Getting Ready for the Next Big Crypto Bull Run
By Dylan Soiza October 19, 2023
- A crypto "bull run" refers to a specific phase wherein intense and rapid price growth occurs, often with significant increases in a short period
- Bull runs can be triggered by various factors, such as positive news, technological advancements or investor enthusiasm
- Halving events have historically contributed to the conditions that might lead to a bull run
- During a halving, the number of new coins that are made is cut in half, causing the total supply of a cryptocurrency to grow more slowly
It's no secret that the crypto bull market of 2020 and 2021 ended in tragedy, as major cryptocurrency brokerages and service companies collapsed under the weight of declining valuations. With the highs of the last cycle now firmly in the past, many cryptocurrency investors are looking to the future and wondering what they need to know to benefit from the next bull run.
This is why it is important to explore what drives cryptocurrency cycles and how investors can benefit from the next one.
While the boom-and-bust cycles of the crypto markets are inarguably impacted by several factors such as regulation, macroeconomic environments and media coverage, one specific event has historically triggered every cryptocurrency bull cycle: Halving events.
A "Halving" refers to an event that occurs on the Bitcoin blockchain. In short, a halving is pre-programmed into Bitcoin's code designed to reduce the block reward given to miners.
The past results of bitcoin halvings. Source: Techopedia
Simply put, a halving reduces the number of new bitcoin that is created. This event takes place approximately every four years and is triggered after a certain number of blocks are mined. Essentially, the halving is intended to ensure that there is a finite supply of bitcoin, the supply of which steadily reduces over time until eventually, there is no bitcoin left.
Here is how halving affects the cryptocurrency market:
- Reduced Inflation Rate - When a halving occurs, the number of new coins created through mining is reduced by half. With a reduced supply of new bitcoin, the currency becomes more valuable as it becomes more challenging to secure new coins.
- Supply and Demand Dynamics - The pre-programmed scarcity is a significant factor influencing the value of bitcoin. As the supply of new coins decreases due to a halving, the existing supply becomes more scarce. If demand remains constant or increases, the reduced supply can lead to an increase in the cryptocurrency's price.
- Speculation - The halving event is a well-known occurrence, and the cryptocurrency community usually waits in anticipation. Traders and investors often speculate about the potential impact of halving on the price. This anticipation can lead to increased trading activity and price volatility leading up to the halving.
- Long-Term Investment Narrative - The halving event is often used in the long-term investment narrative for cryptocurrencies. Advocates of bitcoin, for example, often emphasize the fixed supply schedule (capped at twenty-one million coins) and the deflationary nature as factors that could drive the price higher over time, especially as demand for the cryptocurrency continues to grow.
The next Bitcoin halving is scheduled to occur in the summer of 2024. If history repeats itself, this event could signal the start of another major up-cycle in the cryptocurrency markets. If so, what is the best way for investors to take advantage?
Preparing for t
Profiting from cryptocurrency bull markets may not be as easy as many investors believe. Throughout these periods, there are significant numbers of scams, pump-and-dumps and simply bad investment opportunities being shilled by influencers across the internet.
To avoid this, here are some key factors investors should assess before making an investment for the next cycle:
- Historical Performance - Review a cryptocurrency's historical price performance and market trends. Past performance does not guarantee future results but can provide insights into price behavior. If the cryptocurrency has recently launched, it may be wise to avoid investing in it.
- Practical Application - Look for real-world use cases and adoption of the cryptocurrency in various industries. Actual usage can validate a project's value proposition. Many cryptocurrency projects offer no real utility and provide no value to investors.
- Development Team - Research the team behind the cryptocurrency. Verify experience, credentials and track record. Additionally, examine the project's development activity and updates to gauge progress and commitment. If the development team has chosen to remain anonymous, this is a major red flag.
- Partnerships - Research whether or not a cryptocurrency has notable partnerships or integrations with other projects or companies. These collaborations can enhance credibility and adoption. However, the quality of these partnerships should be critically analyzed. Many notable influencers may promote or endorse a cryptocurrency project as part of a paid sponsorship, so it is important to evaluate the quality of the partnerships, endorsements and recommendations provided.
With thousands of cryptocurrencies now in existence, it is likely that many cryptocurrencies researched by investors will fulfill the considerations listed above. However, the critical component to widespread success in a cryptocurrency bull market is diversification.
The top ten cryptocurrencies by market capitalization. Source: CoinGecko
It is a virtual certainty that many of the cryptocurrencies currently in existence will fail, much like many of the companies in the "dot-com bubble" collapsed in 2001. As a result, diversification will be key to ensuring that investors secure and retain meaningful profits from the upcoming bull run. Generally, it may be advisable not to invest more than 25% of an investor portfolio in any single cryptocurrency.
Take Advantage of the Next Cycle
Although the 2021 cryptocurrency cycle has long passed, a new cycle is always on the horizon. Investors keen to take advantage of the next cycle should seriously consider the advice offered in this article, especially since cryptocurrency markets are highly volatile and bull runs are often followed by sharp corrections or bear markets.
Timing these kinds of markets can be a challenge, and many new or inexperienced investors have suffered significant losses during or after bull runs when prices begin to plummet from highs. Investing in cryptocurrencies carries large risks, and investors should conduct thorough research, consider risk tolerance and only invest what can be afforded to lose.