1️⃣ Understanding the Three Major Rules of the Cryptocurrency Cycle

Not walking in a straight line must walk in a curve

The market cycles in the cryptocurrency world show that after a big rise, there must be a big drop, and after a big drop, there must be a big rise. The cryptocurrency market is like a tide, always rising and falling. However, investors usually only see price fluctuations without realizing that there is actually a causal relationship. The process of rising accumulates energy for falling, ultimately leading to the drop, while the process of falling accumulates energy for rising, ultimately leading to the rise.


Cycles are not the same; they are only similar.

History does not repeat the details of the past, but history does repeat similar processes. The cryptocurrency market is always rising and falling, very similarly, but how high it rises and how deep it falls are different each time. This is due to the influence of randomness.

Therefore, the big trend of cycles, that is, the general direction can be predicted, but the specific movements, i.e., the extent of rises and falls cannot be predicted.


Take fewer middle paths and more extreme ones.

The cryptocurrency market cycle fluctuates around the basic trend line or average line. After the market reaches an extreme, it will always revert to the center point or mean.


However, after the market returns to the center point, it does not stop but continues to rush towards the opposite extreme. Therefore, the cryptocurrency market either moves to an extreme or towards an extreme. The market only experiences continuous rises and falls, either rising to extremes or falling to extremes.


Analyzing the cryptocurrency cycle

The cycles in nature are quite regular. However, the cycles of economic activities involving human participation, cryptocurrency projects, and cryptocurrency investment activities are very irregular and prone to extremes.


Because human nature determines that these cycles either move to extreme highs or extreme lows. To study cycles, one must first study humans; to study humans, one must first study human nature, and the manifestation of human nature is psychological emotion.


2️⃣ Psychological Cycle of the Cryptocurrency Market

The emotional fluctuations in the cryptocurrency market are like the movement of a pendulum. This pendulum swings back and forth, creating an arc, and the center point of the arc perfectly describes the 'mean' position of the pendulum.

But in fact, the pendulum stays at the center point of this arc for a very short time, just a fleeting moment.


On the contrary, the pendulum spends most of its time swinging to extremes, with an extreme point at each end of the arc. The pendulum is either swinging towards the extreme point or away from it. However, whenever the pendulum approaches the extreme point, the inevitable result is that it will reverse direction and swing towards the center point of the arc, sooner or later; it will definitely reverse.


In fact, it is the movement of the pendulum swinging to the extreme point itself that provides energy for the pendulum to later reverse direction and return to the center point.


The cryptocurrency investment market also forms a working mechanism similar to that of a pendulum:

From excitement to frustration;

From celebrating good news to worrying about bad news;

From prices being too high to prices being too low;

From greed to fear;

From optimism to pessimism;

From risk tolerance to risk aversion;

From trust to suspicion;

From believing in future value to insisting on having tangible value now;

From rushing to buy to panic selling.


This phenomenon of swinging from one extreme to another is the most certain characteristic of the cryptocurrency investment world. Cryptocurrency investors' psychology is like a pendulum, often swinging to extremes, either towards one extreme or the other. Investors rarely stay at the center point, seldom walking the happy and moderate path.


From the perspective of risk-bearing in investment, cryptocurrency investors' attitudes towards risk are also cyclically fluctuating, from excessive risk aversion to excessive risk tolerance.


3️⃣ Market Cycle of Cryptocurrency

The cryptocurrency market cycle is the most important market cycle.

The cryptocurrency market cycle has three characteristics:

The first characteristic is that from a multi-level composition perspective, the cryptocurrency cycle encompasses all other related cycles, along with the influence of randomness, forming the volatility cycle of cryptocurrencies. Moreover, the cryptocurrency cycle is influenced by other cycles while also affecting them. In simple terms, fundamentals plus psychology determine the market. The market, in turn, affects the fundamentals and psychology.


The second characteristic is that, in terms of volatility, prices can deviate significantly because cryptocurrency investors are not entirely rational economic agents; their psychology and emotions can fluctuate greatly. Therefore, the buying and selling prices in the cryptocurrency market can deviate significantly from their intrinsic value, and investment opportunities lie in this, as do the risks.


The third characteristic, from the process perspective, is that both bull and bear markets have three stages. The three stages of a bull market are:

A few people notice improvements in the project's fundamentals, and the price rises slightly;

Some people perceive improvements in the fundamentals, and the price rises moderately;

Everyone is convinced that the fundamentals have improved, and the price rises significantly.


