Bulls and bears are not archenemies. In other words, “bullishness” or “bearishness” are not ideologies that are chosen on a whim. They are not tribes. They are not identities. It is also not a matter of being a permanent bull or a permanent bear. Sports metaphors are often used to illustrate the ups and downs of the market. However, deep down, We are not talking about two sides at war. Therefore, it is quite absurd to call someone a “bullish” or “bearish” with the intention of disqualifying them.
Here we are talking about forecasts. In other words, it is not a question of taking one party instead of the other. Because it is not partisan politics. In the case of a forecast, what is actually being done is a future projection of the price, based on the available information and probabilities. So the forecasts are likely or unlikely. And we make forecasts to make our assessments. Then, with these valuations as a reference, we proceed to buy, sell, or wait.
Markets fluctuate. So our forecasts cannot be the same all the time. If the goal is to buy at the lowest possible price to sell at the highest price in a reasonable period of time, we must be selective when entering or leaving. That implies that our forecasts must not be fixed and dogmatic. They must be objective. And they must adapt to the times.
Let’s talk about the bad forecaster. I am referring to the emotional and deluded subject who, in general, thinks in absolute terms. It requires precision and certainty. Purchase. And he turns bullish because it suits him to be bullish. He confuses aspiration and desire with prognosis. This individual even tends to fall into superstition. Because he thinks the market is going to move according to his wishes.
It goes something like this: Your bullish faith sends bullish vibes out into the universe. The universe, in reaction, responds to your bullish vibrations by raising market prices. Why? Because optimism creates optimism. So the opposite is also true. Any bearish forecast will attract bad luck and should be avoided at all costs.
Unfortunately, applying this kind of magical realism in the world of investments is the most efficient method of losing money.. Whether we like it or not the market moves independently of our wishes. The naive investor only accepts the reality that suits him. And he only hears what he wants to hear. And there is nothing sweeter to naive ears than a bullish prediction.
Denial is an evil that causes blindness during a down cycle. That usually happens, because there is an excessive reliance on past events when creating expectations. Because of this bias, any drop in price is automatically assumed to be a buying opportunity. That is, if the price continues to fall, this implies that the price is getting cheaper. Therefore, during a bearish cycle, you have to buy with your eyes closed. ANDThese are irrational expectations. And they are the main food for bull rallies during a bear cycle.
During the last decade, all bearish cycles have followed a similar dynamic. The price reaches a maximum. Then the price falls and falls for months. But, in a matter of a year or less, a fund is consolidated. Then the market gradually starts to rise for another year or two. Finally, the previous maximum is exceeded. A new bullish cycle is formed and a new all-time high is generated. That is, “no one who has waited more than 3 years has lost money.” Of course, the big winners of the season are those who bought the fund.
This past influences our expectations. The price has fallen a lot. And almost a year has passed since the beginning of the falls. So, the question arises: Is this the bottom? Many say: “Bitcoin has fallen too far. It is extremely cheap. Impossible to fall more. Now is the time to buy.”
Obviously, in this case, to establish how “cheap” or “expensive” the asset is, the past is being used as the main reference criterion. And, when making a forecast, the most important thing is not the past, but the future. A bottom marks the end of pessimism and the beginning of optimism. Of course, this optimism is due to a cause. That is, conditions have changed in significant ways and expectations have been turned upside down. It’s not about how much the price has dropped. It’s about how much the price will go up. It means that tomorrow the price will rise, because there will be a substantial increase in demand.
What demand? In the past, investors bought in anticipation of the arrival of institutional capital. In fact, this has been the dominant narrative since 2016 for the price of Bitcoin. How do we manage to recover after the crash March 2020? How did we manage to reach $67K per unit in 2021? What forces drove the previous two bull cycles?
You don’t have to be a genius to know that the stimuli from the United States Federal Reserve played a fundamental role. These stimuli created a boom speculative investment that motivated institutions to invest in risk and growth assets. So, now, in the face of this new macroeconomic paradigm, it would be very naive of us to make forecasts by drawing lines on a graph. Is it rational to use the patterns in the 2018, 2019, and 2021 charts to predict what will happen in 2023, 2024, and beyond?
Thought question: What would 2020 have been like without stimulus from the Federal Reserve? Would he have given boom bullish in the markets? There is talk of institutional demand. Well, let’s talk about institutions. How have you been this year? How are those books? How is the clientele? How is the income? How is that willingness to take risks? What are the expectations for next year? Are you ready to buy again?
We cannot talk about the price of Bitcoin without talking about the demand. Suppose we have a fast food stall on the street. How sensible would it be to make projections without taking into account the clientele? Would it be rational to expect that it will sell the same in all circumstances? Doesn’t having (or not) money in your pocket influence sales?
Consider a company like Cathie Wood’s Ark. How much money have you lost lately? It would be very bold to assume that these losses (realized or not) do not represent a serious enough blow to the morale of their clients. Undoubtedly, many of them have already taken their forecasts to his face in full bullish euphoria. Many gave up their savings upon hearing his optimistic predictions, only to see those savings plummet into free fall soon after. But Cathie Wood is not alone in this thicket. All institutions, to a greater or lesser extent, are going through a rough patch right now.
Yesterday, Wednesday, Jerome Powell, director of the Federal Reserve of the United States, announced a new increase in interest rates by another 0.75%. An increase that surprised no one. But markets were also waiting to hear the statement itself so they could get a reading of the tone. Well I’m afraid this time the tone turned out to be more aggressive than the market wanted. Many are already beginning to suspect that October’s bull rally was based on false expectations of a Fed turn or pause. Powell set about destroying those expectations, making it clear (again) that the Fed is not going to stop until it achieves the 2% annual inflation target. And this process may take longer than anticipated. In conclusion: We still do not have the necessary clarity to make forecasts so full of absolutes and certainties. In such complex times, it is more prudent to doubt than to affirm.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein 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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