Bitcoin is about to hit an all-time high! Now what?

When newbie investor Sarah* first bought Bitcoin a few years ago, she had no idea what to expect. She'd heard plenty of 'buzz' about crypto, but the market's ups and downs left her constantly wondering if her investment would ever turn profitable. Now, as Bitcoin edges toward a new all-time high price (in USD), she's finally 'in the green' and asking: "What's next?" Sarah - like many investors, both seasoned and brand new - is wondering how to approach this exciting milestone. Importantly, this moment isn't just about value; it's also about understanding what to do when the market heats up. 

New to the game? Understand the cycle!
For newcomers, one of the most important aspects of understanding Bitcoin's price fluctuations is knowing where we are in the market cycle. Bitcoin, in particular, moves through regular cycles marked by (often dramatic) peaks and troughs. Recognising where we are in this cycle can help new investors avoid impulsive moves driven by short-term excitement.

Bitcoin's four-year market cycle is driven by its 'Halving', which reduces mining rewards and consequently the supply of new Bitcoin. This typically leads to an accumulation phase where investors buy in at low prices, followed by a bull market where demand increases, and prices surge to new all-time highs. This peak is often followed by a 'blow-off top', which is a euphoric high where prices spike quickly, often due to intense buying fueled by FOMO (fear of missing out). This peak is usually unsustainable, leading to a swift reversal as demand wanes and investors start selling to lock in their profits. This marks the end of the bull phase and the beginning of a downward, corrective trend, after which a bear market ensues, causing prices to decline. 

Understanding this cyclical pattern helps investors anticipate Bitcoin's price movements and make informed decisions. This knowledge also tempers expectations, encouraging investors to maintain a longer-term view and discouraging reactionary decisions based on short-term market shifts.

The crystal ball: developing your investment 'thesis'
Before making any investment decisions, it's important to consider why you're investing in the first place - i.e. what do you want to achieve? What would be the triggers for you to buy or sell? Developing a clear investment 'thesis' will give you a roadmap that guides your decisions, regardless of whether Bitcoin is soaring or slumping. 

Your thesis might include a focus on Bitcoin's potential as 'digital gold', as a decentralised store of value, or as part of a diversified portfolio. The key is that it's personal - it's your own roadmap that enables you to make consistent, goal-oriented decisions instead of chasing hype or succumbing to market fear.

Avoid the FOMO trap by sticking to basics 
Even for seasoned investors, the excitement of an all-time high can lead to FOMO, causing many to jump into trades or make knee-jerk decisions - especially as prices fluctuate sharply near a peak. 

Here are some time-tested strategies for navigating volatility with confidence:

• Dollar cost averaging (DCA): with DCA, you invest a fixed amount at regular intervals, regardless of the market's highs or lows. This strategy averages out price spikes, minimising the impact of market volatility on your portfolio.
• The HODL strategy: HODL, or "hold on for dear life," is a very popular strategy in the crypto community. This approach encourages holding onto your Bitcoin for the long haul, focusing on the asset's fundamentals and long-term potential rather than frequent, short-term price movements. By holding, you avoid the risk of selling low during temporary drops.
• Diversification: Spreading investments across different types of crypto assets (or even into non-crypto investments) can help you manage your risk. Diversification means that a downturn in one asset is less likely to have a catastrophic effect on your entire portfolio.

The beauty of these strategies is that they are straightforward and accessible, helping investors of all levels keep emotions in check and make decisions grounded in long-term goals rather than volatile market movements.

The crypto market's volatility is challenging; but offers significant potential for those who understand (and respect) the market's unique characteristics. By recognising where we are in the cycle, building a personal investment thesis and applying basic but sound investment strategies, investors can make decisions with clarity and confidence - even in turbulent times.

(*Not a real investor.)