Hi Wealth Builders!
Hope you are well. I thought I would jump into your inbox today to use the current state of the market to equip you with one of the key lessons I have learned about remaining optimistic and clearheaded when investing in volatile markets.
Incase you haven't had a look at the market this morning or the past couple of days you would have noticed that things are not looking too great. There is currently a lot of fear in the market as is shown by the fear and greed index, which you can see here.
Doing a bit of revision from our mini course, you will remember that the market is driven by fear and greed. So the fear and greed index indicator becomes a very key tool to give us a macro view of the current emotional state of the market right now.
But is this fear a buying opportunity or is it a warning for us to get out of the market? Is Bitcoin and the cryptocurrency market crashing?
In order to answer this I am going to share with you a statement you will hopefully never forget as you continue your investment journey.
Never make an investment decision based on a micro perspective. Always zoom out and consider the Macro vantage point before making any decision.
I can't tell you how many times I have made decisions based on the micro events happening in the market, whether they be news headlines, discussions within chat groups, or some hearsay from the grapevine, only to regret them a few days later when I realised it was all just FUD (Fear, Uncertainty and Doubt).
When I say Macro I mean understanding the big picture and always keeping that in mind when making deceisions rather than being swayed by current news events or market happenings that are here today and gone tomorrow.
THE MACRO VIEW
So what is the macro view and how will it help me stay optimistic? I hear you ask.
The first thing to note, is to understand the cryptocurrency cycle which is typically driven by Bitcoin. Since its creation, Bitcoin has had a 4 year cycle which it has been very faithful to follow. Without going into the nitty-gritty, this 4 year cycle typically starts with a bear market and over the next successive 3 years steadily increases finishing the 4th year in a parabolic bull market that leads to a lot of euphoric buying, fuelled by media hysteria and FOMO (Fear of Missing Out) buying. This at the end of the 4 year cycle causes a blow off at the top which causes the market to crash and lose typically 60-90% of its value. This in turn begins a bear market that begins the 4 year cycle all over again.
As a successful crypto investor you need to understand this 4 year cycle so that you can clearly know where we are in the cycle and know how to react to the market when it seems to be looking bearish and discouraging.
So where are we in the 4 year cycle?
We are currently in the 4th year of this cycle and we have definitely not reached the end or top of the bull run. We are yet to see the euphoric FOMO buying of bitcoin and the parabolic rise that so many have seen and experienced in previous bull runs. All other market indicators like the Bitcoin dominance, Minor net position change, Exchange Balance (more on all of these sometime in the future) clearly show that we are still in a bull market and Bitcoin still has a lot of all-time highs to make. I believe we won't see the end of this 4 year cycle until around December this year when Bitcoin has reached an all-time high of around $200K. Some analysts even believe we might see a prolonged 4 year cycle that pushes into next year because of the new institutional money that has come into the market and has hopefully created a more stable market and potentially prolonging the bull run.
THE MICRO VIEW
Hopefully understanding this Macro view completely changes your perspective to the current micro view and market correction. As some of you might or might not know that in the bull run of 2017 just before the crash, it was common to see large market corrections that also caused fear in the market. These corrections are in fact very healthy and stop the market overheating and reaching its top too quickly. They allow for a more sustainable rise within the market that keeps us all grounded allowing us to realise the highs we are all looking for in the end.
This perspective should not only keep you calm in times like this, it should hopefully make you greedy when people are feeling afraid. This is the time to buy not the time to sell. If you have been sitting on the fence waiting for the perfect time to invest, this is it! I can't tell you how I wish I had more money to invest right now, just simply scanning the market you can see all the bargains that are out there, that once the market begins its bounce back so many are going to wish they took an opportunity of.
So what is causing the current dip in the market?
To be honest they are many factors which would take too long to go through but I will sum it up into 4 categorise.
Whales playing games: Large, sometimes institutional investors manipulating the price so they can buy at a cheaper price. They do this through creating FUD and also shaking up the market through manipulative market tactics.
Self-fulfilling prophecy: Whenever key market influencers (famous social media crypto influencers, well know analysts) predict or speculate that the market will crash people begin to expect it and begin to act accordingly, fulfilling the speculation/ 'prophecy'. It's also good to note that many big time investors and those who take crypto seriously usually borrow from ideologies and methods that have been used in the Stockmarket for years. These methods usually enforce certain kind of behaviour and expectation in the market. This is also why many can typically accurately forecast at what price things will happen or change because they are using principles that have been tested in other markets, which typically enforce a similar kind of behaviour in the crypto market.
FUD (Fear, Uncertainty and Doubt): Even though cryptocurrency is becoming more mainstream we are still quite a distance away from complete mass adoption. A lot of companies and personalities who are joining the crypto revolution sometimes backtrack affecting the morale and optimism of the market. The current company and personality to do so as of this month has been Elon Musk and Tesla. Tesla had originally bought $1.5 Billion of Bitcoin and had also began to receive Bitcoin as a means of purchasing their vehicles. Last week Tesla / Elon announced that they would no longer be accepting Bitcoin for their vehicles and Elon this weekend seemed to have inferred that they had also sold all of their Bitcoin holdings. This kind of news will usually cause a ripple within the market but will soon be forgotten a few weeks from now. This is why we should always make sure to invest in crypto projects that have good fundamentals and real use case and so can easily survive such FUD and even a full blown bear market.
The global Markets: The Crypto market is not an island. It too is dramatically affected by global events, news and also what the stock markets are doing. So it should not come as a surprise that when the global markets are down so is the crypto market. This was clearly shown when the market took a down turn as a result of COVID-19. This downturn however did not last as long within the crypto market, which was a bullish sign and also a forecast of the dominance the crypto market will have on global markets in the soon coming future.
So in conclusion we are currently seeing a market correction that is typical within bull runs at this stage and we are probably going to have similar or even larger corrections than this in the near future before the end of this 4 year cycle.
What I expect is for Bitcoin to fall to a low of around $41-42K and then begin to bounce back. Some analysts have even put down a cheeky buy limit of $35K as they see Bitcoin hitting such lows before the bounce back begins. The point is, if your in this for the long run and are already invested then sit back grab a cuppa or a coffee and enjoy the show, cause past all the noise of the present FUD our Macro trajectory is clear. The only way is up.
To you future wealth and success!
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Disclaimer
Andrew Twesigye is not providing you with individual investment advice. Andrew Twesigye is not registered to provide investment advice, is not a financial adviser, and is not a broker-dealer. The material provided is for educational purposes only. Andrew Twesigye is not responsible for any gains or losses that result from your cryptocurrency investments. Investing in cryptocurrency involves a high degree of risk and should be considered only by persons who can afford to sustain a loss of their entire investment. Investors should consult their financial adviser before investing in cryptocurrency. Most if not all links mentioned in this post are affiliate links, some of which offer benefits to both you and me when you use them to sign up.