
Bitcoin Long-Term Price Chart
The chart above is a weekly chart showing the entire price history of Bitcoin. The red vertical lines mark the market cycle bottoms, the pink marks the halving events and the green marks the market cycle peaks. You can see the number of days between each event near the bottom.
One market cycle for this article is from one bottom to the next bottom. Toward the right side of the chart, you can see the recent bottom on Nov. 21, 2022. The next halving is also marked and estimated to occur on or around March 25, 2024. On the far right is an estimation of when the next peak may occur. It was calculated based on the average time of the last two market cycles from the bottoms to the peaks. Not too scientific, but it’s more just for fun.
So where does the price of Bitcoin go from here? Based on the last two cycles from the bottom, traders could expect a period of accumulation with slow price appreciation up to the halving. After the halving, the bull market has really gotten going in the past, so it will likely be mid to late 2024, lasting well into 2025.
The following year should be a time for dollar-cost-averaging (DCA) into positions. Dollar-cost-averaging is a safe strategy for building positions rather than jumping in all at once. Using DCA, you help protect yourself if Bitcoin revisits the November low or possibly heads even lower.
What Type of Investor Are You?
The investment strategy you employ will vary depending on what type of investor you are. You could invest for each market cycle or be a long-term investor and hold for many years. You could be a short-term trader or a combination of some or all of these.
Once you determine what type of investor you are, it will be much easier to develop an investment plan. It’s best to have an investment plan before entering positions. This is true whether you are a trader or a longer-term investor. Regarding buying, a good sustainable dollar-cost-averaging strategy is probably the best for most investors.
Know your buy and sell strategy ahead of time and under what circumstances you would sell. How do you sell? Will you scale out of positions or sell all at once? Educating yourself is important. Knowing how to vet a project and spot scams properly will help ensure your survival in the crypto sector. An educated investor will last longer and have a much better market experience.
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Can Anything Threaten the Next Bull Market?
Looking at the long-term price history of Bitcoin, the market cycles are apparent. If this pattern continues, crypto enthusiasts should see much more upside potential than downside risk. However, there are no guarantees that Bitcoin’s market cycles will continue.
Bitcoin investors are dealing with a macroeconomic environment unlike any they have faced before. Inflation in the U.S. hit a 40-year high this past summer. To combat it, the U.S. Federal Reserve Bank (FED) has been raising interest rates since early 2022. The FED hopes to cool an overheating economy by raising interest rates, thus lowering price inflation. The risk with this strategy is slowing the economy too much and pushing it into a recession.
U.S. Annual Inflation Rate
Besides a black swan event, a recession is probably the biggest threat to the next bull market. For the most part, the price of Bitcoin has been highly correlated to the stock market. A severe recession would negatively affect the stock market and, most likely, Bitcoin.
U.S. Federal Reserve Funds Rate - March 2022 to February 2023
Are Life-Changing Gains Still Possible in the Crypto Market?
It’s no secret that many people come to the cryptocurrency markets with the vision of cashing out with life-changing gains. The question now — is it still possible to get there? Or has each passing market cycle resulted in diminished returns?
Looking back at the last cycle, investing in the right project would have resulted in massive gains. The examples below result from investing $100 near the bear market bottom.
- DOGE - 37,000% (bottom to peak) - $37,000 gain
- EGLD - 46,000% (bottom to peak) - $48,700 gain
- SOL - 49,000% (bottom to peak) - $44,500 gain
As you can see, even as little as a $100 investment would have paid off well.
Bitcoin Long-term Weekly Chart
The chart above shows the diminishing returns with each market cycle. Nothing says the pattern needs to continue, but the trend is clear. It’s likely some of the percentage gain leaders may not match their gains from the last cycle. But some newer projects will undoubtedly have enormous gains; the trick is to identify them beforehand.
Will You be Ready for the Next Bull Market?
Nothing is guaranteed, but chances are a new bull market is inching closer. Will you be a part of it? Are you in the process of building new positions? If BTC follows a similar market pattern as the last two cycles, a bull market could be expected later in 2024, giving investors ample time to build new positions.
So far, experts haven’t formed a consensus about whether or not Bitcoin has bottomed for this bear market. Some believe the low ($15,476) set on November 21 is the bottom, while others think that the bottom is much lower, possibly even sub $10,000. This uncertainty may cause some to stay on the sidelines, believing they will get a better price in the future.
Another group of investors who are hesitant to enter the market are people new to the crypto market. They are unfamiliar with the significant pullbacks typical of a Bitcoin bear market. They also buy into the claims by crypto skeptics that Bitcoin is failing and headed to zero. These claims are often parroted in the media, causing uncertainty and doubt among curious but inexperienced investors.
The result of this hesitation is it causes many of these investors only to enter after Bitcoin has already made substantial gains. Missing out on the beginning of a bull market can be expensive regarding opportunity cost.
Another high price that some hesitant investors pay is when they only enter the market after they are gripped by fear of missing out (FOMO). In the most severe cases, they enter near the top and hold far too long after it is evident that the crypto market has pivoted into a bear market.
A wiser strategy would be to start dollar-cost averaging into positions after the bear market has played out for a while. Looking at the last two Bitcoin market cycles, the bottom was hit approximately one year after the peak.
To capitalize on this, you could start dollar-cost-averaging after the bear market is 10 to 11 months old. You will likely begin to buy before the bottom is hit, but you will still buy at excellent prices. You will also buy through the bottom and capture the best part of the bull market.
Employing a long-term DCA strategy to buy Bitcoin has proven to be profitable over the long run, although there are no guarantees it will happen again. Every investor has to decide what strategy works best for them and how much risk they are willing to accept.
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About Donald Hancock
Donald’s expertise lies in the technical analysis of both stocks and crypto.