Why Bitcoin Is The Best Performing Currency of 2015 and 2016

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Bitcoin has had a wild ride over the past few years, and 2016 is no exception!

As Bloomberg wrote, “Bitcoin’s Rally Crushed Every Other Currency In 2016.” Why did that happen? Well, let’s start by taking a looking at what’s happened to Bitcoin’s price over the past few years…

bitcoin price chart

The 4 Phases Of Bitcoin’s Price Since 2013:

PHASE 1 – In November 2013, I wrote my first article that was actually bearish on Bitcoin. It was a “warning” that I thought bitcoin was due for a major correction, and that I wasn’t interested in buying at the current price around $900.

PHASE 2 – During 2014, fear set in for many people that bought at the highest prices, and we saw a year-long bear trend. This was a year of active trading for me, where I had some great short trades (betting on price to go down), and even a few big bounce trades.

Most people didn’t even know you could short bitcoin, so there was a huge edge to being a dynamic trader who could make money no matter if price went up or down.

PHASE 3 – In January 2015 I sent a trade alert for a buy at $188. Needless to say, the media and much of the public was VERY bearish (negative) on bitcoin at that point.

But as Warren Buffett says, “When people are scared, be greedy.”

Throughout 2015, Bitcoin’s price stabilized around $200 and held up for most of the year. During that time we saw a significant amount of new startup investment capital.

PHASE 4 – Even though the Bitcoin community took some heavy hits in 2016 (hacks, internal fights about development, and regulatory pressure), the price marched on higher throughout the entire year.

We saw an incredible breakout in the summer of 2016, and a late December bull run to give Bitcoin a new all-time high in market capitalization.

Bitcoin Startups

To date, Bitcoin startups have raised over $1.3 Billion dollars. The amount of innovation and development around the new cryptocurrency economy is one of the most exciting spaces from Silicon Valley to Wall Street.

In the chart below, you can see how bitcoin startup funding started to gain momentum in mid 2015.

bitcoin startup capital

Instead of being overly obsessed with Bitcoin’s price, I like to focus more on the innovation, development, and user adoption around Bitcoin.

There are some incredibly smart and successful entrepreneurs and investors that have been investing in Bitcoin startups over the past few years.

As you can see in this Venture Capital list from CoinDesk, Bitcoin startups have raised $1.342B as of 12/24/16. One of the most prominent VC firms, Andreessen Horowitz, has invested in at least 8 startups.

Global Economic Problems Driving People To Bitcoin

Most people in first world countries haven’t been paying much attention to Bitcoin, because quite frankly, they haven’t NEEDED it… yet.

We’ve had access to basic banking services like checking accounts, credit cards, and business merchant accounts. Unfortunately, over 2 billion people around the world don’t have access to banking services we take for granted.

Also, people are flocking to Bitcoin because of currency controls, hyperinflation, bail-ins, and many more issues…

For example, India just made about 85% of its paper currency illegal. They’ve required people to bring in the most used fiat currency bills to exchange them for new ones. The problem is if someone brings in too much “undocumented cash”, they’ll tax and potentially fine the person.

Also, India has set a limit on the amount of gold a family is legally allowed to own. Gold has been a store of value for Indians for centuries, which is typically passed down through generations. Now the Indian government is searching, raiding, and confiscating gold from families!

 

​3 Benefits of Using a Professional Trading Room

Trading is a zero sum game, which means that for every winner there’s a loser. The markets are highly competitive as everyone’s top goal is to take your money. As a trader you’re going up against institutional investors, professionals, algorithms, insiders, exchange operators, whales, pumpers and dumb irrational money that defies logic.

Most traders lose money, to survive in this jungle you need to have an edge. Joining a professional trading room has many benefits that may increase your win ratio and keep you in the game.

#1: Quality Environment

Not all trading groups are equal. There’s a huge difference between troll boxes, public forums, pump groups and a private professional trading room. On public chats everyone is still your competitor so don’t expect that people have your well being at heart.

