Below is a guest post from Evgeny Velichkin, Investment Advisor at Keytom neobank.
When Bitcoin surpassed $69,000 and hit a new all-time high, this led to the so-called “Ecstasy zone– A stage in the market cycle characterized by extreme optimism and speculative madness among investors.
As the next half of April approaches, all the hype surrounding it is only adding to the exuberance. This sentiment causes the price of Bitcoin to grow as more investors rush to buy into the market, perpetuating a self-reinforcing cycle of optimism and rising prices.
But what can we expect to happen when the event hits the market? Halvings have historically greatly influenced investor behavior patterns, and we are already ahead of the curve this year. So, how should investors change their strategies amid the current rally? Let's take a closer look.
Halving 2020 vs 2024: How has Bitcoin's backdrop changed?
This will be the fourth halving in BTC history. Since the previous event in 2020, Bitcoin has made significant strides towards mainstream adoption, which is confirmed by notable developments in regulatory frameworks and technological infrastructure.
Among the recent events, Bitcoin ETFs have also appeared on the market I contributed greatly To drive positive investor sentiment to new heights. Its approval by the US Securities and Exchange Commission marks a major milestone in the acceptance of Bitcoin as a legitimate investment asset. Furthermore, ETFs have expanded access to Bitcoin to new segments of investors, including financial advisors and capital market professionals. This broader reach calls for a significant influx of capital.
As Bitcoin continues to gain traction among institutional investors and retail traders alike, anticipation surrounding the halving event in 2024 is heightened, with expectations of its potential impact on market dynamics.
How might the timing of a new all-time high impact investor sentiment?
Historically, Bitcoin has seen notable price fluctuations following halving events, as a decline in block rewards led to… It led to a decrease in the supply of new BTCs entering the market. With increasing demand and limited availability, the appeal of Bitcoin is increasing, leading to more investment interest.
However, the run-up to the halving in 2024 has already distinguished itself in a unique scenario with Bitcoin reaching a new all-time high of $73,000 long before the event itself. This departure from previous patterns indicates that market sentiment is ahead of historical patterns, and dynamics after the April halving may differ significantly from previous cases.
The old business adage “buy the rumor, sell the news” may be relevant in the context of Bitcoin’s halving this year. Driven by anticipation of the event, investors are actively accumulating Bitcoin, thus “buying the rumor.” However, once the event passes, they may engage in profit-taking rather than push prices up, thus “selling the news.”
Since market dynamics are taking place faster this year than in previous cycles, once the halving event passes, the BTC price will likely have no room to grow around this news. If investors choose to take the profit-taking route, this will reflect the market's ability to price in future events and adjust accordingly, leading to a period of price correction and recalibration.
Be careful about giving in to the trance zone
Investors need to be careful and maintain a balanced approach to investing in Bitcoin, especially during periods of euphoria like the one we are experiencing now. While feeling excited about the potential for big returns is normal, the euphoria zone is also characterized by extreme volatility. Many investors may ignore the fundamental factors that drive Bitcoin's value, and instead focus only on short-term price gains, which can lead to unsustainable market dynamics.
At the same time, price corrections are a natural and necessary part of any asset's upward trajectory for a number of reasons. Rapid and sustained increases in price can lead to overvaluation, where the price of an asset exceeds its intrinsic value. This could create a speculative bubble, fueled by more Investor abundance from any thing else. Price corrections help deflate such bubbles, bringing the asset's price in line with its true value and restoring market balance.
As for when this correction will occur this time, it is difficult to say with any certainty. Traders should remember that markets generally do not have fixed tops or bottoms. Just because the price of an asset has already reached a high point does not necessarily mean that it should fall again. The opposite is also true. This emphasizes the unpredictability of the markets and the need for caution in trading decisions.
As investors explore the opportunities and uncertainties that the halving in 2024 offers, a proper understanding of market dynamics and risk management strategies will be essential to maximize potential returns. If you are planning to invest in Bitcoin, make sure you are doing so for the right reasons, after properly considering its long-term viability and the risk factors associated with it.
