The Bull Market Trap

A Bitcoin bull market has four recognisable stages. Each one attracts a different type of participant — and each one ends differently for them.

Stage one: the quiet recovery. Price has been low and boring for months. Long-term holders are accumulating. No media coverage. The people buying here understand what they’re doing and why.

Stage two: the awakening. Price starts moving noticeably. Financial media begins paying attention. Early movers who bought in stage one start seeing significant gains. Some take partial profits. Others hold. The narrative shifts from “Bitcoin is dead” to “Bitcoin is interesting again.”

Stage three: the mania. Price is moving fast. New buyers flood in — many with no prior knowledge of Bitcoin, motivated entirely by the price movement. The narrative is now “don’t miss out.” This is where the largest number of people enter — and where the largest amount of money comes in.

Stage four: the blow-off top. Price reaches levels that feel impossible not to be excited about. Euphoria is total. Predictions of even higher prices circulate constantly. And then, usually without warning, it reverses.

The people who bought in stage one have large gains and the conviction to hold through what comes next. The people who bought in stage three and four face the full force of the bear market — often having put in significant amounts precisely when prices were highest.

Knowing the stages doesn’t tell you where you are in the cycle. But it changes how you interpret the feeling of the moment.

Tomorrow: the four stages of a bear market — and where most people sell.

— The Daily Bit