While it’s sometimes best to take a step back and not get too caught up in short-term price movements, knowing how to successfully navigate the market is essential for long-term success in cryptocurrency. Just because it’s best to take a more long-term approach doesn’t mean that investors should leave themselves in the dark with regards to what’s happening in the market. Understanding the sentiment of a market is an essential part of investing. Without this skill, investors will not know when it’s a good time to enter and exit the market. This short article is designed to help provide you with insight into the current state of the cryptocurrency market and provide you with some cryptocurrency investing best practices to set you up for long-term success.
Please note that nothing in this article is intended to be taken as financial or investment advice. This is purely for educational and informational purposes only. Before parting ways with any money, we recommend first seeking professional advice from a registered investment advisor.
What stage are we at in the current market cycle?
The current market cycle began roughly halfway through 2020. If we look at previous data, we can confidently come to the conclusion that each market cycle typically has diminishing returns and lasts longer than previous cycles. A lot of people are speculating that this market cycle top will come sometime in early 2022. The keyword there is speculating. The fact of the matter is that no one can accurately predict when this market cycle will peak. We can look at historical data and make a rough estimate, but that’s about it.
Regardless of whether you think the peak will come in Q1 of 2022 or Q3 of 2022, we’ll probably be in agreement that we’ve definitely hit the latter stages of this market cycle. In fact, many investors have even decided to start exiting the market by selling their positions incrementally. One would look to do this to de-risk their investment portfolio and lock in profits in the case that we were to take a sudden turn for the worst.
For many people, this will prove to be a wise and prudent decision. But when it comes to investment, there is no one strategy that fits all. What’s right for one person, will not be right for someone else. Everything is circumstantial in this industry and that’s why researching and thinking for yourself is extremely important.
If we’ve already hit the market cycle peak, and we’re currently in the early stages of a bear market, when will the next market cycle begin?
This is a common question that many people overlook. If you’re in this market for the long haul, then you might not worry too much about the potential of missing the market cycle peak. If you truly believe in this technology (and I’d advise that you should only be invested in cryptocurrencies if you understand and believe in the technology) then you probably believe that prices will once again hit and eclipse their all-time highs.
If it were the case that we’ve now entered an extended bearish period, then we would very well be in this trend until the next Bitcoin halving. This is an event that occurs every four years and typically kickstarts the next bullish trend in the market. If this scenario (which is just one of many) were to come true, then it’s likely that we won’t hit new all-time highs until 2024 and possibly even 2025.
What’s fueling the market at the moment?
As immense as the potential for cryptocurrency and blockchain technology is, we have to realize that at the moment it’s a human emotion that’s fuelling this current market. As of right now, cryptocurrency adoption is sparse. While adoption is picking up, thanks to major institutions and some smaller nations, current real-world applications for cryptocurrencies are few and far between. Right now, prices are purely based on speculation on what we think the prices will be in the future. With cryptocurrencies, everything is based on supply and demand. If people think that x token will significantly increase in price in the future and they buy it, the sudden increase in demand will cause current prices to go up.
This is why it’s super important that investors do not get too emotionally attached to any of their investments. It’s quite probable that in 10-15 years’ time the majority of crypto projects that are around now will not exist. The current state of the crypto market is very similar to the early stages of the Dotcom boom in the last 90s and early 00s.
For investors looking to maximize their chances of investing in winning projects, looking at whether a cryptocurrency project has a working product is one of the most important factors. While having a working product now does not necessarily mean that it’ll be a winning project in the future, it does increase the likelihood as they’ll most likely have first-mover advantage in their field and they’ll be able to survive bearish trends (which is something that not all projects will manage to do).
What are some of the best practices for the remainder of the market?
Because it’s looking likely that we’re reaching the last stretch of this market cycle, it’s probably best to either start exiting the market incrementally or at least getting out of projects that are unlikely to survive a bear market. For the investments that you choose to stay in for though, it would be wise to maximize staking benefits to earn interest on your crypto investments. Most staking platforms compound, meaning that while rewards might seem small now, in the grand scheme of things compounded interest and extreme future capital appreciation is a recipe for significant profits.
Even if you choose to exit the market, do not feel like you need to leave the industry altogether. You can still get much better financial returns on stable coins than you would be able to in traditional financial markets. In fact, it’s common to earn up to 8-12% APY just for holding stable coins in certain crypto wallets.
What shall I do during the bear market?
Having a strategy to re-enter the market is just as important as having a strategy to exit the market. Over time, cost averaging the market has proven to be the most successful way to invest in cryptocurrencies. This way, you’re spreading your investments out over a period of time so you enter at a much more ‘averaged’ price. In order to remain consistent with your investing, it’s wise to set up multiple limit orders on your exchange of choice so you can automatically buy an investment once it hits your target price.
10 historical principles for successful cryptocurrency investing.
To finish off this article, I want to present you with some historical principles for successful cryptocurrency investing. While anyone can make a profit investing in a volatile asset market, the most successful investors are ones who can follow principles that have proven to be winning over a long period of time. From my own experience and the experience of others in this market, here is a compiled list of some of the most important cryptocurrency investing principles.
- Invest for the LONG TERM
- Understand the fundamentals of every project that you’re invested in
- Set exit price targets/strategies and stick to them
- Avoid emotional investing
- ALWAYS do your own research
- Never invest more than you can afford to lose
- Minimize exposure to extreme speculative risk
- Be tax efficient
- Listen to the negatives as well as the positives of a crypto project
- Be fearful when others are greed and greedy when others are fearful