Troll boxes are notorious for shilling coins that favour the trader’s position and they are usually run by dumb emotional money. Public forums like tradingview often give better analysis because traders want to build their reputation for accuracy. Pump groups are run by people who trade against and fleece their members.

A professional trading room is run by traders who have a vested interest in making sure their members succeed and make money. Logic states that if the members of a trading group are consistently losing money then nobody will stick around. Usually if a private trading community is growing with active members it’s because people are happy with the service.

#2: Being a Part of a Trading Team

Private trading communities are like being on a team that competes against the rest of the markets. Members of the community will often share technical and fundamental information that can be overlooked.

Many minds coming together as a community can give traders an edge. This differs greatly from public forums where every trader is out for themselves and may purposely mislead others with false information.

#3: Learning New Strategies

There are different trading strategies to make money in most market environments. Each trader has their own particular niche where they excel and can offer insight on their techniques. Often the teachers running the room are available for private coaching and will answer any questions.

A good trading room will have presentations anytime there are major moves in the markets. Often big trades are planned weeks in advance with precise entries and exits.

To learn more about trading and be a part of a professional community feel free to join our cryptocurrency mentoring program.

Will the July 2016 Bitcoin Block Halving set off Another Bitcoin Bubble?

What is the bitcoin halving and its significance to bitcoin price?

The halving is a time when the bitcoin mining rewards are cut in half. Right now miners solve blocks every 10 minutes and are rewarded with 25 new bitcoins. These rewards will be reduced from 25 to 12.5 near the end of July. The genesis block in 2009 was the first 50 bitcoins rewarded to miners. Satoshi Nakamoto designed Bitcoin with a hard capped supply at 21 million coins. Every four years the mining rewards get cut by 50%. This monetary system is deflationary since the rate of inflation declines in regular intervals.

After the first halving, nothing much happened to the price of bitcoin for the first month. We don’t know why it was quiet, but it could be that everyone was new to bitcoin. After the first month we saw bitcoin rise from $10 to a high of $260 in April 2013. This was a total 26x gain! Over the next seven months bitcoin kept shooting up all the way to $1,200 in November of 2013, making the total gains 110x.

What will happen if history repeats itself? Will we have another bitcoin bubble?

In July we are approaching the second halving period. The question is will history repeat itself? Will we see another bitcoin bubble? Could the current price of bitcoin push to 26X in 5 months or even up to an unbelievable 110X in 1 year? To see what happened in Dec 2012 we need to look at an indicator known as Bollinger bands. This is an indicator that measures volatility and stable markets are usually followed strong price movements.

skillincubatorblogimg1

The Bollinger bands showed a squeeze forming just before the last breakout at $470. When the bands are tight, pressure is building signifying a bear or bull movement.

The next bubble will likely be less dramatic than 2013, simply due to the fact that bitcoin has a larger marketcap and higher trading volume.

THE CATALYST FOR A NEW BULL MARKET

We are seeing a major infrastructure shift in the financial world. Businesses and banks are starting to see the value of blockchain technology. Bitcoin was the first stable “internet of money” due to its decentralization.

Nobody knows the future of bitcoin. Will it disrupt the current banking system built on centralized fiat money? Could bitcoin start a new way of banking, eliminating the need for central intermediaries? We cannot tell the future but as for 2016 I have summarized what I believe to be the new bull catalyst.

CAN GOLD MINING EXPLAIN BITCOIN ECONOMICS?

If we could use a good example to understand what will happen at the bitcoin halving, it would be gold mining. It’s like going from 5,000 tons/year to 2,500 tons/year, reducing new supply on the markets.

With bitcoin the price could spike and you still aren’t going to increase the supply of bitcoin. So the bitcoin supply is even more in-elastic because you have to get them from people who already have them. With gold and silver there’s still manipulation going on as banks have the power of censorship.

People do not have to take physical delivery of gold or silver. There can be a blind trust given to banks and governments in the millions of notes held. This blind trust is the amount of commodities held in their vaults versus the numbers on their ledger.

