If you follow discussions about the price at the moment, you see more and more people voicing strong opinions if the Bitcoin price reached its peak or not. The underlying question considers whether Bitcoin will have another lengthy bear market at all. To form your own opinion, it helps to know more about the discussed price movements. Bitcoin’s price shifts considerably, so it’s hard to distinguish the top from Bitcoin’s regular shenanigans.
A blow-off top shows a rapid price increase during which you can expect significant FOMO. Then, a steep drop follows. Both movements tend to happen with high volume, the amount of Bitcoin traded per time period. In the past two halving cycles, blow-off tops marked the start of bear markets that brought Bitcoin down by ~80%.
This description has been rather abstract so far, so let’s take a look at the actual tops from 2013 and 2017.
As you can see, both cycles had a price pullback shortly before the top. The local top before this pullback, if it happens again, will be misidentified as the top by many investors. Then, Bitcoin has another incredible rally to the blow-off top before it cracks with force in the other direction.
When Bitcoin begins its downtrend, it might be interrupted by brief periods of recovery. Bitcoin’s price rises, and investors start buying again with the expectation of the bull run to continue. Nevertheless, the price doesn’t reach the price levels of the prior blow-off top and continues its prolonged decline.
Consider indicators that your idea of the situation is wrong rather than right. What if the price climbs back up dangerously close to the point you identified as blow-off top? In this case, Bitcoin might very well continue a walk to higher prices in a last-cycle/supercycle scenario. What if the supposed last pullback before the top starts to look dangerously like an actual blow-off top? Thinking like this keeps you grounded and prepares you for these emotional situations.
Knowing about the past cycles is a powerful help, but you shouldn’t blindly assume that history will repeat itself. Nevertheless, you can prepare well in case it rhymes. Take the time to contemplate how different events will affect your plan and how you want to act in specific situations. I hope this has contributed to helping you stay in control in the turbulent times ahead.
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If you’re unsure about the relevance of halving cycles, you can also check out my recent post about the topic.