Bitcoin Exceeds Power Level 9000 Again! And There are Some Lessons to Be Learned In Terms of Market Psychology
Bitcoin and altcoins have been on what increasingly feels like an epic bull run after months of correction. This set of events can teach us about the nature of cryptocurrency culture and markets.
I’m prefacing this article this way because although price is being discussed here, the actual price tags aren’t the point. Likewise, although I’ll discuss ways in which to approach crypto in an environment like this, investing is not the point either.
The point is to examine the volatile nature of cryptocurrency, in both market mechanics and the human condition, to be better understand our current environment, so one might better be able to make their own choices about how to proceed when it comes to trading and investing.
The goal is to produce the sort of article I wish I had read when I first dealt with my first crypto bull run (one that was honest about crypto’s risks, rewards, and history instead of being a one-sided shill-fest or FUD-fest that left me unprepared for the subsequent rallies and corrections).
Of course, to discuss the more philosophical aspects of crypto markets and human behavior, we will need to discuss prices and other aspects of crypto markets a bit. So onto that.
Here is a very rough sketch of what the prices have been like recently: Bitcoin broke $9.3k and Ether $700 on April 23rd – 24th, after having gone as low as $6.5k and $370 respectively in early April 2018. Before that they had been as high as $11.6k and $970 respectively in March. Meanwhile, alts saw a similar trajectory in that period.
Just like everything was pointing at a crash once $11.6k broke, and we started the decent to $6k, today everything has increasingly been pointing toward a bull run of the sort we haven’t seen since 2017.
- The media was extremely bearish, and now it is extremely bullish again. It is back to featuring talking heads with $50k projections (that wasn’t a thing for most of 2018).
- The GBTC and Kimchi premiums paid by GBTC investors and South Korean crypto fans are inflating (these tend to inflate as prices and sentiment turn bullish).
- Crypto is almost fully ignoring indicators like RSI on longer time frames and instead is just running after every little dip (this was very common in the bull run of 2017; it was uncommon from the January 2018 correction on).
- All the bullish and bearish setups in crypto charts have been manifesting as bullish price action (bull flags resulting in bull runs, bearish head and shoulders patterns resulting in bull runs, bear flags turning into bull runs, bearish MACD crossovers resulting in bull runs, bullish MACD crossover resulting in bull runs, etc.).
- Prices have constantly been in the green for most coins on a daily basis with very few breaks in between (also common in bull runs).
- Crypto groups are alive and active again (that wasn’t true for most of 2018). Slowly sad bear memes have turned to “power level 9000” memes, and soon we may even see lambo memes again!
- And most of all, the bulls are completely overwhelming the bears on the exchanges in a way that can only be compared to the way in which the bears overwhelmed the bulls a few weeks back.
Perhaps this is a result of everyone coming back to crypto after tax season, the first signs of another wave of adoption, an epic pump from people with pockets so deep the average person can’t fathom, the bears luring us into a giant bull trap with free candy, or just a change in collective consciousness. It really doesn’t matter.
The “why” is an aside here, because the fact is crypto is on a run, and when it is on a run like this there is no limit to what it can offer as the FOMO and pumping continue to ramp up.
Further, things can happen quickly in times like this, so we don’t have much time for thumb twiddling and contemplating.
This can all change in a heartbeat, which you should know if you have ever looked a crypto chart, but this is where we stand right now.
Evolution deems it necessary to respond to our immediate environment. We can use our human logic to plan for the next environment we might face (contemplating past events and preparing for future outcomes). But if we want to survive our current environment, we have to adapt to the here and now.
To adapt it’ll help to internalize the lessons that can be gleaned from the manic-depressive trend changes of crypto.
So what are those lessons? I think they can be illustrated with the following collection of logical points:
- Crypto has been historically volatile. It is an intense bubble and bust economy that could easily be described as a series of pump and dumps. This means one should expect big and sudden upward and downward movements.
- Although crypto has had some notable long spurts when it was bullish (like 2016 – 2017), crypto spends a lot of its time in dump mode, especially if we consider alts and not just Bitcoin. It was like this for most of 2018. However, it is generally dumping because it got epically pumped prior to that. This is what happened in late 2017 and early 2018.
- Pumps and dumps don’t have to be orchestrated by big players and pump and dump groups. Instead, our natural human emotions of Greed and Fear go a long way toward organically causing the volatility we see in these markets. These human emotions, plus speculation and credit, is very roughly what creates the stages of economic bubbles. Greed inflates the bubble, and Fear causes it to pop.
- We were in a Fear phase for most of 2018, and the bubble was popping. We now are clearly in a Greed phase, and the bubble is inflating again (or at least trying to inflate).
