As a child I was told that the only thing you needed to know about trading was if the market was going to go up or down. This sounded silly to a then 10-year-old but as the years pass, I realize more and more how true it is.
Crypto is going down, in the short-to-medium term that is; in the long term it is going up a long way. This is my model and to illustrate the cycle here are three boom, bubble and bust cycles of bitcoin.
The bitcoin boom, bubble, bust cycle in 2011Credit: ADVFN
The bitcoin boom, bubble, bust cycle in 2013Credit: ADVFN
The bitcoin boom, bubble, bust cycle in 2017Credit: ADVFN
So right now, we are here:
Today’s bitcoin chartCredit: ADVFN
You would have to be a super bull to examine this record and not see another leg down as highly likely. You could throw your hands up and say “it’s all over” or you could jump in short for the ride down. However, if you want the maximum upside for the minimum risk, the real play is to forget about the end of this cycle and look to the next.
The mother cycle is the four year “‘halvening” of bitcoin where supply halves into a market where demand is near constant or likely growing. This supply shock drives an upward movement followed by a FOMO (fear of missing out) wave and a media frenzy that boom bubbles the asset’s value.
The other cryptos follow
Each time the halvening strikes, the price peak of the cycle roughly doubles. That means the next cycle – around 2024-2025 – should see $100,000-plus for bitcoin with the low perhaps hitting below $10,000. That is about as attractive a set up as you can possibly want, but the fun doesn’t stop there.
In 2020 a new crypto revolution erupted: DeFi—a fintech wave utilizing crypto to build decentralized, permissionless financial services with eye-popping functionality, yields and novel ideas. Two bubble bust sequences have followed since DeFi exploded onto the scene. Within the coming bitcoin cycle, this sequence will repeat again both with established tokens and with new ones yet to breakthrough to the surface.
What follows is a short list of tokens I’ll be looking to buy after the crash has completed. The core holding, however, has to be bitcoin and Ethereum – the king and queen of crypto:Uniswap (UNI) SushiSwap (SUSHI) Polygon (MATIC) Curve (CRV) Rarible (RARI) Compound (COMP)
There are many more but, in all crashes, it is the majors and survivors that present the best long-term future, and the majors are easier to spot than the plucky underdogs.
As if this were not enough profit potential, there are NFTs. These are unique tokens that can represent digital objects – or even physical ones – and allow for the securitization of “stuff” on the blockchain. As the final insane ‘pop’ of this crypto cycle they too will go on a bullish rampage once or twice before the next bitcoin bubble sets off.
Then there is the Rumsfeldian “unknown unknowns” – the next big thing in crypto. There will be one, you can be sure of that, it’s only a matter of spotting it early. As DeFi broke cover, its tokens – almost worthless – rose to multibillion-dollar valuations and emerged from obscurity to become mainstream headline news. This cycle of invention is not over, it has barely started. Blockchain combined with crypto technology is a cornucopia of innovation, some might say ‘Pandora’s box,’ and new revolutionary discoveries will erupt regularly as we have seen in the other technical revolutions of our times. Catching these new developments early will have spectacular upside.
So, while others trade the noise of this current crypto crash, the big play is yet to come.
When the crash has run its course, the world will turn away from crypto, nursing its losses and discounting its future. This is generally the lot of the market gambler. However, the investor will take this hiatus as the moment to do what many canny investors do: ‘dollar cost average’ back into the market in preparation for the next big run. Meanwhile they can look for the DeFi, NFT and TBA (to be announced) crypto boom bubble cycles and acquire the best of breed of the next end run, where once again the crowd will FOMO into crypto signalling the moment for exit.
Once the trader, investor, institution, regulatory, media FOMO has died off, that will be the time to set off long and once again there will be fortunes to be made getting in near the bottom and out near the top.
While the 10-year-old in me wouldn’t believe it, it really is that simple.
Clem Chambers is the CEO of private investors website ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.