Cryptocurrency is one of the most exciting investments in the market today. The volatile price movements of digital currency can present a lot of risks. At the same time, experienced investor Daniel Calugar says there are also tons of opportunities for savvy investors who can follow the market cycle.
By mastering some of the hallmarks of the cryptocurrency market cycle, you can better know when to jump into the market and when to avoid it altogether. Here are some of those hallmarks to look out for.
One of the biggest and possibly most well-known market cycles in cryptocurrency is the halving of Bitcoin. Just about every four years, Bitcoin halvings occur.
These happen once for every 210,000 blocks released until the supply maximum of 21 million bitcoins is released by the network. When this happens, the number of rewards given to miners of Bitcoins is reduced by half.
Here’s a recent example of what this means. Between 2016 and 2020, 12.5 Bitcoins were released for every block every 10 minutes. When the halving occurred in 2020, that was reduced to only 6.25 bitcoins per one block.
Naturally, when the halvings occur, miners stop producing at the same rate simply because they’re not getting rewarded at the same levels. And, not surprisingly, Bitcoin’s price soars as a result.
When the May 2020 halving happened, Bitcoin’s price was around $8,500. One year later, it soared to nearly $50,000. Similar exponential increases occurred following halvings in both July 2016 and November 2012.
Recoveries after Flash Crashes
Flash crashes, unfortunately, occur with cryptocurrencies. Fortunately, savvy investors can take advantage of this by jumping in on quick recoveries.
Flash crashes can be caused by several reasons, including successful hacking attempts or financial news cycles regarding regulation.
In May of 2021, Ethereum experienced one of these, dropped 46% in one day from $3,441 down to $1,850. That’s a considerable loss of money in an extremely short period of time.
While many investors lost a lot of money that day, others saw it as an opportunity to pounce. In short order, Ethereum soared back up to $2,446. While that number was still a far cry from the $3,441 price, it still represented a 32% increase from the $1,850 bottom.
Many altcoins such as Ethereum, Ripple, and Litecoin are very closely correlated with the major cryptocurrency, Bitcoin. While it’s not a fixed relationship, it’s a trend that savvy investors can take advantage of.
Dan Calugar suggests investors follow the ratio between the prices of Bitcoin and other altcoins to help predict a rise or drop in the price. For example, the last time Bitcoin experienced a big price increase, so did Litecoin and Ethereum.
One thing to pay attention to, though, is that these altcoins can sometimes drop once Bitcoin reaches a new all-time high. That’s because investors will sell off their altcoin positions to jump into the Bitcoin market.
About Dan Calugar
Daniel Calugar is a versatile and experienced investor with a background in computer science, business, and law. He developed a passion for investing while working as a pension lawyer and leveraged his technical capabilities to write computer programs that helped him identify more profitable investment strategies. When Daniel Calugar is not working, he enjoys working out, being with friends and family, and volunteering with Angel Flight.