What is Signalling a Bull Market in Cryptocurrency?
Uncovering the Comprehensive Indicators Beyond Price Rises
In my last post I asked you, my readers, to help me design the future of Move the Needle newsletter. And I want to thank you for sending in your questions. Some replied here in Substack, and some of you messaged me on Instagram (psst … can you follow me? I’d be so grateful 🙏)
Today I am answering a question about “What signifies a bull market apart from certain coins rising in price?” Let’s get going!
Setting the scene
I have many friends who are great technologists, understand blockchain, and yet when it comes to investing in cryptocurrency, they hesitate. I understand cryptocurrency market looks crazy from the outside: unbelievable swings in asset prices, high levels of volatility and an avalanche of news on both positive and negative ends of the spectrum. It’s enough to scare and make you stay away. This is why I’ll try my best to explain the bull market concept breaking it down into bite-sized pieces that anyone can understand.
Understanding Market Cycles in Cryptocurrency
First thing you need to know is that the financial markets, cryptocurrencies included, move in cycles. These cycles can generally be segmented into bull markets, bear markets, and the so-called sideways or consolidation phases.
A traditional financial market cycle is about 10 years, whilst in cryptocurrency we have shorter cycles of 4 years. The direction of the market is given by the behaviour of the market participants, buyers and sellers, who in turn take decisions based on a multitude of factors.
Some of the factors are about what new technologies are coming up, progress made by seasoned blockchain protocols, new releases of protocol updates, changes in governance at project level, new ideas, new crypto regulation, be it more relaxed or stringent, and so on.
Explaining the Cycle:
A bull market is characterised by rising prices and optimism. It's when the glass seems half full, and then some.
Bear markets, on the other hand, are marked by falling prices and a general sense of pessimism.
Finally, sideways markets occur when prices don’t make significant moves in either direction, suggesting a period of indecision or balance between buyers and sellers.
It may sound contrarian but a bull market starts when we hit the bottom. This is the 1st phase of bull market, when some major event happens, like the 13th March 2020 when the cryptocurrency market, along with global financial markets, crashed in response to the economic uncertainty caused by the COVID-19 pandemic, with Bitcoin losing half its value in a single day.
The “Great Crypto Crash” in 2018, saw the crypto market devaluing by 80% from it’s peak In January of 2018, largely due to regulatory pressures, including further crackdowns by China and South Korea, and fears over ICO scams and market manipulation.
Market reaches the bottom because major players take huge risks (e.g FTX collapse in Nov 2022, Luna, Celsius, Alameda, Genesis, Grayscale) and things go sideways, many times resulting in regulatory pressures stifling progress, and investors losing their belief in the market. Usually, market never goes bellow these low levels in following cycles.
Then we have the crypto believers starting to buy back to support the market and stop the dump. And then the 2nd phase of the bull market starts: after a year of sideways moves, people start buying again as they see that market is no longer going down. ETF announcement, for example, was a major driver of the stage we are in now, and we see some euphoria coming back. Yet again driven by people who are seasoned, with long term interest in the market, larger players. This is the phase of the headlines, such as the ETF, Bitcoin Halving event, and some protocols raising huge amounts of funds.
The onset of a bull market is typically signalled by several factors, including growing investor confidence, possibly spurred by innovations in technology or favourable regulatory news. It's not just about rising prices, it's about why those prices are rising.
3rd phase of the bull market comes a year later, and this is what I call the mania phase, where your grandma has most likely heard about crypto and your taxi driver is giving you tips. This for me is the time for caution. Be careful who you follow, where you get your information, who’s telling you to invest, where and why. In my opinion, THIS IS NOT THE TIME TO INVEST. This is the time to wait for a market correction, when the market prices will start ignoring the hype and go back to the real value of the coins.
Of course we can have the whole debate of “what gives value to a coin” but maybe in another post 😉 👇.
Maybe leave a comment if you’re interested in this topic and I’ll write about it!
The Anatomy of a Bull Market
Now, let’s look into what specifically indicates that we’re in a bull market:
Increased Trading Volume: Imagine a bustling market square. The more people you see buying and selling, the more popular and lively it appears. That's essentially what increased trading volume signifies in the cryptocurrency market - a healthy level of activity and interest.
Positive Sentiment: This can come from media buzz, investor optimism, or even social media trends. Positive sentiment fuels the market, encouraging more people to buy in and thus, driving prices up.
Broad Market Participation: When not just one or two, but a wide array of cryptocurrencies are on the up, it’s a strong sign that we’re experiencing broad market health, not just isolated incidents.