With bitcoin everyone has to take actual physical delivery. No faking it, everything is verified. There’s no such thing as getting an “IOU” of bitcoin, everyone must get the real deal. Bitcoin is built from the ground up to be censorship resistant. This prevents manipulation while allowing for economic consensus and economic reality.

Although I am bullish on gold and silver for 2016, in reality bitcoin is more in-elastic than gold. People have to get their bitcoins from those who already own them.

If we put together the 3 factors of (1) a 50% decrease in bitcoins coming up (2) a censorship resistant decentralized blockchain and (3) solutions in segregated witness for scalability issues, then we see a good foundation.

Post written by Vaughn Pierre

3 Easy Steps to Get Started with Bitcoin

Bitcoin is a paradigm shift that’s changing the way we perceive money. It allows individuals to have full control over their finances without needing to go through a bank. Many investors are starting to use bitcoin as a long term store of value and hedge against financial uncertainty.

If you’re new to Bitcoin and feel overwhelmed with all the information, then here are three easy steps to get you started.

Step #1: Secure your Private Keys

The first thing you need to do is make sure your private keysare safe. Bitcoin is an open public ledger and key pairs give you ownership of coins on that ledger. Each pair has a public and private key that looks like this:

Your public key is like your email address, you share it to receive coins and your private key is like a password that allows you to send coins. If you lose your private keys or if someone steals them, your coins will be lost forever. This is why it’s important to keep them safe.

You have two options to keep your keys safe; invest time to learn how to secure your computer properly or invest a bit of money on a hardware wall to make it easy. Trezor is an easy to use hardware wallet that will keep your keys isolated from any viruses.

Step #2: Buy Coins

Once you have everything set up to keep your private keys safe you’ll be able to purchase your first coins. There are different exchanges to buy coins and the most popular one is Coinbase. When opening up any account on an exchange you’ll need to set up 2-Factor Authentication. In the event that a hacker steals your password they’ll need to get access to your phone because it generates a secondary login code.

You can purchase coins by sending money from your bank to the exchange. If you don’t want to use a bank then you can also meet up locally with someone to buy them directly with cash. Direct peer-to-peer purchases usually charge a 5-10% premium over the spot markets.

Another alternative is buying bitcoins by sending a money order to Quadrigacx.

Step #3: Transfer the Coins Over to your Wallet

Unless you’re actively trading you want to make sure that you control your own private keys. Leaving your coins on an exchange can be risky. If an exchange gets hacked or goes bankrupt you could lose money.

Once the bitcoins are in your possession you can use them for all kinds of things such as storing value, sending cheap payments, tipping, making purchases and trading. Bitcoin is a really efficient form of money that can be accessed 24/7 without spending limits or restrictions.

Why it’s Important to Trade Quality Over Quantity

Trading is a game of probabilities that comes with a certain degree of risk. You can be the best trader in the world but it’s not possible to be right 100% of the time. That said, you still want to be right most of the time and the best way to increase your win ratio is to be very selective with your trades. Quality over quantity is the name of the game.

Trading Chop

Choppy conditions exist when there’s no clear trend in the market. The price tends to be range bound and can tease traders with fakeouts.

Many traders lose money because they force their trades and try to find a good set up where none exists. There are some people who post their trades publicly and seem to always be in a new position regardless of the market conditions. The biggest problem with this approach is that if you chase the markets during choppy conditions you’ll always be one step behind.

Traders who long spikes and short after dumps during choppy markets will usually watch the price move against them once they execute their position. Unless you’re running an automated scalping bot, trading chop tends to be a waste of time with poor risk to reward.

Strategy and patience are the best tools for maximizing profit potential.

Grand Slams

We find that the best trade set ups happen once a clear trend is established. Understand how to identify a new trend so that you can get in early and ride your profits. These market conditions don’t happen often but they tend to have the best risk to reward.

