Sharp violent drops are followed by weeks of sideways price action.

Retail investors who haven’t been through a full market cycle fail to take profit, and are rekt.

Anyone who bought the top is now at risk of selling the bottom.

Cryptotwitter agonizes over a trendline for months.

Bearish analysts who offer historically accurate price projections are eviscerated

With each new low, a chorus of social media influencers insist that price has just bottomed, that only fools don’t buy the dip, and that alt season is just around the corner.

Bullish relief rallies are met by whales shorting the futures markets, regulatory FUD, high-volume institutional market selling, bagholders exiting at support-turned-resistance, exchange hacks, ICO scandals, last month’s FUD repackaged and rereleased as this month’s FUD, and poorly-explained liquidity dumps somehow loosely and improbably related to Mt. Gox.

The final drop happens suddenly, on high volume, triggering an impulse wave of stoplosses and panic selling. It appears as a long wick on the daily chart.

Many retail investors have just sold the bottom.

Prices that technical analysts have been salivating over for months are available for a handful of hours.

This happens in the middle of the night where you live. Anyone who didn’t place buy orders sleeps through the bottom.

In the end, Bitcoin touches bottom roughly 80% below all-time-highs.

This brings its retrace to roughly the same levels as all previous Bitcoin bear markets.

Accumulation of Capitulation

Our tour of Bitcoin’s market cycle is complete.

Post-capitulation, the retail market will be processing shock and awe.

The low volume weeks and months that follow are a time of opportunity for savvy retail buyers with fiat available on the sidelines.

Bear market buying must be done strategically — I recommend @TheCryptoFam’s excellent tweetstorm on this subject. (Read it here.)

Bitcoin’s Market Cycle is the Cryptocurrency Investor’s North Star

Knowing how to operate effectively as a crypto investor is predicated on awareness of one’s position in the cycle.

Though awareness of one’s position is not a guarantee of profitability. Far from it.

Just like following the north star doesn’t mean you’ll find your way.

But awareness of the star’s presence paints a frame of reference on top of the world, one that makes a life or death difference if you’re adrift at sea.

The metaphor obviously extends to your portfolio in a bear market.

The Fifth Parabola

Whenever we think about the future, it’s important to remember the one and only thing about the future we know for sure.

Which is: we don’t know what’s going to happen.

This forces us to think in probabilities.

Which brings me to a hypothetical question.

Picture a financial instrument: from its inception, it has done one specific thing, and done it cyclically, four times in eight years, at ever-increasing rates of scale.

The question:over the next few years, what’s the highest probability scenario for that asset’s future?

Do you think Bitcoin will stop doing the thing it’s done four times in a row?

It could. That could happen. We have to acknowledge that.

But is that the highest probability scenario?

No. Absent poor fundamentals, an object in motion tends to stay in motion.

And Bitcoin’s fundamentals have literally never been stronger: the New York Stock Exchange announced it will offer cryptocurrency custodial services and a Bitcoin futures contract; Goldman Sachs announced it’s opening an institutional crypto trading desk, and spent $300 million to acquire Poloniex, a top cryptocurrency exchange; Japan, South Korea, Singapore, Switzerland and the UK continue to lead their regions in crypto-friendly regulation; Mastercard just filed a patent for a cryptocurrency fractional reserve system (what could go wrong?); the SEC continues to deliberate on a Bitcoin exchange-traded fund; and the Lightning Network continues to grow, having already made Bitcoin transfers between institutions near-instantaneous.

The highest probability scenario is that the market cycle repeats itself a fifth time.

And that Bitcoin and altcoins go on another exponential parabolic bull run.

(And crash afterwards.)

So Position Yourself For It Now

Now, and in the months that follow. As best you can. While prices are still low.

The two most important skills to learn in preparation for the next cycle:

1. Risk management. Success can’t happen without it.
2. Learn how to take profits during (and after) a parabolic advance. Become a devoted student of this arcane, insanely relevant skill.

(I am not a financial advisor, and this is not financial advice.)