Recognising the Shifts – From Bull to Bear and Beyond
You need to understand when a market is about to shift direction so that you can position yourself correctly and avoid losing money. The market phase shift is also important for innovators and project teams as it will give them an idea how difficult or easy it will be to raise funds and how long their current funds will sustain their day to day operations.
The Swing to Bear Markets: Several factors can trigger a shift to a bear market. It might be due to the market becoming oversaturated, significant regulatory changes, or impactful negative news like major protocol hacks or exchanges failing, etc. It's a reminder that what goes up can also come down.
What makes a market oversaturated?
Market over-saturation in the cryptocurrency world means too many projects competing for investor attention and funds, leading to a decrease in prices, investor fatigue, and decreased liquidity. It's a sign that the market might be due for a correction, where only the projects with solid fundamentals, real-world applications, and investor confidence are likely to survive and thrive.
Why regulatory changes have an impact on the market?
When a government decides to introduce new rules or adjust the existing ones, it changes the rules for how the crypto market operates. If these new rules make people feel safer or more confident about buying, selling or building new projects, then more people might decide to join in, which can push the prices up. However, if the rules make it tougher to trade, or create legal uncertainty, people might be hesitant to participate, leading to a drop in prices. Essentially, when governments tweak these rules, they directly affect how people feel about trading cryptocurrencies (hopeful or fearful), which in turn influences the market prices.
Sideways Markets: These periods might seem uneventful but are critical for the market to ‘catch its breath’. It's a tug-of-war between bullish and bearish sentiments, where neither side gains significant ground. This is the phase where many projects and protocols with real-life use cases continue to build their products and services, regardless of the market sentiment or trend.
Signs of Transition: Sharp increases in sell-offs, a sudden drop in trading volume, or drastic news can all be signs of a market shift. Keeping an eye out for these signs can help you anticipate changes. And then we go again into yet another cycle.
Do you find all this information useful but you don’t know where to start?
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Navigating the Phases of a Market Cycle
Each phase of the market cycle offers different opportunities and challenges:
Strategies for Bull Markets: I get it, market rallies are exciting! That surge of optimism makes you want to jump in with both feet. But listen, it's important to keep a level head too. Yes, times like these are great opportunities to grow your investments, no doubt about that. However, we've all been caught up in FOMO before and made rash decisions we later regretted, am I right?
My advice is to temper that enthusiasm with some healthy restraint and diligent research. Don't just get caught up in the hype. Take a step back, look at the fundamentals, read the analysis from experts you trust. If an opportunity passes your scrutiny, then by all means, capitalise on it! But don't just dive in blindly chasing gains. That's how people end up with more regretful tales than fruitful journeys in their investing story. Stay rational, stay disciplined, and you'll be in a better position to make this bull run really work for you long-term.
Preparation for Bear Markets: Yeah, I know - bear markets can feel like a dark cloud over everything. The mood gets kinda gloomy and dismal. But times like these are precisely when you want to double down on having a nicely diversified portfolio. It's not just smart, it's essential to ride out the storms. Sure, bear periods will test your nerves and convictions. But they also open doors to deals and entry points that were nowhere to be seen during those cheery, frenzied bull runs when everything seemed overpriced. It's all about shifting your perspective and being willing to avoid the pessimistic herd mentality to find the upside.
Making the most of Sideways Markets: Ah yes, the boredom of the sideways market. When it feels like everything is just idling, catching its breath. Don't mistake this period for being boring or insignificant though! To me, these are golden opportunities to really gather intelligence and lay the groundwork.
Use this time to go into deep research mode. Study up on the assets and projects you're interested in, dive into the fundamentals. Sideways movements let you make more calculated, strategic investment decisions without the hectic swings of a bull or bear throwing you off. It's the perfect time to shore up your positions and accumulate your targeted assets patiently.
Navigating Forward
To all the crypto-curious, the relentless opportunity seekers, and the visionary builders out there - understanding these market cycles is like a superpower. Once you start to recognise the patterns and rhythms, you'll know just when to be aggressive in spotting openings, and when to batten down and let the storms pass over.
It's equal parts art and science really - taking the long view, while still being nimble enough to play the short game. Having a strategy to embrace every part of the cycle, turning challenges into advantages.
So, to my fellow curious minds, technologists, founders, and investors, let's keep our eyes wide open, ready to learn and adapt. Here's to mastering the art of cryptocurrency investment, one insightful step at a time.
Until next time, keep safe!
PS: Last week I got some great news: my last mentee got her dream job as a Product Manager and I felt so proud! It’s something else to feel you made a difference in someone’s professional life, and maybe even on a personal level.
Veronica - what a great analysis. You have helped me to understand the market and also how to invest. Congrats on helping your mentee get a job. I also love your voice. Keep going.
Love this!