These trades are grand slams because we conserve our ammo and swing full power when a new trend is just getting started. This saves us time and maximizes our gains because grand slams allow us to ride profits on a larger sized order. Getting in early on a trend can give your position plenty of room to breathe. The most stress free and low effort trades are the ones that reach a profit zone with strong momentum.

Risk Management

Trading quality over quantity is just one part of a complete risk management strategy. Skilled traders create a plan long before the markets move. Identify key support and resistance levels to time your entry on a new trend. Always measure your risk to reward ratio ahead of time to determine an appropriate exit. A good trade set up should have at least a 3:1 risk to reward ratio.

Make sure to set your stop orders as a precaution in case the trade doesn’t work out. Another reason why we don’t trade chop is that you can lose money by getting stopped out. Some traders will even move the price by hunting stop orders. To avoid getting your stops hunted, don’t set them with round numbers at obvious support and resistance levels.

Cryptocurrency Trading Recap

2016 is turning out to be an exciting year for the cryptocurrency markets. Ethereum kicked off the year with a strong bull run, gaining 1500% over the course of a few months. This had a chain reaction as pushing altcoins into a bull market.

In our cryptocurrency mentoring program we offer private coaching, trade alerts, weekly markets reports and access to our professional trading room. For our trade alerts we walk you through our personal trade set ups, showing you when we scale in, where we take profits and how we manage risk. We generally like to aim for quality over quantity and swing hard on the biggest moves.

The market reports focus more on longer term accumulation trades that can take months. I combine fundamental and technical analysis to find potential opportunities. These reports also share trading tips and highlight important news events.

Here’s a recap of some of our trades for 2016:

Ethereum

I noticed ether during the very first signs of the trend back on 12/10/16 when the price was only 0.002 ($0.91). I made several public Tweets about it here, here and here.

Chris Dunn sent out the first ether trade alert on the breakout of 0.004. The markets were trending on high volume which was a good sign that ether was getting ready for a big move. We sold into strength just before the correction.

When trading a new market with uncharted territory nobody really knows where the top is going to be. As traders we scale in and out of the markets at key times and always make sure to lock in profits. The chart below shows another long on the breakout of a second ascending triangle.

After a price correction and some consolidation, ether had another major breakout and doubled in value again. We scaled out at different areas to lock in profits along the way.

The markets went parabolic and started showing signs of a reversal so we sent out a few alerts and shorted on a head and shoulders pattern. Our target for closing the short was 0.015.

Dogecoin

For trade alerts we like to stick with markets that have decent trading volume. That said, there’s still money to be made accumulating cheap and illiquid altcoins over a longer timeframe. When volume pours into an illiquid market it tends to spike prices high.

On 01/09/16 I sent out a market report letting everyone know that dogecoin was exiting the accumulation zone of Chinese whales. I’ve traded dogecoin during every major rally since it was first released in 2013 so recognize its habits.

The markets were showing the first signs of a big move and 17 days later the price increased 350%! Altcoin rallies generally don’t last very long, which means you can also make money shorting them once the price crashes.

Bitshares

On 01/23/16, I sent out a report with this Bitshares chart showing a double bottom reversal pattern. The markets spiraled on a long downtrend and this appeared to be the perfect entry point to buy some cheap coins.

We were early to the game because price action made three progressive waves, each one larger than the others. The markets were getting primed and the last wave happened to coincide with news of Bitshares getting listed on Microsoft’s Azure platform. The price had a 290% increase since releasing that report.

Counterparty XCP

On 02/06/16, I sent out a market report mentioning that XCP had the potential to pop on the next major news even. A month and a half later a rumor leaks out that Counterparty was integrating ethereum smart contracts and over $1M in volume spiked the price up 500%.

Anyone with patience and foresight had the potential to make a lot of money by acquiring cheap coins in my target accumulation zone.

Factom

Sometimes I’ll post my thoughts on the markets using Twitter. On 02/10/16, I sent out this Tweet about Factom. Both Chris and I acquired FCT at these levels anticipating the potential for a really big move in this new market.

