The cryptocurrency market operates like a precise clock, with a four-year cycle of explosive price increases, providing opportunities for wealth but also significant losses. So why, despite understanding the patterns, do many still incur substantial losses? Let's analyze the key factors leading to losses in cryptocurrency investment.
1. The Bull Market Cycle of the Crypto Market
The cryptocurrency market develops through fairly stable four-year cycles, with most of the time spent in bear markets. This is a typical pattern in recent years, clearly illustrating the volatility:
Cycle 2014-2018:
Bear Market: 177 weeks
Bull Run: 34 weeks
Total Time: 211 weeks (4 years and 2 weeks)
Cycle 2018-2022:
Bear Market: 157 weeks
Bull Run: 47 weeks
Total Time: 204 weeks (3 years, 11 months)
Cycle 2022-2026:
Currently, we are still in a bear market phase and awaiting a new peak. If the old cycle repeats, the next bull run may occur around 2024-2025.
Why is market cycle important?
This four-year cycle helps investors predict when the market may recover or collapse, creating significant investment opportunities. However, even with a clear understanding of the cycle, many still make mistakes in predicting market entry and exit points, leading to losses. The main reason is the psychological fluctuations during each phase of the cycle.
2. Market Cycle Psychology
Price cycles are not just numbers but a series of intense emotions. The reality is that even when aware of the cycle, losses still occur when emotions override rationality. Each stage in the market cycle is linked to a specific psychological state, from excitement, anxiety, to fear and despair:
Red Phase: The Thrill After the Peak (ATH)
When the market reaches a new all-time high (ATH), many investors feel excited and confident that prices will continue to rise. When prices begin to fall, they view it as a short-term adjustment and decide not to sell.
As prices continue to plummet, feelings of anxiety increase, but there remains hope that the market will recover. However, when prices drop to severe levels, anxiety turns into panic. At this point, their mindset forces them to sell at significant losses, marking the moment of 'capitulation' – when many leave the market with heavy losses.
Golden Phase: Recovery and Hesitation
After the shock of the red phase, the market gradually stabilizes. But many investors still carry feelings of regret and anxiety. Despite prices starting to rise again, many are reluctant to buy more for fear of losses.
At this point, their mindset is still affected by the old shock, and investors often miss opportunities in the initial recovery phase. As prices continue to rise, hope returns but is mixed with skepticism, causing them to hesitate in decision-making.
Green Phase: Returning to a Sense of Excitement
When prices surpass previous peaks (ATH), many joyfully return to the market. They believe this is a new cycle and invest more, expecting high returns.
However, without a specific exit plan, they are easily trapped by psychological pitfalls. When the market unexpectedly reverses, excitement quickly turns to panic, and many will again incur losses as the market enters a new bear cycle.
3. The Perfect Storm: When Market Cycles and Human Psychology Intersect
When the market cycle combines with emotional cycles, even the best strategies can be derailed. These bear and bull cycles create powerful emotional patterns, pushing investors into irrational decisions. This is a primary reason many incur losses, despite their understanding of market cycles.
Red Phase: Investors achieve significant profits when the market peaks and feel invincible. However, when prices drop, they hold on with the belief that it is just a correction, ultimately selling in panic when prices have fallen sharply.
Golden Phase: When the market begins to recover, investors still hesitate due to psychological scars from the previous decline. By the time they decide to reinvest, prices have risen, and they miss out on most of the profits.
Green Phase: Investors return with confidence and start investing heavily when prices surpass previous highs. However, without an exit plan, they find themselves trapped when the market suddenly enters a new downcycle.
The Real Key to Success in Crypto Investment
Losing money in the cryptocurrency market is not due to a lack of understanding but primarily due to psychological fluctuations. Many are swept up in the price cycle, buying at peaks and selling in fear when prices drop. Knowing the cycle is only half the battle; the rest lies in controlling emotions and maintaining a strict investment plan. To avoid regrettable mistakes, investors need:
Build and adhere to a clear investment plan: Define profit targets and loss limits, while also having a specific exit plan for each phase of the cycle.
Control emotions: Understand that market cycles will always repeat, and avoid letting emotions guide investment decisions. Be cautious at the most exciting moments, and stay alert during the most pessimistic times.
Do not invest with the crowd: Invest only after thorough analysis, not chasing trends or market rumors.
Learn to accept risk: No investment is absolutely safe. Investors need to prepare mentally for strong volatility and potential losses, rather than panic selling when the market declines.
In summary, the cryptocurrency market is a potential-filled environment but also contains many traps. Understanding cycles and learning to master emotions are two core factors that help investors avoid costly mistakes, thereby effectively leveraging cycles to achieve investment success.