W hen trying to make a profit in the markets, investors develop all sorts of ideas, testing each one in turn to see which one works the best.However, there’s one trend no investor can escape from, no matter what type of asset they’re trading: cyclicality.
The existence of an economic cycle and a business cycle is no longer up for debate, but believe it or not, cryptocurrencies trade in a cycle of their own.Although cryptocurrencies are known for their wild, instantaneous price swings, there are clear cycles that can be tracked and, in some cases, potentially used to inform investment decisions.
Each cryptocurrency tends to follow its own cycle separate from the broader market, although the broader market does impact their prices (more on that below).Similarly, fiat currencies like the U.S.dollar and the British pound have their own cycles that include stages like money printing during economic downturns.However, a fiat currency’s cycles are also influenced by the broader economic cycle.
Stocks are also influenced by the broader business and economic cycles, although they share one similarity with cryptocurrencies.There is one event that comes around every three months like clockwork that can and often does serve as a key catalyst for individual stocks, which is their earnings report.
What is a halving in cryptocurrency? Of course, cryptocurrencies don’t issue earnings reports because they aren’t companies with earnings to report.
However, there is one kind of event that happens at least somewhat regularly in many digital currencies.These events are called halvings, and they usually serve as major catalysts for price moves in the cryptocurrencies in which they occur.
Halvings occur when the supply of new tokens or coins of a particular cryptocurrencies is suddenly cut in half.At the same time, the reward for mining the cryptocurrency is also cut in half.As a result, halvings only occur in proof-of-work cryptocurrencies like bitcoin because they are a regular part of the mining process.Every time a halving occurs, it slashes the inflation rate, which theoretically has the potential to increase the price of the cryptocurrency.
The pattern of halvings is one of the most critical factors in a cryptocurrency’s trading cycle.
Many crypto investors try to use this pattern to determine which part of the trading cycle would be good to buy more or sell in.
However, trading around a token’s halving differs from one cryptocurrency for another.For example, some tokens see their prices increase leading up to a halving, while others see them rise after a halving.Thus, crypto investors may want to study up on the digital currencies they want to trade cyclically.
Bitcoin Bitcoin (BTC), the first workable cryptocurrency, goes through a halving every four years, with past halvings occurring in 2012, 2016 and 2020.
The next halving is expected in 2024.
This four-year cycle in the bitcoin price is quite strong, although it usually takes several months after a halving to see a response, historically in the form of a sustained bull market.
After the last halving, BTC peaked at around $67,000 before tumbling back to a low of around $16,000 in 2022.Historically, BTC prices have risen after each halving, but with the cryptocurrency being the most popular one, the market often anticipates the halvings.
Mark Yusko, founder and CEO of Morgan Creek Capital Management, said recently that the “crypto summer,” a period of rising prices, often begins about nine months before a halving .
Litecoin Many investors are also familiar with Litecoin (LTC).
Its halvings occur roughly a year before bitcoin’s halvings.So far, Litecoin has had two of them, in 2015 and 2019, and the next halving is expected on August 3, 2023 .
The LTC price has touched record highs over the year-and-a-half that followed each of its previous halvings.
Vertcoin Vertcoin (VTC) is a less-well-known cryptocurrency that features specialized application-specific integrated circuits that require all mining to be done via home computers.
The cryptocurrency has seen two halvings so far, in 2017 and 2021, and the next halving is expected in December 2025 .
Over the 12 months leading up to each of the previous Vertcoin halvings , the price increased significantly.However, a bear market starting on the date of the halving followed.
Verge Verge (XVG) has seen the most halvings of any cryptocurrencies, with 14 occurring since its launch in October 2014.The most recent halving occurred in September 2022, and the next is expected to occur on Mar.
27, 2023 .
Unlike other cryptocurrencies that experience halvings, there’s no clear correlation between the XVG halvings and its price action.For example, three of the halvings since 2019 occurred during bull markets, while three occurred during bear markets.
It seems likely that the rapid frequency of halvings on the Verge blockchain doesn’t give the market enough time to respond before the next halving occurs.
Bitcoin Cash, Bitcoin Gold and Bitcoin SV These three cryptocurrencies all resulted from hard forks of Bitcoin, so their halvings occur around the same times as Bitcoin’s.However, it’s unclear what impact their halvings may have on their prices because the entire cryptocurrency market tends to revolve around the price of bitcoin.
Seasonal Tokens The Seasonal Tokens economy contains four tokens: Spring, Summer, Autumn and Winter.The tokens are designed to cycle around each other over the course of years so that investors can steadily trade one type of token for a greater number of another token.
( Disclaimer: Seasonal Tokens is a client of Quantum Media, LLC.; the author is the CEO of Quantum Media)
A halving occurs on the Seasonal Tokens economy every nine months, slicing the production rate of one of its tokens in half.As the market gradually adjusts to the reduced supply of the token, its price steadily increases, changing it from the cheapest of the four tokens to the most expensive.
The first halving on the Seasonal Tokens economy occurred on June 5, 2022, slashing the production rate of the Spring token in half and gradually raising its price until it became the most expensive of the four tokens.
The next halving is due to take place on March 6, 2023 , nine months after the last one, and it will slash the production rate of the Summer token in half so that it becomes the most expensive of the four tokens.
How to use cyclical trading to try to increase wealth With more than a decade of trading in cryptocurrencies in the books, it’s become clear that the periodic supply shocks induced by halvings result in clear cycles on the proof-of-work blockchains, which require mining to unlock new tokens.Investors who take the time to study these cycles may be able to trade around them to generate crypto profits and build wealth.
However, trading around these cycles is still a challenge because every cryptocurrency appears to behave differently.
As a result, traders are advised to study the price history of each token to determine whether the best time to buy or sell is before the halving, like with Vertcoin, or after it, like with Bitcoin.
Unfortunately, there are only a handful of examples in each cryptocurrency, making it risky to generalize.Additionally, the absence of a neutral reference currency makes this task even more difficult.Comparing a token’s price to the dollar or some other unrelated currency just increases the noise surrounding attempts to trade around the cycle.
Seasonal Tokens attempts to solve this problem by having four tokens, three of which can be used as benchmarks in every halving so that the effects can be seen in their price charts.
Final caveat: beware other drivers of crypto prices It’s also important to note that the cryptocurrencies can themselves be influenced by the economic and business cycles that affect the prices of all other asset classes.However, when you strip those influences away, the underlying cycles around each token’s halvings may be useful in making investment decisions on several of the cryptocurrencies discussed above.
Disclaimer: Seasonal Tokens is a client of Quantum Media, LLC.
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