- Assuming one wants to be in crypto, the best time to be Greedy is at the end of the Fear phase, and the best time to be Fearful is at the end of a Greed phase.
- We can’t know for sure when phases are starting and ending. So we have to look for signs and accept that we are bound to miss ideal entries and exits.
- In retrospect we can see that the low of $6.5k where everyone was depressed and media and analysts were gloomy was actually an accumulation phase for the big players. It was the end of a Fear phase. While people sold out of Fear, big players accumulated on the exchanges and over-the-counter markets. Watch out for the other side of this where the media is stoked, the Joes and Janes accumulate, and the big players sell.
- Next was a disbelief rally to $9k that played out for about two weeks, we are just at the end of that now. The next leg is likely to turn into full-on mania if it keeps going, or will simply bring us back toward correction and continue the bear market we have been in since the January correction (no one can know, but historically this has been the case in periods like this).
- To the last point, looking at the charts, we can see that sometimes phases like this end up being failed rallies within larger bearish patterns and sometimes phases like this end up being full on bull runs to all-time-highs.
- Since it could be a bull run to an all-time-high, it would be unwise to fully dismiss the possibility of this and remain in the state of bearishness the conditions of the previous market have inspired.
- However, since this could be the tail end of a failed rally. It could be the time where everyone starts being bullish and those who accumulated at $6.5k take profits. We don’t want to get excited and overextend ourselves to the point where we become unable to adapt if things should go in an unexpected direction. Historically speaking, FOMO buying at the height of mania has been a really bad move. The height of mania is unlikely to last more than a week or two, however, so unless you get too hot and heavy too quickly, you should mostly avoid the worst of what it has to offer (while potentially even capitalizing on the best).
- Despite all that could go wrong, speaking logically, if you want to be invested in crypto, then you probably want to be in it when crypto is on a run. In order to be in for that run, you essentially need to put aside Fear and take risk. That means taking off the Fear hat and putting the Greed hat on (not throwing capital preservation concepts out the window, just being willing to take a risk).
- If there is ever a time to buy the dips and HODL and not have to justify it with something like “I HODL because I know I’m not good enough to day trade, hence being down $10k per Bitcoin,” it is times like this (when crypto is going up). In true bull runs even really good traders can’t beat HODLers (as the best one can do is HODL or take long leveraged positions and HODL those as the price goes up). It is only when the price goes down that being willing to trade out of crypto and take profits shines (but remember, this is often).
- Those who do HODL will likely want to have an exit plan in place. The gravity of bear markets is just as strong if not stronger than of bull markets. An exit plan doesn’t have to be “panic sell the bottom,” instead it can be “take some profits and let some ride.” Build an average position and hold out for a return to all-time highs, sell only if a certain price point is reached, etc. An exit plan is largely a personal thing based on tastes and tolerances; it is a good idea to have one.
- Crypto has proven time and time again that all the things I noted above are on the table. We could make a bee-line for all-time highs, or we could see everything crash down around us with very little time to get out. We aren’t working with fundamental values and solid time-tested investments; we are dealing with Fear, Greed, bubbles, and lightly regulated speculative crypto mania in a 24/7 global market with a history of being pumped and dumped. The stakes are high, few get out with the lambo as advertised, but the rewards for those who can weather the storm are potentially Stellar! If you are reading this article, you are probably going to try to weather the storm, and thus it can be helpful to prepare for what you could be up against.
Crypto markets are volatile, changes come on very quickly, and it is thus prudent to react to the trends as quickly as possible.
However, since the corrections and crashes are as epic as the bull runs, even risk takers are wise to approach with caution.
History tells us that a continuation of the correction and a return to all-time highs are both very possible at this point.
History also tells us that while prices almost never move in straight lines, that isn’t always true in the midst of a Greed phase or Fear phase in crypto.
In a true mania phase, where Greed is rampant, and the bubble is bubbling, there is no limit to how high the moon is (even when we see harsh corrections in between).
If you want to get to the moon, you need a plan for being on the rocket. If you are going to get on this rocket, you are likely also going to want an exit plan too.
For those who don’t want to deal with the insanity, but do want to be in crypto, one option is to dollar cost average and hold out for a big payday down the road.
Of course, we should not forget the most important lesson of all. Anyone who bought in late 2017 – early 2018 is still sitting on some pretty epic losses. We went to $9.3k from $6.5k, but Bitcoin was $19k three very long months ago and this is something we should take care not to forget.
I get not wanting to deal with crypto. However, if you do deal with it (if you read this much you are probably flirting with the idea or already in deep), you are wise to account for its fickle and volatile nature.
It is never too late to exit a bear market or too late to enter a bull run… except when it is.
