The cryptocurrency market is unlike any other that has come before it. Saying that cryptocurrency has been a profitable investment for many would be a massive understatement. To date, some traders have piled up profits to the tune of 10,000%+ of their original investment.
Crypto’s unpredictable nature combined with the incredibly light regulatory oversight it enjoys means trading in this market is a lot like bull riding. The harder you try to stay on, the more this bull is going to kick. Owing to that, you should understand how the crypto market works so that you can safely profit from it.
Even if it’s impossible to profitably trade in the cryptocurrency market 100% of the time, knowing what these assets are, the basic mechanics of the market, and where it’s headed will help you to make the right investment decisions at the right moments.
Cryptocurrency Markets Move in Cycles
As tempting as it sometimes is to think that the cryptocurrency market will simply keep going up (or down), that is never the case. Cryptocurrency markets always move in cycles.
Cycles in which higher highs and lower lows are made are referred to as bull markets. Generally, a bull market looks like this:
On the other hand, a cryptocurrency market cycle in which lower highs and lower lows are printed is called a bear market. A bear market has the following structure:
Identifying market cycles is not always easy and depends on the timeframe you’re filtering with. For instance, a daily BTC chart may paint a bearish picture while a monthly chart will return a bullish view. For that reason, it is important to consider the timeframe which is most relevant to you before making conclusions about the current market cycle.
Bitcoin Is King
There are thousands of cryptocurrency assets, but only one of them rules the roost. Bitcoin is the undisputed king of crypto by market valuation, adoption, and recognition. After maintaining market dominance in the 80% range for years, BTC took a hit when the altcoin market boomed throughout 2017 and 2018.
However, those days appear to be over as BTC regains dominance, as seen in the chart below:
Altcoins Are Lower Priority Investments
Generally speaking, investing in altcoins comes after having a majority portfolio in BTC. They have far less recognition outside of crypto-specific communities than Bitcoin and are prone to extreme moments of volatility.
Some altcoins, after trading to riches in late 2017, are currently trading at near worthlessness with little to no volume to speak of.
In contrast, projects within the top 10 highest market valuations are, generally speaking, a much safer bet. Small cryptocurrency projects often struggle to gain liquidity by adding to worthwhile crypto exchanges, and are also challenged at finding an audience for their offerings.
Coins like Ethereum, Ripple, Bitcoin Cash, in contrast, have a long history, extreme depth in liquidity and name brand recognition.
With these three axioms of the crypto market in place, you’re now clued in on some of the dominant dynamics and underpinnings of the market. Use your new knowledge to observe the cryptocurrency market’s behaviors, and position yourself correctly to take advantage of its swings.