Crypto – or cryptocurrencies – are not just an investment tool but also a world full of emotions and psychological challenges. A repeating 4-year growth cycle in the crypto market has been recognized by many: three years of a bear market (decline), one year of explosive growth. So why do so many still lose money, even though they are well aware of this cycle? To answer that question, we need to delve into the psychology and emotions in each phase of the market journey.
4-Year Growth Cycle: Time and Market Psychology
A typical cycle of the crypto market usually occurs over 4 years, divided into bear market and bull market phases:
Bear Market (First 3 Years): The first three years are often when the value of cryptocurrencies declines or consolidates, accompanied by strong corrections. This is a phase where many are prone to losses due to impatience or overly high expectations.
Bull Market (About 1 Year): After the bear phase, the market will transition into a bull phase with strong growth. The value of cryptocurrencies can explode, bringing large profits to those who are patient. But many investors still make mistakes by not withdrawing profits in time or buying in too late.
A typical example shows this cycle through each phase of Bitcoin:
2014-2018: The bear market lasted 177 weeks, followed by 34 weeks of bull market.
2018-2022: The bear market lasted 157 weeks, with 47 weeks of strong growth.
2022-2026: We are currently in the bear market phase, with many awaiting the next growth surge, hoping to reach new highs.
Clearly, timing and patience are key factors, but it doesn't stop there – psychological factors are also a major barrier for investors.
Market Psychology: Emotions Drive Action
Each phase of the crypto market cycle is not just about price fluctuations but also generates strong emotions. These emotions significantly influence investors' buying and selling decisions, sometimes leading them to make wrong choices. The crypto market can be divided into three main psychological phases:
Red Phase (The Pinnacle of All Time): When the market peaks, investors' emotions shift from complacency and excitement to anxiety. As prices begin to decline, panic takes over, and many sell at a loss in a frenzy to avoid greater risks. This marks the beginning of a bear market.
Gold Phase (Accumulation): After prices have cooled off, investors experience a range of emotions from anger, disappointment to indifference and depression as prices move sideways. This is when experienced and brave investors start accumulating assets at low prices, preparing for the next growth surge. Confidence gradually gets restored, laying the foundation for the next growth phase.
Green Phase (Bull Market Emergence): When the market starts to rise again, investors' emotions gradually shift from optimism to excitement. As prices reach new highs, enthusiasm increases, and many rush to buy, hoping prices will continue to rise, even though they may already be high.
Why Do Investors Still Often Lose?
Understanding the cycle is only half the story – the important part is understanding and controlling your own psychology in each phase. Here are some main reasons why many people lose money:
Greed When Prices Are High: When the market peaks, excitement leads many to believe prices will continue to rise indefinitely. But when corrections happen, they are unable to react in time and suffer significant losses.
Panic When Prices Fall: During the bear market phase, when prices continuously decline, fear drives them to sell to avoid further losses. This often happens near the price bottom, leading to heavy losses.
Lack of Patience During the Accumulation Phase: Many investors cannot endure the sideways market phase, losing patience and leaving the market. This is a critical time to accumulate, but they miss this opportunity.
How to Take Advantage of the Growth Cycle?
To avoid emotional mistakes, investors need a clear and rational plan:
Clear Entry/Exit Planning: Set target prices to enter or exit the market, avoiding being influenced by short-term emotions. Use technical indicators, historical data, and news to make decisions based on logic.
Control Emotions and Patience: Stay rational, especially during the toughest market phases. Avoid being swayed by rumors and short-term trends.
Reasonable Capital Allocation: Never put all your money into one investment. Capital allocation helps minimize risk and ensures you always have a safe portion of capital.
Conclusion: Mastering Psychology – The Key to Victory
Knowing the cycle is good, but understanding psychology is the real factor that helps you avoid making wrong decisions. Crypto is a volatile and emotional market, but it is also this aspect that creates opportunities for patient investors who have plans and maintain control over their emotions. By using different phases to plan wisely, you will be able to seize growth spurts that many miss – and avoid mistakes caused by emotions.
