"The Way of Investment in the Crypto World: Understanding Cycles and Grasping Human Nature"
The crypto world, like the rise and fall of dynasties, is rooted in human greed and the pursuit of profit. In crypto investment, it is essential to grasp the following key points:
1. The Three Major Laws of Crypto Cycles
- No straight line, only curves: rises and falls alternate, with causal relationships; during rises, there is potential for falls, and during falls, there is potential for rises.
- Cycles are not the same but only similar: trends can be measured, but amplitudes are hard to predict due to randomness; the range of rises and falls varies each time.
- Less time in the middle, more time in extremes: the crypto world fluctuates around the mean, often trending toward extremes, then reverting to the mean, and then reversing to extremes.
2. The Psychological Cycle of Crypto Investors
The psychology of crypto investors swings like a pendulum between excitement and frustration, greed and fear, rarely finding moderation. Their attitude towards risk is also cyclical, ranging from excessive avoidance to excessive tolerance.
3. The Market Cycle of Crypto
- A combination of various cycles, influenced by fundamentals and psychology, which also react back on both.
- Prices can significantly deviate from intrinsic value due to investor sentiment, containing both investment opportunities and risks.
- Bull and bear markets are divided into three phases; a bull market starts with a few discerning an improvement in fundamentals, leading to a widespread belief and a surge, while a bear market is the opposite.
4. Three Steps to Respond to Cycles
- Awareness: Use key indicators to measure market valuation and sentiment, and determine the position in the cycle.
- Courage: Practice "when others are greedy, I am fearful; when others are fearful, I am greedy," and operate against the market trend.
- Preparation: Be ready for errors caused by people, external markets, and the market itself to ensure survival in the crypto world.
In summary, crypto investment requires understanding the laws of cycles, grasping human nature, and responding cautiously to find opportunities amid fluctuations.
