When There is Blood on the Streets, and it is Your Own, See a Doctor (but Also Consider Building Your Crypto Position)

Crypto tends to move in fairly predictable cycles, this is that part of the cycle when everyone capitulates, panics, and eventually falls into despair. It is the popped side of a classic economic bubble. Luckily for crypto investors, this isn’t just “a bubble” it is a bubble in the crypto space (where bubbles are painfully common and markets are absurdly quick to form patterns).

NOTE: In the terms used in the header image we are either in fear / bull trap or capitulation / despair. Both eventually result in a rally in general, as you can see on the 2012 and 2013 charts also illustrated in the header image.

The History of Bitcoin Bubbles and What We Can Learn

This is part of an overarching cycle which offers chances for both big gains and almost equally big losses (for long positions at least). (keyword here is “almost.”)

Given that we are in the “almost equally big losses” part of a cycle that keeps repeating, we can look at history to get a sense of what might happen next (“might” being the keyword here).

There is no rule that says that there must be another run or that this part of the cycle has to stop at a reasonable point (reasonable points being the sort of points they stopped at in the past; see the chart above), but if history is a reliable guide then there likely will be another run and the overarching cycle will eventually renew at some point (thus resulting in a bull run at some point).

In my opinion everything thus far has looked like a predictable crypto cycle, in fact it has been so predictable that it has thrown me off more than once (as I had assumed things would be more unique this time given the way crypto made it into the mainstream in a new way; not the case so far).

Given that, betting that the grand cycle will continue is in my opinion still a solid move, while betting that this is the end is I think a short sighted move.

From that frame, the only question we really need to ask is “how far down do we go before we see a recovery / rally?”

There is no perfect answer to that last question, but when I look at the 2014, 2013, 2012, etc charts and a rough sketch of the internet’s version of a classic bubble (where we get terms like despair and capitulation) I tend to have a few solid guesses:

  1. It is unlikely we will hit the lows of 2017, those who accumulated in early 2017 are likely to keep profits. For Bitcoin to drop enough to take out those who invested in early 2017 we have to be at a point in the grand cycle like we have never seen in Bitcoin since its very first days where it was pennies (NOTE: We have however seen this in altcoins, just not Bitcoin). In historic Bitcoin cycles we never return to the prices we saw in the “stealth phase” (and rarely even return to prices seen in the awareness phase), instead we always keep a good chunk of the gains from the last cycle.  What we tend to lose, temporarily, is all gains from the mania phase (which in my opinion was about November 2017 – January 2018). For example in the first 2013 bubble we went from $20, to $260, to about $65 (but never back down to $20). If you then eye 2012, you can see that even if we had hit $20 it would have still seen impressive gains from 2012 – 2013 and flat for those who bought before the mania in 2013. Yeah, buying at $260 sucked in those times, it is like our $20k buyers today, but you had to suck it up and wait if you didn’t buy sub $65 before or after the bubble. Fast forward to late 2013 (the “2014 bubble”) and you can see it was the same general thing. Zoom in anywhere on the Bitcoin chart and you’ll see this general pattern play out. Thus, history hints we aren’t going to be seeing $500 or $1k BTC, even though we could see some much lower prices.
  2. There is always a chance that altcoins are going to have a harder time recovering (but those that make it will have potential for the biggest gains). Bitcoin and Ether are likely to recover, and in recent history alts have really stepped up their game to become serious players. However, this overarching cycle has always been more true for Bitcoin than alts. The reality is many alts have actually died in the history of crypto, even really popular ones. Especially in BTC prices alts tend to get closer to giving back all their recent gains and more. That said, if they make it, and we hit another mania phase, alts will almost certainly outpace Bitcoin.
  3. If it is like half the bubbles, this is very near the bottom. If it is like 2014 or the very early bubbles, we could still have some more downside to grapple with. In 2014 we continued to fall and then stagnate from a point like this, in other years this point was very near the bottom. I like to gamble, but I don’t like to gamble, so I am betting on either of these past cycles playing out myself.

Some Technicals

So the above is really about historic cycles and where we might be in this cycle. It is pure theory based on the idea that history repeats in markets (and specifically in the crypto market). Technical Analysis is really a similar thing, so let’s discuss some TA and augment the above.

Right now we have a few things going on. On one hand we have an oversold RSI and support levels from November 2017 and earlier kicking in. On the other hand we have absurdly low volume that likely represents panic sellers, profit takers, and HOLDers and those who already sold sitting on the sidelines.

Unless money comes in from the sidelines, or unless HOLDers start making only very good trades against the profit takers (unlikely), we are likely to be a little stuck. At best stuck means we move sideways, at worst it means we continue to grind down across the board.

If you want to see how bad it could get, look to 2014 for all coins and November 2017 for alts in BTC prices. The answer is “much worse.”

All that doom and gloom aside though, if one does look back and historic cycles they will note that the days / weeks / months before epic rallies always look dark. Everyone panics, trading volume drops, social media comments call lows with certainty, no one is bullish except the die hard fans, etc.

Also in these times you can see the oversold RSI, candles hitting the bottom of Bollinger Bands, BTC hitting support levels, etc. All the stuff we are seeing now. Any of this could signal a reversal, we just have to wait until one of these supports holds and if volume comes back to support the rallies at those supports.

Same Old Song and Dance

All that said, we see this same song and dance every time.

The technicals are showing patterns, the overarching cycles seems to be repeating, and bubbles form and pop.

Sometimes it seems like the critics are right, like in September 2014. They were sort of right, crypto died pretty hard. Looked like it might never come back… but like, it did. It came back, it came back hard, and dropped the world on its head in a wave of revolution and rampant speculation.

So what happens this time? Does crypto die the true death? Maybe. More likely though this is just the same thing that always happens, everyone panics, volume drops, bears push down market, profit taking melts away and becomes accumulation, people forget the sadness, market pumps, people start chasing the gains again, hundreds of billions come back into the market… now this time even more adopters get on the train… and eventually it is back up past those all time highs.

Do you wait it out and try to buy at that $3k level (or $1k, or $100, or wherever the carnage ends) or do you build an average position now? Do you short here, or do you go long? Or will you wait until it goes back up and help us push the market back up? Do you wait for some key signals of recovery like moving averages and volume? Never a bad play to be conservative.

There is no right answer. Instead there are a billion ways to play this. Still, historically the profits and glory go to those who DO play, not to those who give up and wait on the sidelines too long (wait too long and you might run into that buy-the-top problem again).

No one bought Bitcoin at a penny and kept it to today by giving up. On the same token, anyone who bought Bitcoin at a penny and held until today has lost 90% of their crypto wealth on paper time and time again… sometimes for long months on end.

It is impossible to say what the right move is here, but I do know that if you KNOW you want to be in crypto, then it is time like this when you start getting serious about building your position for the future… That is, if you look at the above charts and think “yeah, I think this could be a decent entry point.” If you look at the above charts and see the end, then by all means run. This is all about how you play it, I can’t tell you that part. I can only ramble on and show you some charts and such 🙂

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What do you think?

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