What professional cryptocurrency investors manage to do is noticing that the market goes in cycles. They manage to have a particular mindset helping them navigate the market swings, many times anticipating what the majority of the people consider to be impossible events. No one would have ever believed that Bitcoin will reach $19,000 or that the cryptocurrency market cap will overcome the $800 billion mark. Yet, all of that happened in 2018 and some investors had managed to profit from that. The same goes for the market slump, followed by a new recovery. These are a few cycles happening for two years, which means understanding price action represents one of the most important skills.
# Demand/supply imbalance
The price is based on how demand and supply for any given cryptocurrency fluctuate over a period. It does not matter if we talk about fundamentals or technical levels, but the bottom line is that several triggers manage to have a profound influence on how demand or supply evolve. Price cycles come as a result of this, meaning investors that are successful not only see these historical cycles but at the same time, they manage to spot the triggers that shift wither the supply or the demand.
# Speculative nature
Although cryptocurrencies are new and revolutionary trading instruments, we can’t argue that there is no underlying support for their valuation. The same goes with fiat money, but the banking system is still working based on deposits or guarantees. That’s not the case for cryptocurrencies, which is we see these wild swing in valuations over the years. The speculative nature of crypto is another factor leading to price cycles. Some experts label them as “pump-and-dump” schemes, but that may not be the case all the time. Each market move can be exaggerated either by FOMO or overconfident market participants and at some point, the price will “go back to the mean”.
# Market sentiment swings
The sentiment for cryptocurrencies is not stable and in fact, can fluctuate by a wide margin over a long period. Changing market sentiment is the third important factor leading to price cycles. What’s important, though, is that even in this case we have triggers that start to push the market sentiment in either direction. Cryptocurrency investors must find them and understand the sentiment will be affected before it happens. Sentiment investing is one of the most challenging parts of dealing with cryptocurrencies, mainly because the market is so volatile.