The following is a guest post by Evgeny Filichkin, investment advisor at Keytom neobank.
As Bitcoin broke the $69,000 level and reached an all-time high, the so-called ‘euphoria zone‘ — a phase of the market cycle characterized by extreme optimism and speculative frenzy among investors.
With the upcoming April halving just around the corner, all the hype surrounding it only serves to invigorate it further. This sentiment causes BTC rates to rise as more investors enter the market, perpetuating a self-reinforcing cycle of optimism and higher prices.
But what can we expect to happen once the event hits the market? Halvings have historically had a huge impact on investor behavior patterns, and we’re already ahead of the curve this year. So how should investors change their strategies amid the current surge? Let’s take a closer look.
Halvings in 2020 and 2024: How will the Bitcoin landscape change?
This halving will be the fourth in BTC history. Since its previous events in 2020, Bitcoin has made great strides towards mainstream adoption, highlighted by notable developments in its regulatory framework and technological infrastructure.
One of the most recent events is the introduction of Bitcoin ETFs to the market. contributed greatly It takes positive investment sentiment to a new level. Approval by the US SEC marks an important milestone in recognizing Bitcoin as a legal investment asset. The ETF also expanded access to BTC for new investor segments, including financial advisors and capital markets allocators. This broad approach attracts significant capital inflows.
As Bitcoin continues to gain traction among institutional investors and retail traders, excitement surrounding the 2024 halving and its potential impact on market dynamics is growing.
How might the timing of record highs affect investor sentiment?
Historically, Bitcoin has experienced notable price fluctuations due to halving events due to a decrease in block rewards. The supply of new BTC entering the market has decreased. As demand increases and availability becomes limited, Bitcoin’s appeal has amplified, resulting in greater investment interest.
However, preparations for the 2024 halving have already set them apart in a unique scenario where Bitcoin has reached a new all-time high of $73,000 well ahead of the event itself. This departure from historical patterns suggests that market sentiment is moving ahead of historical patterns, and the dynamics following the April halving could be significantly different from previous instances.
The old trading adage “buy on the rumor, sell on the news” may be apt in the context of this year’s Bitcoin halving. Driven by anticipation of the event, investors are actively accumulating Bitcoin and “buying the rumor.” However, once the event has passed, they can engage in profit-taking instead of pushing the price higher, thereby “selling the news”.
Given that market dynamics this year are moving faster than previous cycles, once the halving event passes, the BTC price will have no room to rise further around that news. If investors choose to pursue profits, this will result in periods of price revisions and rebalancing, reflecting the market’s ability to price in future events and adjust accordingly.
Beware of succumbing to the euphoria zone
Investors should remain cautious and maintain a balanced approach to investing in Bitcoin. This is especially true during periods of euphoria like the one we are seeing right now. It’s natural to feel excited about the potential for big gains, but the euphoria zone is also characterized by increased volatility. Many investors may overlook the fundamental factors driving Bitcoin’s value and instead focus only on short-term price increases, which can lead to unsustainable market dynamics.
Meanwhile, price corrections are a natural and necessary part of the upward trajectory of any asset for a number of reasons. Rapid and sustained price increases can lead to overvaluation, where asset prices exceed their intrinsic value. This can create a speculative bubble, Investor Vigor More than anything. Pricing helps deflate these bubbles, bringing asset prices back to their true values and restoring market balance.
It is difficult to say for sure when this revision will be made. Traders should remember that markets generally have no fixed highs or lows. Just because asset prices have already reached a peak doesn’t necessarily mean they should fall again. And vice versa. This highlights the unpredictability of the market and the need for caution when making trading decisions.
As investors navigate the opportunities and uncertainties posed by the 2024 halving, a proper understanding of market dynamics and risk management strategies is essential to maximize potential returns. If you are planning to invest in BTC, make sure you are investing for the right reasons after proper consideration of its long-term viability and associated risks.