The article discusses the opportunities presented when the market is in an uptrend, emphasizing the cyclicality of markets and the importance of staying true to investment plans, making informed decisions, and recognizing the potential for recoveries.
When it comes to investing, risk and reward go hand in hand. Over the course of the previous year, both the cryptocurrency market and the stock market have been hit by devastating crashes. They were influenced by major shifts in the economy, such as rate increases implemented by the Federal Reserve, increases in inflation, and changes in how interest rates are determined.
Some investments have become riskier and face larger downward pressures during challenging and alarming periods. In such times, people tend to seek less risky options, resulting in increased volatility for riskier asset classes.
There are those that are considered low risk and do not fluctuate as much. Despite uncertainties, these low-risk investments tend to attract more people. We also witnessed the dollar strengthening, albeit currently undergoing a correction. This was due to rising interest rates in the US, leading investors to view the dollar as a safe haven. Thus, there are asset classes deemed safe and preferred by individuals seeking to minimize risk during uncertain times.
Markets Are Cyclical
Despite the projections of a recession in 2023, something interesting has occurred in the market. Instead of experiencing a massive drop, the market, including cryptocurrencies like Bitcoin, has somehow priced in the recession and continued to rise. This upward push was also seen in other altcoins.
For riskier assets, there is a cyclical nature to their performance. There will be times when these asset classes experience a drop, as witnessed in stocks and cryptocurrencies. However, this downward trend is not permanent; eventually, these assets will recover and rise again, with the exception of those that lack potential or fail to deliver. These weaker assets may struggle to reach previous all-time highs or may even remain in a prolonged state of consolidation at lower levels.
Good Investments Always Recover
Assets that are truly promising often go through a period of consolidation at lower levels. However, as economic data improves, these assets gradually begin to show signs of an upward push, especially from a short-term perspective.
This is when you can witness the legitimacy of cryptocurrencies and recognize them as an asset class similar to stocks and other markets worldwide. Understand that these assets move in cycles. Therefore, during times of fear and uncertainty, it becomes an opportune moment to identify undervalued assets, whether they are stocks or cryptocurrencies, as they remain cheap and at their lowest points.
As the market begins to recover, more people start returning. The narrative shifts, and money flows back from less risky assets to those with higher risk potential, bringing on more volume and demand to the markets. The psychology behind this is that when things improve, investors eagerly enter the market, even if they miss capturing the bottom.
Always Follow Your Plans
When considering investments, especially for assets with significant potential, buying at lower prices provides an opportunity to accumulate more. Alternatively, you can choose to diversify your portfolio by mixing risky assets with safer ones. This approach allows you to shift towards safer assets during challenging times and allocate more to riskier assets as sentiment improves.
For Bitcoin, most investors still believe in the concept of the halving cycle. Looking back at the previous cycle from 2017 to 2020, we witnessed Bitcoin dropping to $3,000 before recovering to around $13,700 in 2019.
Although it did not reach its all-time high, it demonstrated a recovery. Investors anticipate a similar pattern before the next halving cycle in 2024, where we may see Bitcoin and different altcoins improving and experiencing an upward push.
As the market rises at present, it will not continue to rise indefinitely. Corrections and downward movements will occur at various points and times.
Take Profits, It Is Okay To Sell
It is absolutely okay to cash out some of your investments’ gains at certain points in the process. Taking profits is not intrinsically wrong provided it is carried out in accordance with your established plan and criteria.
Changing your strategies or rules in the midst of a trade can lead to losses and lack of conviction. Therefore, always base your decisions on a set of well-defined rules and stick to them.
Final Thoughts
As we move forward into the second half of 2023, it would be best to closely monitor inflation levels and how the US government addresses interest rates in the coming months. Additionally, Bitcoin’s entrance into the next halving cycle adds further intrigue to the market. Whether you choose to allocate your investments to low-risk assets to mitigate downsides or double down on more volatile assets you believe in, approach investing with a methodical mindset and dedication.
In conclusion, the market’s cyclicality presents opportunities for both conservative and risk-tolerant investors. By staying true to your investment plan, making informed decisions, and recognizing the potential for recoveries, you can navigate the market when it is up and position yourself for long-term success.
As we reflect on 2023, it is evident that the numbers indicate a more positive outlook than many had anticipated, proving that maintaining a steady approach to investing is crucial in achieving favorable outcomes.