Right timing is the cornerstone of investing, as it determines whether the investment will be profitable or not. The guideline for any investment is, of course, to buy cheap and sell expensive. In practice, scheduling purchases and sales is perhaps the most difficult part of investing. When investing in cryptocurrencies, the timing of purchases and sales is more crucial than investing in traditional investments such as equities. In practice, perfect timing is impossible.
The Effects Of Inflation On Cryptocurrency
The crypto market has a clear correlation with the stock market, albeit with higher volatility. Currently, the rise in inflation and the pressure it creates to raise interest rates increase the risk in the market, meaning that values are discounted at a higher interest rate to date, which is also reflected in the uncertainty in the cryptocurrency market.
In times of uncertainty, investors seek security and stability for their money. For many investors, it is enough that over the most difficult times, the assets would make even a little more than the general inflation rate. Such hedge investments may include, for example, low valuation equities in traditional industries and debt securities.
Gold has been a shelter against inflation for thousands of years, but it has also suffered alongside Bitcoin and technology stocks. Why?
Investors expect central banks to raise interest rates, which has traditionally been seen as a negative environment for the gold exchange rate. Gold, like debt securities, does not pay annual interest, so it does best in an environment of low interest rates and controlled inflation.
As a summary, with the collapse of the market, cryptocurrencies are the first on the line of fire. Also, Bitcoin or other cryptocurrencies do not act as a safe haven or value holders, as people use to believe.
The price of Bitcoin , the first and most established cryptocurrency – plunged at the end of January, dropping 50% from its November high of $69,000. Ethereum also fell below $2,200.
It was the lowest both of the two biggest cryptos had been since July 2021. Bitcoin and Ethereum prices have gone back up some since, though Bitcoin remains below $40,000 and Ethereum below $3,000.
The cryptocurrency market typically moves in four-year cycles. Historically, a new cycle has always begun with the halving of bitcoin. The halving of Bitcoin has been the push for the start of the booming market, and the previous two price peaks for bitcoin were reached after about 1.5 years. The third half of Bitcoin’s history took place in May 2020 and we have been virtually in the emerging market ever since. In practice, if history repeats itself, the peak of this current cycle will be reached in autumn / end of the year. The emerging market is naturally followed by the declining market, so if you want to make a big return on your investment, you should schedule sales to the top of the emerging market. When exactly this peak is happening then, I have no clue.
Strategy Implementation And Timing
In a cryptocurrency market, a good rule of thumb is that most investments are worth making during a downturn. In the cryptocurrency foreign exchange market, the prices that increases during the emerging market are so large that investing in good projects during the declining market makes it possible to multiply the capital invested by several times.
My own strategy is to sell a large portion of my altcoin investments towards the end of the year. I’m pretty sure I won’t be able to make my sales when the rates are at their peak. However, the closer I get to the top, the better. It’s far more fun to get into the next downturn with good cash than to have to watch your holdings melt tens of percent in front of your eyes.
Perfect timing is impossible to achieve. However, there are a few ways you can improve your own chances of success. First, it is a good idea to schedule purchases and sales at several points. Personally, for example, I prefer to make monthly purchases during the downturn. I make sales whenever the prices have reached the target prices I have set myself.
You should also stick to your own plan. If you have decided to do something, you should execute the plan. Especially in a booming market, you can easily become greedy and not make the sales That you have previously decided. This is highly deceptive and numerous cryptocurrency investors have experienced it through the worst by holding their holdings over emerging markets.
Even today, the top 100 list of cryptocurrencies looks quite different from the previous uptrend experienced in 2017-2018. My own personal opinion is that only bitcoin is worth holding for longer.
The movements in cryptocurrencies are known to be stronger than any other form of investment. Even in a short time, exchange rates can rise or fall by several tens of percent, so the importance of correct timing in cryptocurrencies is remarkably important. Timing is ultimately what determines the return on investment.
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