Bitcoin is among the most challenged cryptocurrencies. It was released in 2009 and witnessed considerable technological and social changes that shapeshifted the cryptocurrency market. Since the first Bitcoin transaction until now, many things have changed in this sector, and blockchain technology developed so much that you can now learn how to buy Bitcoin on Binance suitable for your needs as an investor or developer.
Users preferring Bitcoin over other digital coins experienced its high volatility, which is why many alternatives, such as Ethereum, were created to mitigate high transaction costs and provide constant upgrades. However, some aspects of the crypto market will always cause a stir among users.
For example, seasonality and market cycles are two lesser-known aspects contributing to price shifts. Considering the massive amount of information required for investors to yield decent returns, these details put even more pressure on what crypto users need to learn to succeed in the crypto market.
Here’s a brief understanding of seasonality and crypto market cycles.
Seasonality ―accurate prediction or not?
Bitcoin’s price is already affected by supply and demand and media coverage. But what if things like national public holidays or official government events influence the usage of the digital coin? It may sound vague in terms of reasoning, but considering it’s been more than ten years of Bitcoin operations, recent data showed that these things are more likely to happen than you’d think.
Tax season seems problematic for Bitcoin, as it underperforms around this time. That’s because crypto legislation may have increased tax liabilities, and investors and traders might need to sell a considerable part of their assets to cover these expected taxes.
Another seasonality effect can be seen during winter, when trading and blockchain activity increase, boosting transactions. Finally, it has been shown that Christmas and the Chinese New Year are also a factor in changing Bitcoin prices.
Regarding volatility, data showed that Bitcoin tended to be more volatile in summer months but also experienced more heightened volatility in winter. However, some of the most profitable months so far included April, May, October and November. Still, a deeper dive into crypto data must be implemented to provide accurate information that investors may use to predict trends.
How can investors deal with seasonality?
A good thing about seasonality in crypto is that it can help predict trends and price movements, although not 100% accurate. Luckily, there’s plenty of data on the web that can be analyzed, which is why investors and traders can do the following to face the consequences of seasonality:
- Understand how this phenomenon works by identifying the factors contributing to past trends;
- Diversify their portfolio to mitigate volatility risks by investing in various assets;
- Set realistic expectations and avoid looking at short-term market trends;
- Have a long-term investment strategy with strong fundamentals;
- Keep up with the latest market news to make informed decisions;
What are market cycles, and how do they influence the price of Bitcoin?
Along with seasonality, market cycles are patterns following the investor trust index and general economic state. However, crypto market cycles are shorter than the stock market due to rapid price movements. There are four important phases in the market cycle:
- Accumulation happens after the market experiences a crash and prices are at their lowest. During this phase, long-term crypto holders exit their positions, while value investors start buying again;
- A slight increase in price and sentiment index determines markup. This is usually known as the bull market phase when experienced investors enter new positions, and there’s a significant growth in trading volume;
- Distribution marks the end of the bull market when investors start taking profits and existing positions. This is also when trading volume increases despite low price volatility and uncertainty levels are rising;
- Markdown is the bear market phase when a downward price trend starts. This is the best time for short-sellers because they can profit from the market decline, despite being the worst time for any transaction;
Many factors influence the crypto market cycle, such as macroeconomics linked with cryptos. Therefore, if the economy struggles, so will cryptocurrencies. At the same time, when it comes to Bitcoin, market cycles are influenced by halving that takes place approximately every four years and reduces miners’ rewards by half. So, if demand for Bitcoin is at its peak, the reduced supply might increase the price.
How to invest during the market cycle
Investing or trading during any stage of the market cycle might be challenging, considering all other aspects that need to be considered. Experts believe investing during the accumulation phase and selling during distribution is the best strategy to yield considerable returns. However, you still need certain tools for better control of your assets, such as on-chain analysis. These applications will help you identify the market phases better by providing information on supply, demand and market psychology.
Another essential investing strategy is watching the Crypto Fear and Greed Index, of which stats are based on market momentum and social media activity. A lower score indicates increased fear sentiments, whereas higher numbers illustrate greed in crypto purchasing. Most business people believe it’s best to go against the flow and avoid making considerable transactions when everyone is selling and buying. At the same time, developing a strategy for when the rest of the investors are fearful might lead to success. This is why other investors enter the market during the capitulation phase when FOMO causes a short-term low. When no more assets are sold, capitulation ends, and the market returns to normal.
Final thoughts
Bitcoin is a deflationary asset and a store of value, but it is still heavily influenced by volatility and other macroeconomic factors. On top of that, Bitcoin’s price is affected by seasonality, meaning it performs better in some months of the year than others and by the market cycles. Therefore, investors need to remember that frequently checking on these elements to have insight into the cryptocurrency’s path is the safest long-term strategy for anyone starting to invest.
