The volatility of the cryptocurrency market has always made it difficult for investors to catch the “bull” before it goes stampeding past. In 2021, as crypto prices hit new highs, many people found themselves missing out on the opportunity to invest in their favorite tokens.
Famed investor John Templeton once said that bull markets are born on pessimism, grow on skepticism, mature on optimism, and die in euphoria. This means that bull markets start from the lows of the bear market when risks are prominent and sentiment is poor.
In 2022, the crypto market faced one of the worst market environments ever. Bitcoin fell 64%, and many other tokens fell 80 to 90%. Crypto firms such as FTX and Celsius even went bankrupt, and regulators made it clear that they would hold the industry accountable. At the same time, the Federal Reserve was raising rates at a rapid pace and shrinking its balance sheet. The Crypto Fear and Greed Index indicated “Extreme Fear” in the market.
However, against this gloomy backdrop, January 2023 proved to be one of crypto’s best months ever. Bitcoin was up 40%, Ethereum up 33%, and 7 of the top 100 tokens were up over 100%. Despite the risks, extreme pessimism in the market set the stage for the beginning of a new bull market.
As we entered 2023, the risks began to change significantly. The Federal Reserve’s interest rate increases were closer to an end, and the market started to anticipate potential rate cuts. The SEC continued its prosecution of crypto, but the industry received major wins in the Ripple and Grayscale cases. The macro and regulatory risks were significant but declining.
Currently, we believe we’re entering the “skepticism” phase of this bull market. The Crypto Fear and Greed Index shows “Neutral” sentiment, and spot trading on centralized crypto exchanges has fallen to its lowest in 3 years. While Bitcoin is up 66% year-to-date, it is still trading 60% below its all-time high.
Despite the skepticism, major companies like Google and Paypal are actively investing in blockchain and crypto initiatives. The possibility of a Blackrock-branded Bitcoin ETF may accelerate mainstream adoption of digital assets in ways we’ve never seen before.
If you’re considering investing in BTC, there are two things to consider. First, if you have an investment thesis you believe in, go with it. Make sure you have a plan and determine your appropriate allocation and risk.
Second, if you believe that a spot BTC ETF will be approved soon, now might be a good time to make an allocation. An approval would likely send the price of BTC and ETH higher. At that point, you can decide whether to re-allocate or hold your crypto for a longer period.
To ensure your clients don’t get burned in the next bull run, it’s important to have open conversations with them. Understand their investment thesis, risk profile, and allocation. Educate them about crypto and help them develop a strategy to keep their investments safe.
In conclusion, although catching the bull market before it takes off can be challenging, having a well-thought-out investment thesis and plan can help investors navigate the volatile cryptocurrency market successfully. With changing risks and increasing mainstream adoption, now may be a good time to consider investing in digital assets like BTC.