In the case of cryptocurrencies, the moment of entry and exit from the market is very important. Due to its shallowness, their fluctuations often reach even several dozen percent a day, giving an opportunity for speculation and price manipulation. Especially in the long term, they are clear cycles where sudden spikes occur, accompanied by omnipresent euphoria and media hype. The market is mainly driven by emotions, so this euphoria attracts many new, inexperienced investors to the cryptocurrency exchanges at the very top of the speculative bubble. For this reason, most new users bear the greatest risk. Unfortunately, sudden increases end with equally sudden drops in overvalued coins, with time the media hype fades away, capital slowly drains away, investors often panic sell at a loss and prices reach new lows. Unfortunately, then there are much fewer new investors, and this moment is the best moment to enter from the point of view of risk and investment opportunity.
Diagram of the market cycle
In the picture above, we can observe the emotions that accompany the next phases of the market cycle. We can see exactly the same pattern when looking at the bitcoin value graph.
So we already know that the price of the cryptocurrency changes cyclically. In the case of bitcoin and most of the top cryptocurrencies, with each successive cycle the price rises much higher than before, but never drops below its previous lows. The most important rule of every investor is “buy cheap, sell expensive”, unfortunately, emotions often tell us completely different. We buy when the price climbs sharply, and we sell in panic on the lows for fear of losing everything.
As with any investment, we must try to minimize the risk. By buying a cryptocurrency that has just gone up sharply, we actually have a chance to quickly make up to several dozen percent of profit. On the other hand, we can easily lose these tens of percent. Of course, there are dozens of strategies and approaches to investment, but always shopping around old lows carries a lower investment risk than shopping far above the recent peaks. This is even more clearly illustrated by the simplified diagram of the market cycle.
To sum up, buy low, sell high 🙂 If you do not want to take the investment risk, you can take part in our free distribution of Janusz, thanks to which you will learn how to use cryptocurrencies in practice. The entry is not an investment advice.