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“Time in the market beats timing the market” is perhaps the most common phrase heard in the equities market, and for the most part, it has been so for the crypto market, if you left your crypto from Ethereum from 3 years ago and did nothing to it, you would have seen it jump from $1 to $2000. If that was your entire portfolio, you would have been the cream de la creme of all hedge funds – top 0.1%!!
For an ‘asset’ that most non-coiners would term as ‘having no intrinsic value’, it would be difficult to attribute a particular trading strategy to it, simply because the dynamics work very differently from equities. So when we discuss crypto, we need to discuss timeframes, objectives, goals, lifestyles, and what you want from it. I’m sure by buying crypto, your objective here is to see your moolah moon but by now you should be clear that there are periods of corrections that you will see massive drawdowns from the entire crypto market because Bitcoin’s market cap is still able to drive the direction of the market, especially in downtimes. Such correlations can end up negating all the top-notch rises that you have gained during strong uptrends of the market.
To avoid getting caught in the majority of drawdowns and protecting your gains, there are some indicators that you want to observe. And you know what? They are found not only in the crypto market, but the equities as well.
- Market indices (NASDAQ, S&P 500)
- Overall sentiment/chatter
- Bitcoin action.
- Market leaders of growth stocks
I will be discussing these as a whole in consolidation rather than individual points as they dovetail together into a single thread of discussion and thought.
Remember, that you are not in any position to call peaks and troughs. This is not an act of divination. Engage instead in behaviour that protects downsides and prevents hubris on your part. The inflection points of the crypto market depend on these 4 factors.
What you want to do is increase exposure during uptrends, and reduce exposure during downtrends. By doing so, you take some profits off the table and recycle them into the downcycles thereby gaining more.
Remember – increase exposure during uptrends, reduce exposure on the downtrend.
And herein lies the understanding of the ebb and flow in the market cycle – the uptrend, the consolidation and the downtrend. All cycles have a certain pattern.
In recent times, as liquidity has left the crypto market, you can see how Bitcoin is performing as traders are risking their hard-earned money to trade in the tight seesaw waves. It will be difficult to do so unless you have an algorithm going for you, so if you do not, stay out of the way, at least for now.
Now, go to the equities market to gauge where the market is at.
What the heck has equities got to do with crypto?
I’m glad you asked. LOTS is the answer.
There are folks in the equities market who have gotten into crypto and vice versa. Their risk appetites / behaviours and research options are somewhat similar and for the most part, we can know this to be true, because in recent times, the narrative has been that “crypto is trading like the stock market”. Watch the growth stocks and how they perform as a basket. And then look back at crypto. You will see that the time periods and the cycles in recent times are somewhat similar.
These growth stocks are the barometer of the stock market and there will be sentiment spillover into crypto because these stocks are akin to the investors’ peek into the future. And crypto represents the future. If growth moves, crypto moves. Watch where the peaks and all time highs for the volatile growth stocks before they started to correct downwards. Some went down by 30% or more and crypto followed shortly after. Right now, the money and narrative within growth is shifting back to market leaders. And mind you, there are new ones.
Tesla’s narrative has already shifted out of itself as it finds itself in increasingly red ocean territory. Global-E has a good potential and so does Upstart. Astra Space, Virgin Galactic, AST SpaceMobile are future looking. Crowdstrike is excellent for cybersecurity with their cloud and SaaS arrangement. Their trajectories hint of sentiment and that exact sentiment will be reflected in crypto.
If these market leaders in growth trend upwards and break new hights, the rest of the market, including crypto will follow. However, once the institutions that have bought into them start to sell off and take profits off the table, you will see a correction will follow.
Take the time to do an analysis right after you read this article. Bring up the charts, get a sense of the sentiment!
Yours,
Chief Editor
BBA Market Perspectives
*Not investment advice. Do your own due diligence before you invest!
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