What drives crypto and other markets? The Market Cycle
Increasing investment returns is possible when you understand how markets work. What is there to learn?
All asset classes have at least one thing in common: their values constantly fluctuate, whether in crypto or stocks. JumpTask looked at market fluctuations in its previous article.
However, there’s more.
Not only do asset prices fluctuate, but these movements are cyclical, meaning they repeat over time and can be predicted.
Discover how investors can increase their returns and avoid losses, as well as find out about the JumpToken’s ($JMPT) recent price performance.
> $JMPT shows strong performance in September, currently at $2.77;> Market cycles are asset value fluctuations happening repeatedly;> Understanding cycles helps to avoid losses due to panic selling instead of HODL;> Psychology and economics play an important role in driving market cycles;> Investors should pick assets or projects only after due diligence and research.
What is the market cycle?
A time period between asset values increasing and decreasing, which repeats over time, is called a market cycle.
Starting at the bottom and increasing gradually, prices begin to grow rapidly until the peak.
From there, asset values tend to level off and eventually decline before the next cycle begins.
Two main reasons why every crypto investor should know this:
- The market cycle explains that asset values are volatile. This helps to understand that sometimes losses are inevitable. However, HODL can work in the long-term, as asset values tend to return to previous heights.
- Understanding the cycle helps to decide when to enter and exit a specific market to increase profits. For example, investors understanding the cycle could avoid panic selling when prices decline.
The four stages of the market cycle
In the first stage, the previous cycle ends, or new technology or innovation appears. Here, the asset prices are the lowest.
Expert and institutional investors come into the market, trying to buy the assets at a discounted price. In the case of emerging technology such as crypto, early adopters invest before the innovation goes mainstream.
As the cycle continues, the market sentiment displays growing positivity. Technology or assets become more popular, and early majority of investors join in. This is also known as the bull market.
By the end of the mark-up stage, the psychology of retail investors leads to more people investing and expecting that asset values will continue to grow. Conversely, institutional investors (whales in crypto) start selling.
In this part, investors’ expectations become mixed. The aggressive rise in asset values decreases, and prices can fluctuate in a narrow range for days, weeks, or even months.
At the end of the Distribution phase, some investors see a buying opportunity, as there can be short-term, final rallies. However, others fear that the bull market is coming to an end: selling pressure dominates.
The fourth stage marks the end of the cycle. Asset values decline, and selling at a loss intensifies further. However, others hold their assets with hopes that they might increase in the next bull run.
This stage also marks the beginning of a new cycle. Institutional investors are coming back to the market and looking for new opportunities.
The first-ever Bitcoin stratospheric run-up in 2018 displays the bell-curved market cycle well:
Why do the market cycles happen?
There are two main reasons why cycles happen:
1. The Business Cycle
The market cycle is driven by what happens in the economy. Economic activity has a cycle of its own — the business cycle. In short, it is caused by economic variables such as inflation, unemployment, and interest rates.
For example, if investors expect economic growth to slow down, the expectations of companies’ earnings go down too. Investors are unwilling to pay a lot for stocks, which drives the overall market downward.
As a result, both cycles are closely linked. If investors see an economic downturn (end of the business cycle), they will likely cash out and accumulate gains before another buying opportunity comes along.
2. Investor Psychology
Another factor driving the market cycle is human psychology. Investors are prone to making decisions based on fear and overconfidence. Two main principles are:
- Fear of missing out (FOMO). This phenomenon typically occurs in the mark-up or distribution phase. Investors don’t want to miss out on gains and buy without properly researching projects and companies.
- Hot hand fallacy. Hot hand is a belief that an individual or entity is more likely to have continued success because one has had a string of successes.
In the case of investing, people begin to believe that previously profitable assets will continue to go up in value indefinitely. As described earlier, however, the market cycle will end sooner or later.
Understanding market cycles can help with investing strategy. However, investors should keep in mind the following points:
- Timing is challenging. Cycles can last for years, months, or even weeks: it is difficult to assess the cycle stage and decide when to invest. However, understanding psychology helps to avoid selling at a loss.
- The cycle may come to an end. Individual stocks or crypto projects might fail, and their values could go to zero without rising again.
As a result, crypto investors should pick projects only with strong tokenomics, business fundamentals, and a long-term growth plan.
$JMPT price performance
JumpToken’s 1 month price performance showed fluctuations but continued to grow.
$JMPT stood at $2.11 a month ago before increasing sharply to approximately $2.80. There was a dip back to $2.50 before $JMPT recovered.
While zooming out, JumpToken is currently up 22.56% since the start of the year.
It’s also important to note that JumpTask is still in its infancy stage, launching only in January 2022, which means there is still room for price growth as the ecosystem expands.
To drive through the current market cycle as smoothly as possible, JumpTask stands on four pillars that will keep the $JMPT price rising:
1. Constant demand loop
As more partners join JumpTask, they purchase $JMPT to distribute to users for task completions. This keeps the demand for JumpTokens stable and supports the price.
2. New platform features
JumpTask continuously improves its platform, introducing major updates regularly such as tiered staking, which also supports $JMPT demand.
3. Expanding task offering
With 5+ modules already, JumpTask is rolling out new money earning types and attracts new audiences of earners. This helps to drive the overall $JMPT turnover higher.
4. Growth potential
JumpTask targets the $400B gig economy sector, which offers a massive future adoption opportunity for $JMPT and, in turn, its price growth.
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