Conversely, there are three stages of a bear market.

In summary, using principles similar to Buffett's investment wisdom:

Those with foresight are the first to act,

While those who follow at the end are often blind.


In the third stage, why is there a wave of crazy increases at the end? It's like a tug-of-war; in the last phase of a bull market, all sellers suddenly 'surrender' and join the buyers, resulting in a crazy market rise. However, because no one is selling anymore, the market ultimately cannot rise, and at the slightest disturbance, the market starts to reverse and fall.


So, there are often people saying: As soon as I buy in, the market starts to fall.


Because you are one of the last group to 'surrender.'


4️⃣ Three Steps to Deal with Cycles

Understanding the three major rules of the cryptocurrency cycle serves one purpose: to respond to cycles, utilize cycles, and thus gain more profits.


In summary, dealing with cryptocurrency cycles involves three steps: Awareness, Courage, and Preparation.

Chinese people often say, 'having courage and insight.' In fact, it is having insight first, then having courage. Having courage and insight is not enough; one must also be prepared in case of emergencies.


Be Aware - Where is the cryptocurrency market in the cycle now? Understand the present to grasp the future.


Taking the market's temperature means using some key indicators to measure the market's valuation level and whether market sentiment is overheated or too cold.

The emotions in the cryptocurrency market are very contagious. In a bull market, it is very difficult to remain sober while everyone else is intoxicated.


Having Courage - Be fearful when others are greedy, and be greedy when others are fearful. This also reflects the investment wisdom similar to Buffett's in the cryptocurrency world.


We previously understood that the volatility of the cryptocurrency market is always cyclical. The higher the market rises, the greater the likelihood of a fall; we should sell early. Conversely, before the market falls, the higher the market rises, the greater the likelihood of a fall; we should also sell early. Conversely, the lower the market falls, the greater the likelihood of a rise; we should buy in time.


But it's easier said than done. In a bear market, everyone is panicking; how many have the courage to bravely buy in? In a bull market, everyone is greedy; how many have the courage to bravely sell and exit? However, to succeed, one must do so; no wonder successful investors in the cryptocurrency world are often just a minority.


🟨Be Aware - Where is the cryptocurrency market in the cycle now? Understand the present to grasp the future.

Taking the market's temperature means using some key indicators to measure the market's valuation level and whether market sentiment is overheated or too cold.


The emotions in the cryptocurrency market are very contagious. In a bull market, it is very difficult to remain sober while everyone else is intoxicated.


🟨Having Courage - Be fearful when others are greedy, and be greedy when others are fearful. This also reflects investment wisdom similar to Buffett's in the cryptocurrency world. From the perspective of risk-bearing: the less cautious others are, the more cautious you should be.


We previously understood that the volatility of the cryptocurrency market is always cyclical. The higher the market rises, the greater the likelihood of a fall; we should sell early. Conversely, the lower the market falls, the greater the likelihood of a rise; we should buy in time.

But it's easier said than done. In a bear market, everyone is panicking; how many have the courage to bravely buy in?

In a bull market, everyone is greedy; how many have the courage to bravely sell and exit?


But to succeed, one must do so; no wonder successful investors in the cryptocurrency world are often just a minority.


🟨Be Prepared - Be ready for mistakes in three areas.

The first is the mistakes you make; everyone makes mistakes.


The second is unexpected events from outside the market, such as sudden regulatory policy changes, hacker attacks, macro crises, significant technical flaws, and black swan events.


The third is the market's inherent mistake; the market maintains its erroneous state for a longer time than you can avoid liquidation! Your analysis may be correct, and your actions may also be correct, but the market just refuses to change until after you liquidate, at which point the market quickly corrects its mistakes. You couldn't hold on until the moment of dawn arrived, perishing in the long night before dawn because you didn't anticipate how long and unbearable that night would be, exhausting your ammunition and supplies.


Therefore, the biggest secret to investing in cryptocurrency is to survive, it's not about the winners being kings, but the survivors being kings.


For thousands of years, the stories of dynasties rising and falling have been repeated. As long as human society exists, this cyclical phenomenon of regime replacement will continue because human nature does not fundamentally change, and this is the core driving force behind human societal progress, and the cryptocurrency world is no exception.


Let's encourage each other!