Everyone is aware that if you get into the right projects early, you can make a ton of money. But what about using the news to earn even more? Let’s explain. Being in crypto today is like riding a bike… in alpine terrain.
It’s hard work, but hugely profitable when done right. You need to learn when to get on the bike, and when to get off. And that means learning how to navigate the course. It takes stamina, endurance and a strategic, forward-looking approach.
Let’s jump in.
- The 4 cycle-determining factors (and how they work together).
- Bearish to bullish, how sentiment shifts.
- A new way to cycle through news (and place your bets).
- Take initiative to see portfolio growth.
How to play the cycles
To be a master cyclist, it’s important to address the market holistically. Ignoring certain components which are illustrated below can lead to you developing an ignorant bias at the expense of your portfolio. The real financial success comes from the time you spend educating yourself, and grouping your research into the categories, but more importantly understanding how they fit together.
- Macroeconomics
- Technical analysis
- News and sentiment
- Fundamentals
How they all fit together
As displayed in the chart, the total crypto market cap has been following a multi-month-long down cycle, from which it is currently breaking out.
The bearish trend has been driven by several factors: the fear of inflation and the Federal Reserve’s (FED) policy were in the process of being priced into the financial and crypto markets ever since inflation got out of hand in November. The charts were merely mapping out emotions in real-time. And as we know, there is no market more emotional than that of crypto!
But cycles are, by definition, cyclical. And now the charts are beginning to look hopeful again.
Nothing happens in a vacuum. So, just as the technical analysis points to a potential reversal, we’re also seeing an inflow of bullish news.
Consider where we’ve just come from
November 2021 was the beginning of a bearish cycle, right at the peak of the markert forth. We began to descend the mountain’s cycling trail, and by the end of December, Bitcoin was down 19%, facing its largest monthly loss since May 2021.
Soon after, The Bank of England had just declared that “Bitcoin could become worthless”. And countries such as Russia and India threatened laws to impose harsh restrictions on digital assets. Against a backdrop of Covid and a hawkish monetary policy stance from the FED, these announcements only induced even deeper fear into an already fearful market.
Today, the tables are slowly turning, and with that the narrative and sentiment too.
Where are we today?
Are we about to climb the mountain again? Currently, the price of Bitcoin is over $45,300 and up over 13% since the beginning of February. There seems to be a clear correlation, and perhaps causation, between the inflow of positive events, changing technicals, and overall sentiment.
Russia, in a turnaround, has begun drafting laws that will define crypto as an “analogue of currencies” instead of digital financial assets.
India tacitly legalized crypto (by disproportionately taxing it..!)
And in a huge move, KPMG Canada added Bitcoin and Ethereum to its balance sheet sending a very strong message to institutions.
BlackRock will now be allowing its clients to trade crypto through Aladdin (short for “Asset, Liability, Debt and Derivative Investment Network”, which is the asset manager’s integrated investment management platform.
Is news (good, or bad) reflexive?
Have you ever thought as to why negative (or positive) crypto stories tend to circulate all at once?
What’s fascinating is how the recent positive price action (the Bitcoin breakout) came right before the KPMG announcement, or the news of Russia accepting crypto as a currency. As Ran pointed out in the show today: Do you really think the media outlets were waiting for a break of trend before publishing the news? Or for the MACD to cross bullish? Or for the Stochastic RSI to find the lows?
They weren’t.
Mastering emotions and spotting cycles before they cascade
Human psychology is unintentionally reactive to its environment. When we don’t have systems in place to deal with negative events, such as the May crash, this can leave us perplexed and can lead to us closing positions far too early. NGMI. It’s best to cycle through the news and remain constantly proactive, rather than reactive.
On the way down, it’s important to notice that the candles tend to have longer wicks and trade more volume. Often, this is because institutions dump first. They do so in a concentrated manner, exploiting human psychology. Often, retail investors leverage into the dips and get rekt by being overexposed.
Play the convergences (and divergences) of cycle-determining factors
As we established earlier, there are times that the fundamentals are sweet but the news is sour. This is a recurrence within crypto, and should start to be viewed as an opportunity. Eventually, there will be a realignment of price, fundamentals, news and macro – all at once!
Such divergences thus present an opportunity for us to exploit.
An example of when you could have profited was on the announcement of the Omicron news. Initially, the news was not immediately priced into the cryptocurrency markets. There was a lag. And yes, there was plenty of time for us retail investors to digest the news and make a well-informed decision before the crash.
Whilst the fundamentals of the projects remained the same, the macro outlook worsened, presenting opportunities for investors to dollar-cost average (DCA) into stablecoins and perhaps explore DeFi protocols. It also presented extremely favorable buyback opportunities, if you were able to look beyond the noise. The market, when it did react, arguably overreacted.
Covid-related FUD had previously severely dampened markets, which everyone was made aware of in March 2020. Knowing this, it was in both hindsight and foresight, easy to spot and make a proactive decision with regards to your portfolio.
Banter’s take
(Crypto) cycling is a lucrative sport for those who train consistently, but it’s not without its dangers: It takes a holistic approach to master the art.
The top cyclists learn about the possibilities and probabilities, and place their bets accordingly. Understanding how market cycles work will give you an unbeatable investor edge. The ability to use these insights and market data, in order to position yourselves for the profits (without experiencing max pain in periods of downturn), is the difference between making great returns and life-changing wealth.
