Insights into the four stages of the cryptocurrency bull market: How to invest in crypto during different cycles?

Author: Edgy

Compiled by: Deep Tide TechFlow

There are four stages in a bull market.

We are currently at the tail end of the first stage of the bull market (Note: This article was written a few months ago, and the author now believes we have entered the second stage of the bull market). Here are some guidelines and suggestions on how to navigate market cycles and avoid missing out on high profits.

Here are some operational suggestions for you:

1. Grasp each stage of the bull market
2. Maximize profits
3. Avoid the most common traps

Stage One: Accumulation Phase

The accumulation phase is the stage the market is currently in, and it is also the stage we have been in for the past year. After the panic from the collapse of Terra, the FTX crash, and the USDC de-pegging, the cryptocurrency market hit bottom.

The most difficult phase of the market has passed (unless a major crisis occurs with Binance or USDT that could impact the entire industry).

Currently, the overall market is fluctuating around existing prices. Significant news in the industry has little impact on the overall market (for example, PayPal launching a stablecoin). At present, there is no new liquidity being injected into the crypto space from off-market funds, and on-market funds are competing against each other, with various altcoin sectors experiencing capital rotation.

Now is the accumulation phase. We can start to allocate funds in the market to profit during the bull market.

Operational suggestions:

- Look for quality projects. Search for projects that you believe will explode in the upcoming bull market. Quality projects typically have the following characteristics: high product/market fit, competitive advantages over similar products, an active project team, a clear development roadmap, and financial health.

• Conserve funds. Many investors want to buy the tokens of projects from the last bull market at rock-bottom prices, as these tokens are down 90% from their all-time highs. However, the issue is that most of the best-performing projects in the next cycle have not yet been listed. Compared to past bull market projects, investors are more inclined to position themselves in entirely new projects.

• Control trading frequency. Although the current market is quite dull, don’t let boredom drive you to trade unnecessarily. First, you need to survive in the crypto space before discussing profits. Wait for better trading opportunities instead of trading casually due to market boredom.

- Learn during the bear market. The bull market is not a good time to learn; it’s a good time to make money. Now, during the bear market, is the perfect time to learn.

• Monitor liquidity. Always pay attention to the inflow of funds into CEX, the minting of stablecoins, the TVL of DeFi protocols, and the overall market capitalization of cryptocurrencies. Changes in these factors can represent shifts in liquidity in the crypto space. More liquidity means the market is improving.

Stage Two: Early Bull Market

The market begins to warm up, and prices start to rise, but people will be skeptical about the arrival of the bull market.

The hardest thing to accept is the disbelief in the onset of the bull market. After all, the psychology of investors who have suffered losses in the bear market will hinder them from profiting in the bull market; many will be anxious, fearing further market declines. If you want to achieve excess returns in the bull market, the earlier you bet before others enter, the better!

What factors can bring about a bull market?

• Major industry events, such as the approval of BTC or ETH ETFs, or a new country adopting BTC as legal tender.

• The Bitcoin halving is coming in 2024. Of course, past price increases following Bitcoin halvings do not guarantee that the price will rise after next year’s halving. However, if enough people believe the price will rise after the halving, the resulting market consensus will also drive up the price.

• New narratives. In the last bull market, the crypto space had two major narratives: DeFi and NFTs. What about this bull market? GambleFi? Telegram Bots? RWA? GameFi? Or will NFTs reignite the market? Certainly, it’s likely that some less popular sectors, like games similar to Axies Infinity or Stepn, will emerge, but with better token models and game mechanics.

• Improving macro conditions. For example, if the Federal Reserve stops raising interest rates, more liquidity will flow into the crypto space.

• Regulatory changes. The U.S. and other countries provide more transparent and effective regulation for the cryptocurrency market.

• Increased convenience. Ordinary people still face many difficulties entering the crypto space. More user-friendly wallets and more accessible dapps for newcomers will also promote the bull market.

• Eastern markets. Crypto investors and builders on Twitter have regional pride and tend to favor Western markets. This is also why most people cannot understand why Tron is so popular (Tron has a large customer base in the Asian market). The impact of regions like South Korea and Hong Kong on cryptocurrency is also significant.

In fact, just one significant factor can trigger a chain reaction.

Some people in the crypto space start making money due to the market improvement. They enhance their quality of life and then tell those around them, who may be FOMOing into the market, bringing in more off-market funds, further driving up market prices and creating a positive cycle.

Operational suggestions:

1. Reduce positions in losing coins, increase positions in profitable coins. Be sure to cut losses in a timely manner and don’t be overly attached. Just because a coin or protocol has given you a 5x return doesn’t mean it can’t achieve a 10x return. Whether the price can continue to rise depends on indicators and market sentiment. As for those investments that are causing you losses, reduce your positions promptly.

2. Profit during the rise, and take profits in a timely manner. No one can sell at the peak, so establish your profit-taking system and stick to it.

3. Manage your positions in altcoins and low-quality coins. Don’t use family assets, retirement funds, or sell BTC and ETH to make large purchases of altcoins. You can buy altcoins and low-quality coins, but don’t go all in or use high leverage, as the risks are too high.

