– By Your Trading Mentor, Trading Angel
KNOWLEDGE IS POWER
Crypto currency is incredibly volatile which can be great if you are a crypto trader who is able to buy low and sell high, but while that concept may sound simple in theory it proves to be somewhat more difficult in reality. When you attempt to buy low, what kicks in is some kind of fear that actually the hype is over for good, it was just a bubble and any money invested will be lost for good. Then the bull market takes off without you, and you don’t actually have any money to put in. By the time you’ve found some extra cash you’re happy to lose, in theory, you invest in crypto and then the biggest crash of all time appears to follow. How did it go up non stop all year long and the very second/minute/hour you invested, the markets crashed and never stopped?
Well, the crypto currency markets follow a cycle which has four phases and if you understand how the cycle works and what it looks like then you can anticipate when the big moves up and down are likely to happen. This can be really useful as knowing which phase you are in not only can give you a better idea as to whether you want to be scaling in or scaling out but it can also help you time your moves so that you are prepared and ready to act to so the market doesn’t run off without you.
So in this blog post I’m going to talk you through the crypto market cycle and the four phases within it. I’ll explain the characteristics of each of the four phases to give you an idea of what you want to be looking for, and I will also be letting you know what phase we are in now and therefore how you can be prepared for something pretty big which is approaching next year (spoiler alert, it’s the bitcoin halving!). I will also be sharing with you my personal investment strategy for bitcoin, what I’m doing currently and what I plan to do over the next couple of years
Before we get into this I’d like to make this disclaimer: cryptocurrency is very risky and volatile. This information is based on past data and is no guarantee that just because this has been the previous cycle the markets have followed, that they will continue to move in this way. Trading should only be done with surplus money which you can afford to lose after all necessary expenses are been paid. It is certainly not a get rich quick scheme and should never be done with borrowed money.
So the cypto market cycle typically last for four years and has four phases within it, with each phase lasting about a year. The bull run tends to be triggered by the bitcoin halving. The bitcoin halving is one of the key moments for crypto traders. The next bitcoin halving is due to happen in April 2024. The halving means that the reward for mining is cut in half. In the next bitcoin halving the block reward will fall to 3.125, eventually the impact of the halving will erode the value to zero.
Bitcoins underlying technology, blockchain, consists of a network of computers that run Bitcoin’s software and contain a partial or complete history of transactions occurring on it’s network. Each full node is responsible for approving or rejecting a transaction in Bitcoin’s network. The node conducts a series of checks to ensure the transaction is valid. Each transaction is approved individually, this only occurs after the transactions contained in the blocks are approved. After approval, the transaction is appended to the existing blockchain and broadcast to other nodes. Adding more nodes to the blockchain increases its stability and security.
THE FOUR PHASES
STEALTH PHASE or sometimes called the accumulation phase
MARK DOWN PHASE
This is the start of the crypto market cycle. There isn’t a lot of action happening here. The moves are very small and the market moves very sideways. Not too exciting.
There is a bit more movement in this phase, we might see a small move up and maybe a bear trap. A bear trap in trading terms is when the market is in an uptrend and then we get a sudden and sharp move down. It might break support and look like the market is going to start moving down. Those who were quick to sell end up getting stuck in a weak trade as the market then makes a swift move back up.
This is where all the excitement happens. The mania phase is where crypto gets a lot of media attention and there is a lot of enthusiasm from the bulls. We get a very steep and sharp move up.
MARK DOWN PHASE
This is the bear market which follows the bull market and is pretty much just a sharp move down.
WHICH PHASE ARE WE IN NOW?
So now we have had a look at how these phases look lets go a bit deeper into when they take place. So the bitcoin halving is part of the second phase, the awareness phase, as this is what triggers the bull run. And we know that the bitcoin halving is happening next year in April 2024 which means that right now in 2023, we are currently in phase 1, the stealth phase. So if you are a crypto trading enthusiast this probably makes a lot of sense to you as bitcoin is very static at the moment and there really isn’t much movement at all. Let’s just call a spade a bloody big shovel and say its been boring as being a crypto trader in 2023. BUT having said that we are actually at a really interesting time in the crypto market cycle if you want to put a positive spin on things. If the bitcoin halving is anything like previous years it could present quite a good opportunity to start scaling in. I also think it’s really helpful to know so that you can start planning ahead and put money aside and plan your trade entry and exit strategies. So here is how I am planning on approaching the next bitcoin halving including my scaling in strategy.
I’ve started putting money aside for next year as I don’t want to get to April 2024 and realise I don’t actually have anything spare to get involved with should we start to see the bitcoin bull run being triggered like it has on previous cycles. And again, I will make the point about bitcoin and crypto currency being extremely volatile and unpredictable, so the last thing I want to do is to start panic accumulating money to trade with if I start to see the market moving up. When you trade with money you can’t necessarily afford to lose, some weird trading psychology kicks in where you start second guessing everything and this is exactly how traders end up get stuck in that bear trap we talked about earlier.
Based on past data and the crypto market cycle I have described above, each phase lasts approximately a year which means I have plenty of time for my full scaling in and scaling out strategy. I can use 2023 to accumulate money I would like to start investing next year should I see things going to plan. If I start to see opportunities to scale in early 2024 I will use the accumulated cash to scale in slowly at this point and to monitor the market to see if it continues to move up and if we do get those big moves which we had on the previous bitcoin halving then I will continue to scale in for the year.
When you start scaling out you’ll want to consider the capital gains tax regulations in the country you’re in. In the UK where Trading Angel is based you have to pay 20% capital gains tax on any profits which means you can minus the amount you deposited from the total you are withdrawing and that is the taxable amount. You are also allowed £6,000 as a personal allowance each year before you need to pay CGT so in theory you could withdraw just £6,000 each tax year if you wanted to scale out slowly and reduce the amount you pay. Just be mindful that you might need to take more out before the bear market so if this goes over your annual allowance, overall its probably better to pay more tax but have a larger withdrawal rather then lose your profits to a crash! As my dad always said to me, having a huge tax problem is a good problem to have!
Your trading mentor, Trading Angel x