Last year ended on a pessimistic note. And this year started the same. Suddenly, however, inflation registered a slight improvement. Which caused a resurrection of optimism. Optimism becomes a cause of optimism. And emotion is the cause of emotion in a roller coaster of hopes and illusions. The price of Bitcoin, lately, has broken several important resistances. Then, fear has turned to greed in a matter of hours. What will happen? Will it keep going up? Will she come back down?
A couple of weeks ago, practically all the forecasts pointed down. And now this. At last, the bulls see life. Of course, when this happens, in the networks, the increase is not always accepted with humility. Some are already talking about a return to the bullish cycle. In other words, historical maximum in a couple of months. And party. But sometimes a coffee is a coffee. Not every breakthrough ends with a happily ever after. It is a mistake to go flat out at the first change.
Is it a bull trap? Very likely. However, we also cannot rule out the possibility that the low of this cycle is already behind us. What is much more difficult to achieve is a 2020-style recovery. The best case scenario is eternal stagnation between $17-30K waiting for monetary policy to finally turn around. But this change can be made after the inflation target is met (2% year-on-year). But this is not an issue for this semester. youThere is still a long way to go.
Of course, miracles exist. The probable does not always happen. We must also give the benefit of the doubt to the very exceptional. At first glance, one might assume that geopolitical and macroeconomic conditions are not given by a boom speculative comparable to boom of 2020. But, in this world, the future is not written. After all, anything can happen here.. Well, whatever happens has to happen.
Institutions are in cautious mode. Y retailers alone are not strong enough to fuel a speculative boom out of conviction alone without the support of the Federal Reserve. And the liquidity? With the possibility of a recession around the corner, retailers are running out of money. And the major central banks are aggressively withdrawing liquidity with a policy that seeks to reduce demand. Where will so many buyers come from?
After the largest monetary stimulus in all history, the price of Bitcoin reached its current all-time high. But that was not overnight. It took time. whatIs it likely to exceed that same historic maximum in less time under such different conditions? Frankly, the numbers don’t give.
I repeat. Miracles do happen. But we cannot design an investment strategy on faith in miracles. The most sensible thing to do is to build forecasts with rational expectations. What we are affirming here is that we cannot make a copy and paste of the graph. 2023 will not be another 2020-2021. It’s a matter of math. The market will not behave the same during a loose monetary policy as it does during a tightening monetary policy.. Obviously the money supply has an effect on valuations. We can’t hide that with a finger.
The buyer thinks the price will go up. The seller thinks that the price will go down. We have an optimistic forecast on the one hand and a pessimistic forecast on the other. But, to make these projections, it is necessary to carry out a study of the demand. Carrying out a demand study without taking liquidity into account is not the smartest thing in the world. One thing is linked to the other. In the investment world, faith alone is not enough. You also need to have the money. Faith and strength.
There is a very common cognitive error among retailers that is the main fuel of bearish leg rallies. The concept of “cheap”. The thing goes like this. The asset has dropped a lot in price. Hence “cheap”. What is automatically interpreted as a buy signal. When many people think the same way, this notion can cause a (temporary) boost. That rise confirms optimism. So, that confirmation brings more optimism. A self-confirmation cycle is formed. At that point, the market becomes irrational. The market is getting further and further away from reality. But sooner or later, the correction comes. Very often, this correction comes in a violent way.
The question: Why do you think the price will rise? You should always have a reason to buy. Demand is going to go up because of this. Demand is going to go up because of that. The investor must look to the future. The market is not good or bad. The market is going for better or for worse. That means that the most important thing is tomorrow’s demand. “Cheap” is the time before an increase in demand. In other words, not every drop is a buying opportunity. And not every rise is the beginning of recovery. Eye!
Is this the floor? Ah, that’s a much more complicated question. Because this market can swing very erratically. Doubt and uncertainty generate a lot of volatility. Y volatility goes up and down. Now we are in the middle of an optimistic streak. However, this lasts until it lasts. Any setback can cause a new fall. So is this. False promises are our daily bread during a bearish period. The floor is normally decreed in hindsight. In the heat of the moment, it’s very hard to admit.
People get excited, because hikes are exciting. So, the change of feeling is normal. The comments and questions have not stopped lately, because increases arouse greed. It is normal. But this very normal phenomenon is as typical of a bull trap as it is of a flat. It is important to take into account that both scenarios are possible.
To do? As always. Weigh the risks and opportunities. Forecast from probability. And always manage the risk in case our forecast does not come true. What happens if my forecast does not come true? How will my lifestyle be affected? Will I be able to meet my debts and commitments? This applies to both long and short. These are times of great volatility and uncertainty, here anything can happen. Take the necessary forecasts. Prudence, good sense, patience, and management.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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