Many people buy Bitcoin in hopes of future profits. The asymmetric risk-reward that the popular cryptocurrency offers has drawn many investors of different backgrounds, all of which are looking for ways to capitalize on the trend.
But is the current price rally sustainable? And if not, what are some tells that can help us foresee the peak? In this article, we discuss market cycles, positive and negative market scenarios, and the best time(s) for you to cash out.
Bitcoin’s historic market cycles
Ever since the beginning of Bitcoin’s creation, the market is repeatedly going through cycles, interchanging positive and negative market conditions. These are primarily directed by the reward halving which Bitcoin goes through every 4 years, further adjusting its scarcity and mining difficulty. Generally speaking and by looking at historic events, each halving signalized the start of a bull market which takes approximately 16-20 months to play out and grows the value of Bitcoin by 17x on average. Keep in mind that this growth excludes the parabolic momentum that Bitcoin experiences during its final stages of the bull run, which can temporarily growth its value even higher. The latest halving occurred in May of 2020, while the next one is estimated to take place in June of 2024.
This time it’s different
One important thing to keep in mind as you start to plan your exit strategy is that this time around Bitcoin finds itself in a different position. With increased institutional adoption and geopolitical significance, there is a high chance for a different soft of volatility this time around. More specifically, we may see institutions and governments “front-buy” Bitcoin ahead of its halving in order to at least maintain some sort of position before there is no longer an available supply for sale on exchanges.
According to PlanB, if this were to happen we could see Bitcoin running up to $500.000 at the peak of this cycle, before consolidation to the downside. Others, like Dan Held, believe that Bitcoin is currently in a Supercycle, meaning that an aggressive bear market is no longer a given. According to him, we will see Bitcoin’s growth continue throughout the next few years until retail is effectively priced out and everyone is forced to use derivatives to gain exposure.
While this concept does seem rather optimistic, we can confidently say that the bull market we are currently cruising reminds us more of the one we saw in 2013 rather than the one we saw in 2017. Hence, according to Held, and given the ever-decreasing supply of BTC on exchanges, Bitcoin could go up to $1 million dollars in value before sell pressure starts.
What does this mean for you?
Naturally, both scenarios are very positive for Bitcoin and give you a better indication as to when you should withdraw your coins. That being said, if you simply want to purchase products and services with your profits, it is no longer necessary to “cash-out” your coins like the norm was back in the previous cycle.
Nowadays, you can benefit from the new products that improve real-life use cases of crypto, like Binance Pay, crypto debit cards, as well as digital payments with the help of crypto widgets. This way, you avoid tax hurdles, ever-changing regulatory frameworks, and other limitations.
Is there a negative scenario as well?
Some people claim that there are several scenarios that may drop the value of Bitcoin rapidly, even in bull market conditions. One of these is the continuous printing of unbacked Tether (USDT), a stablecoin backed by, apparently, nothing. Since the majority of traders enter and exit their positions using USDT, a collapse of the currency could prove fatal for all those who are currently trading Bitcoin with a short-term preference.
Other doomsday scenarios are less likely to occur, but they are still a scenario we can’t leave unmentioned. For example, a crackdown on regulatory networks, a bug in the protocol itself, or an attack on the network could negatively affect the growth of Bitcoin in the years to come. In this case, it is important to stay up to date and sell the moment rumors turn into news.
So when should you withdraw your coins? In our opinion, cashing out Bitcoin might not be the best idea. The current instabilities of our economy have uncovered the decreasing value of FIAT currencies, as well as the inflation levels we can expect to see in the future. Therefore, we recommend keeping your money stored in assets that have the ability to retain your wealth and value throughout time, while the industry and cryptocurrency prices continue to go up. And there is no better asset to do this than Bitcoin.
Andrew is a writer that does most of his work on cryptocurrency-related topics. While he’s primarily interested in Bitcoin, he also follows major altcoins and the innovative ideas that new cryptocurrency and blockchain projects are bringing to the table.