Chris even educated his followers by interviewing Paul Snow, the founder of Factom. About a month later FCT tripled in price!

Conclusion

Although we’ve had some fairly accurate and profitable trades, by no means are we claiming to be right 100% of the time. Trading still comes with a degree of risk and nobody can ever predict with absolute certainty where the markets will go. Sometimes we’ll even take a bad trade but the key is to manage risk by having a solid exit strategy.

The crypto world has many pump and dump groups that manipulate the markets but we do not condone this as we feel it to be unethical. Our goal is to educate people on how to trade, making informed decisions based on technical and fundamental analysis.

We never tell our students how to trade, instead we walk them through our thought process and trade setups to teach them how to make independent trade decisions.

Cryptocurrencies may be one of the biggest financial paradigms of the century and our mission is to increase user adoption by showing people how to make money. We have a mixed community of professional stock, futures and crypto traders.

If you would like to learn more about how to make money in this financial revolution then we suggest you enroll in our cryptocurrency bundle package. Learn how to trade, invest and build passive income with cryptocurrencies while receiving ongoing coaching support.

Sign up now to get in on the action!

How the Bitcoin Network is Evolving

Over the past year the Bitcoin community has been divided over the blocksize debate. The amount of data that can be stored on a single block is 1 mb. This translates to around 3 transactions per second, which is 259,200 transactions a day. Compare that to the 15 millions transactions processed by credit cards on a daily basis and we can see why people are concerned about scaling Bitcoin.

Bitcoin in its current state works well for a niche community but doesn’t scale to meet the demands of a large global payment network. The Bitcoin developers are working on scaling the blockchain with a concept called Lightning Network.

What is Lightning Network?

Lightning Network is a way to create payment smart contracts on top of the blockchain. Users can lock coins on the blockchain and create payment hubs between multiple parties. The best analogy I’ve heard regarding this is opening up a bar tab and settling at the end of the night instead of paying for each drink separately.

These payment hubs have the potential to scale millions of transactions per second and don’t require trust in a third party. Read this post for a more detailed explanation of Lightning Network.

Decentralized Exchanges

Cryptocurrencies are one of the most profitable markets to trade. The main problem with trading crypto is that users are generally required to send their coins to an exchange and trust a third party to manage their private keys. People have lost millions of dollars from exchanges getting hacked or stealing their funds.

Lightning Network has the potential to solve this problem through its trustless payment hubs. Imagine using a hot wallet exchange like Coinbase except you never relinquish control over your private keys. As this technology evolves I foresee the ability to efficiently trade derivatives on top of the blockchain.

Criticism of Lightning Network

There have been some valid concerns around Lightning Network. Anyone will be able to create a payment hub but this requires locking up funds to provide liquidity. Naturally, some payment hubs will become popular as a result of providing more liquidity. This has the potential to centralize bitcoin transactions to a few large companies.

Regulators could see this as providing a money service and may even demand that these hubs become licensed. What if the regulators start asking hubs to be KYC compliant or blacklist certain coins?

Bitcoin’s greatest feature is its decentralization and its ability to be censorship free money.

Potential Impact on the Markets

Scaling Bitcoin to handle millions of transactions will likely have a bullish effect on the price. A boost in user adoption will increase buying pressure on the limited supply of coins in circulation. Companies may start using Bitcoin as a public settlement network, which provides more utility as a trustless system than private blockchains.

Safeguards Against Centralization

Bitcoin by nature is designed to be resilient to centralization. Let’s entertain the scenario where a group of bankers successfully manage to hijack Bitcoin. Well, it’s open source software which means anyone can run their own version or create an altcoin. There are thousands of cryptocurrencies to choose from and it’s not possible to control them all.

Bitcoin is also based on a consensus model which means miners can vote with their hashing power on which version they want to use. In the event that Lightning Network becomes a centralized disaster, miners could fork the network to a more suitable version of Bitcoin.