Since we can’t know when that magic point is, it is generally conservative to average in and out of positions letting your Fear and Greed inspire you to HODL your cash or crypto in between.
Most investors and traders will not make it out of this with a lambo, however a lucky and/or skilled minority will make it out with some profits and not intense losses. If you can avoid the part where you fall on your face over and over until you learn, and instead pick up on a few truisms about what you are dealing with, you’ll be in a much better place.
Ether will likely not become the new Bitcoin, we likely aren’t going to get to $20k and stay there, and crypto is unlikely to replace currency. Instead, all pros and cons aside, we are just bubbling up again (as is standard for crypto in its current form).
Enjoy the waves, but do yourself a favor and commit your rose-colored glasses to the fire, for they show you nothing but illusions. Meanwhile, if you go into crypto with the manic greed and intense fear accounted for, you have a much higher chance of putting strategy of emotion and making it through your journey with a smile on your face instead of in a sweaty panic that has you checking your blockfolio like a mad person. There is a lot to enjoy about crypto, but to enjoy it, you have to take care to watch out for crypto’s many traps related to its bubble and bust nature.
Bottomline: In a volatile market driven by Greed and Fear, pump and dumps, and general speculative mania, bubbles are going to get blown. Bubbles always pop. If you don’t accept that going in and plan for it, I would say that, based on my experience talking to people, you have a very low chance of getting out of crypto with profits. You have a high chance of seeing them on paper, but a very low chance of locking them in. If you want to be on the rocket, you have to notice and react to the Greed phase early. If you want to lock in profits, you have to do the same for the Fear phase. If you don’t want to time that, you need a plan for reacting in between. In 2013 and 2017, we saw the Greed phase blow some very big bubbles… and the best thing to do in those for most people was HODL. We should not dismiss the idea that this could happen again now. Meanwhile, in 2014 and 2018 we saw those bubbles pop as fear set in and the best thing to do was jump off the rocket as soon as possible. We should not dismiss the idea that this could all come crashing down around us any moment. If that seems intense, that is because it is. Crypto seems cool on the surface, and it is but the price action is like nothing a normal person has ever dealt with. Hence it is important to pry open your third eye and get with the program quickly. Be aware and manage your Greed and Fear, and you stand a chance to avoid getting REKT by the giant speculative bubble everyone is currently pumping. For the few who don’t get REKT, for those who learn to balance their Greed and Fear like a semi-corrupted Jedi/Sith type thing (like Kylo Ren or Anakin before he goes full Vader), there will be better chances of lambos.
PROCEEDING WITH CAUTION: Even though we can see the bull run mania all around us, it NEVER makes sense to overextend oneself in any market or in any asset (unless you feel like gambling). This is especially true in an insanely volatile market like crypto. Crypto can and likely will see 5% – 10% drops in a matter of minutes, it really isn’t a matter of if, it is a matter of when. The same is true for the gains. Even with stops set and positions laddered those moves are hard to deal with. Of course, this is why it helps to jump onto the rocket as early as possible and to create an average position… it gives you more wiggle room to jump off again when the engines fail. The engine will fail again, but because we don’t know how far the rocket will go until it fails, we want to account for that. We can’t separate the asset from the market conditions and human nature. Thus, if we want to be invested in crypto, we have to learn the lessons it teaches and approach it in a way that avoids us getting thrown off the rocket face first onto the pavement (the most common outcome).
TIP: Don’t confuse a sharp and temporary correction with the end of the bull run. Look back at the parabolic run of 2017; there were a few deep but temporary corrections (especially when gains were made very quickly). Make sure to remain nimble, if you get stopped out, re-opening a position is always an option.
TIP: Right now we are in the “everything is on a bull run” cycle of crypto. This is very likely to end and switch to “only X coin or coins is on a bull run.” See “the crypto rotation.” Spotting this phase shift is as important as spotting the initial bull run. If one of the major coins starts to run and all other stagnate, it is likely foretelling a short few days to few weeks run for that coin. Dealing with that is much harder than dealing with a market wide bull run like we are seeing. In cases where one coin runs, you must react quickly and adapt. You can get around this by diversifying.
HODLing: Remember, to keep it simple stupid. You can always average into a range of top coins and HODL. This strategy is the simplest and is very effective if done early in a bull run or late into a correction. Still though, even in a case like this, it makes sense to have a gradual exit plan. If crypto has taught us anything, it is that it will take back most of what it gives a few times before it even considers offering more. Some will just HODL through that, but since 2014 – 2016 style events are possible, and since Mania and Greed constantly have people putting in more than they can afford to lose, it is smart to get an exit plan in place in case things don’t end well.
For some cryptocurrency investing tips that should help you avoid getting REKT by this epic bull run, see our page on crypto investing tips.