Binance released its highly anticipated proof of reserves (PoR) on Friday, providing blockchain-based evidence for the Bitcoin on its books. However, many in the crypto community question Binance’s approach, and aren’t fully convinced that they have the transparency they’re looking for. The Move to Proof of Reserves As Binance explained in its announcement, the exchange’s transparency system will add multiple tokens and networks within the next two weeks. For now, it solely validates its Bitcoin holdings. The company’s initial audit…
In the cryptocurrency space, a bull market is one whereby the prices are expected to rise significantly or are rising. Due to the volatile nature of crypto, the term “bull market” is reserved for more extended periods characterized by the rise of a large portion of the prices. To be categorized as a rise, the price must be up 20% after two declines of 20% each.
There is optimism, expectations of solid results, and investor confidence in a bull market, among others. The most notable bull market was between 2003 and 2007. Over that time, the S&P 500 increased by a substantial margin after a previous decline.
How to Identify a Bull Run in the Crypto Market
It is difficult to predict when the market might change, and hence no specific and universal metric can be used to identify a bull market. However, there are some pointers that you can use to identify a bull run in the crypto market.
Bullish Percent Index Indicator
Investors can use the bullish percent index (BPI) to gauge the general market health. The BPI indicator is calculated based on a total number of problems generating point and figure signals in an index or industry and divided by the total number of stocks in the group. When the BPI stands above 70.0%, the main rule of the bullish percent index is that the market is overbought hence bullish. When the market is oversold, the indicator is below 30.0%, which means that the market sentiment is bearish.
The bullish percent index works well on a weekly time frame hence is not efficient for day traders. However, they can identify when the market is likely to reverse. Therefore, they can work with the information and use it besides their trading strategy, and they can remain on the right side of the markets.
Telegram Activity and Medium Statistics
For the most part, telegram groups around cryptocurrency might not have any interesting posts and discussions with a lot of engagement. Usually, they may have some forwarded articles or breakthrough news links hoping to push the price of a particular crypto. However, note that these groups are mainly analytic and discussion groups and not pump and dump groups.
When a bull run is approaching, there might be more activity in these groups. Folks might be discussing price, adoption, mainstream media articles, applications, and any good news with solid details to back it up. These topics increase the confidence levels everywhere. Hence, a pointer to a bull market.
This factor does not apply to everyone in the crypto space. For crypto writers on medium, your medium statistics are pretty flat since the beginning of 2018, when there was a bear market. If the stats start rising, it is a give-away that a bull run is coming.
With stats rising, more retail users are looking for knowledge around crypto, showing increased demand.
Correlation between BTC and Alts
When it is a slow time for cryptocurrencies, Bitcoin and altcoins go hand in hand. However, when there is a bull run, Bitcoin tends to relieve itself from other altcoins and starts to move on its own. When there is no correlation between Bitcoin and the other crypto, Bitcoin dominates growth in the entire market.
So, when the correlation gets vague, a Bitcoin or the entire crypto market bull run is quite near or has begun.
Charles Edwards brought about this concept. He is the founder of Capriole Investments, a licensed asset management firm that specializes in Bitcoin.
The bitcoin hash ribbon is a metric that indicates the amount of computing power in use in the Bitcoin network at that time. For authenticating Bitcoin transactions, computing power is used. Hash Ribbon assumes that Bitcoin will reach a bottom when miners capitulate. It means that Bitcoin is becoming costly to mine due to the cost attached to mining.
When it is growing, it shows that more transactions have to be dealt with daily. Consequently, this means that the trading volume is increasing. In turn, investors can get a hint from this as it shows the price of Bitcoin will rise. Miners receive a bit less when Bitcoin is being corrected and sell their coins for capital. Some even shut their machines which reduce the network hash rate overall.
Hash ribbons show market sentiments; hence traders have a way of predicting the shift in prices. Historically if the price of Bitcoin rises, so do other cryptocurrencies. By tracking the hash ribbon of Bitcoin, it can give you insights into the whole cryptocurrency market.
How to Take Advantage of the Bull Market
As an investor, there are many ways you can benefit from the rising prices in a bull market. Even though it is hard to determine when the bottom or peak will occur, losses will be minimal or temporary. Here are a couple of strategies that you can utilize:
Buy and Hold
The method is the most basic when it comes to investing. It means buying a cryptocurrency and then holding onto it to sell it at a later date. In a bull market, the optimism that comes with it helps fuel the strategy.
Full Swing Trading
The method is quite aggressive in attempting to capitalize on a bull market. Investors take very active roles using short-selling and other techniques to try and gain maximum returns as shifts occur in the larger crypto bull market.
A retracement occurs at a brief time when the general trend in the crypto price gets reversed. The prices are not constantly rising in a bull market. There are always short periods in between when there are small dips, even as the general market is moving upwards.
As an investor, you can look for retracements within a bull market and buy during these periods. Behind the strategy, presuming that the bull market continues, the price will go up quickly. In turn, the investor will buy the asset at a discounted price hence can profit from the rise.
2021 has been a rather eventful year for cryptocurrencies in general. Losses and profits are widespread in the cryptocurrency market. With the pointers listed above, you can identify and get a head start in a bull market and eventually profit from it. However, that does not mean that these are the only pointers. Doing your research before investing is very crucial to make an informed decision.
Since most of the information is online, it is easier to predict the market. There are also new tools that give insights on the market using algorithms. With both these tools and following discussions on social media, you have a head start in trading crypto.