4. Simplify your investments. Historical evidence shows that the fundamentals and token economic models of some wildly pumped coins are often mediocre. Remember: prices only rise when the market is hot and when investors are buying that coin. Most investors won’t delve into the operational logic and economic model behind a project, but where there is market consensus, there will be price increases.

5. Be wary of Ponzi schemes. In a bull market, there will be Ponzi-like projects where the project team knows how to manipulate market sentiment and pump prices. However, it is inevitable that Ponzi schemes will eventually collapse. You can embrace Ponzi schemes, but make sure to profit and exit before the market crashes; of course, you can also choose not to engage with Ponzi projects.

6. Don’t ignore the voices of retail investors. In some cryptocurrency podcasts and conferences, everyone discusses various emerging technologies, which can easily lead one astray. Ordinary investors often don’t understand these technical terms. However, you need to engage with ordinary investors to understand their trends, such as checking Reddit and YouTube to see what they are currently interested in.

7. Focus on specific areas. Find a few areas that you can specialize in. In the crypto space, it’s impossible to keep up with all the trends, and it’s also impossible to capitalize on every rise. Missing a few good projects or coins that double is acceptable. Starting now, focus on the few areas you understand best, and when opportunities arise, be sure to seize them!

Stage Three: Bull Market Peak

This is the stage when retail investors start to flood in. They enter at the peak of the bull market, but they believe they are entering at the early stage of the bull market.

The arrival of the bull market creates a positive feedback loop. As prices rise, it will trigger FOMO among investors in the market. This is a positive feedback cycle; their FOMO leads them to buy in, which continuously drives prices higher.

All coins will rise. A $10,000 investment in altcoins can bring significant returns to your life; you might hear people discussing cryptocurrency-related topics while out shopping or walking.

The market will increasingly experience FOMO. Some people may even quit their jobs to become full-time cryptocurrency traders. Others may sell their homes to invest in the crypto space.

So, how can you tell if the market has peaked?

• Mainstream media starts reporting on cryptocurrency. You will repeatedly hear in the news about someone trying to find a cold wallet containing 8,000 bitcoins or someone buying two pizzas with 10,000 bitcoins.

• Financial YouTubers like MeetKevin, Max Maher, and Graham Stephen upload multiple cryptocurrency videos daily.

• Mainstream brands like Pepsi and McDonald's will begin mentioning cryptocurrency to expand their brand influence. Celebrities will try to make money by sponsoring or launching their own NFT series.

• Everyone is showing off their profits. When KOLs or other investors on Twitter are wildly sharing their profits, you should be cautious— the market may have peaked.

Everyone will try to convince you that this time is different. You must resist your instincts.

At this stage, most people in the market will believe that the bull market will continue and prices will keep rising, but the most important thing is knowing when to exit. During this stage, it is crucial to remain calm and realize that no market can rise indefinitely.

Turning unrealized gains into realized profits and securing them is the most important thing!

Stage Four: Downturn Phase

What rises quickly falls quickly; the peak of the bull market has passed. At this stage, everyone will speculate whether this is indeed the peak of the bull market and whether there will be another wave of upward movement.

There will be a sentiment in the market: this time is different— cryptocurrency has become a mainstream investment product! The bull market will last for several more years!

Everyone's FOMO has its reasons. From the perspective of project teams, they must involve more retail investors to gain investment. From the perspective of retail investors, more funds must be used to speculate on altcoins for prices to rise. Therefore, they will continuously FOMO you and keep pushing.

Of course, even though the bear market has arrived and prices are falling, the market may still occasionally see some hot spots. Bitcoin peaked in November 2021. However, in the following months, FTM and Luna continued to rise.

Once prices plummet, there will be hindsight comments saying, "I told you so; the prices would fall!"

After missing the last two years of the bull market, what makes me so confident that there will be another bull market in cryptocurrency?

Because I have staked my career and the next decade of my life on DeFi. I am full of confidence in this field.

Let me briefly explain the reasons:

Under the current economic conditions, it is becoming increasingly difficult for ordinary people, and the pressure of living is mounting, mainly reflected in the following aspects:

• Credit card debt has reached an all-time high

• Per capita debt has reached an all-time high

• Student loan repayment amounts have increased

• Credit card interest rates have reached an all-time high

• Debt interest payments are about to reach an all-time high

• The average monthly payment for new cars has reached an all-time high

• Housing prices are even more concerning

The current economic situation makes life difficult for everyone. The cost of living is rising year by year, and the returns from simply going to college and finding a job are insufficient to buy a home.

Amid all this, the societal threshold for success is also continuously increasing.

Among this generation of young people, no one wants to grow slowly; no one wants to achieve financial freedom only in middle age. Young people want to get rich now and hope to have substantial wealth at a younger age.

For young people, cryptocurrency is not just a new financial asset; it is a dream. For them, there is no faster way to make money than through cryptocurrency.

Cryptocurrency is an excellent opportunity for young people to realize their dreams and strive for change.