Technology is continuously evolving and as long as Bitcoin remains decentralized any improvements to the protocol will likely add to its longevity as a payment system.

The Pros and Cons of ICOs

Initial coin offerings (ICO) are the big craze in the crypto world. The concept of an ICO is similar to an initial public offering (IPO) in the legacy markets. During an IPO a new company will raise capital by selling shares to the public. This extra capital can help expand business operations and grow the company.

An ICO is similar except that it’s used to fund development for decentralized open-source projects. This is done by creating a fixed amount of coins or tokens and selling them in advance. Ethereum was the most successful ICO, which managed to raise a little over $18 million.

ICOs receive both praise and criticism in the crypto world. Let’s explore the pros and cons associated with the ICO model.

Pros

ICOs help fund decentralized open-source projects

The open-source movement is about making software free and available for anyone to use. Developers are also free to modify open-source code, which can lead to faster technological innovation.

The fact that Bitcoin is an open-source project adds to its decentralized nature, which makes it robust against attacks. Open-source software tends to be secure because it has many eyes auditing the code. In the crypto world this ensures that nobody can put malicious code in the software.

Since open-source projects are free it’s not always easy to pay developers for their work. Many programmers even contribute to these projects as volunteers. The ICO model is a way to pay full-time developers to work on open-source blockchains.

ICOs are easy ways for smaller players to raise capital

Peer-to-peer crowdfunding is an easy way for smaller players to raise capital. Cryptocurrencies have a low financial barrier to entry and less friction than legacy channels. Anyone with a good idea has the potential to raise millions of dollars in capital. ICOs come with less red tape and is more cost effective than any other model of fundraising.

Combining the power of crypto with the ICO model can help level the economic playing field. Wealth tends to be centralized in western nations but the lack of borders for crypto and the internet has the potential to redistribute opportunity.

ICOs can be profitable for investors

Participants of ICOs have the potential to make a lot of money because they usually get coins for dirt cheap before they hit the exchanges. During the ethereum ICO some investors received over 1000 ether for one bitcoin. Those who sold ether at its last peak would have made a return of at least 36 bitcoins. That’s a 3600% return on investment!

Cons

Some ICOs are scams

The crypto industry is rife with altcoin scams. There are some ICOs that promise the moon and then run off with everyone’s money. It’s even possible to launch an ICO anonymously with zero accountability to the participants.

The greed associated with making big returns can often cloud people’s judgement. Cryptocurrencies are the wild west and people can make huge profits or losses. Investors need to do fundamental research and be discerning when participating in ICOs.

Some ICOs lack innovation

The whole point of an ICO is to raise capital to fund new innovations in the blockchain space. There are many ICOs that are a mere copy and paste of other coins and bring nothing new to the table. This completely defeats the purpose of the ICO model and takes away potential investors for unique projects.

ICOs at their worst are just a cheap “get rich quick” gimmick for both investors and developers. I suspect that less than 10% of the ICOs offer anything new. The markets are saturated with ICOs and we’re likely in a bubble.

ICOs are similar to pre-mining

Back in the day, pre-mined coins were considered dirty. Pre-mining means that the developers mine their coin before anyone else gets a chance to. This gives them an unfair competitive advantage to accumulate a sizable amount of coins at no cost. The real shady devs will even hype their coin getting everyone to pump up the price so that they can dump on everyone.

The ICO model does receive some criticism because developers can create coins out of thin air, sell them and even keep a huge percentage of the coin supply for themselves. Since there is no oversight some altcoin programmers will charge exorbitant rates that are way above industry standards. Now compare that to projects like Bitcoin where most of the devs are working as volunteers.

Conclusion

Here at Skill Incubator we are crypto agnostic and always look at both sides of the coin. We do a lot of fundamental and technical research before making a trade or investment. We support the open-source decentralized movement yet remain skeptical of new coins. That said, if we see an opportunity to make money we’re not shy to turn a profit.

To learn more about ways to profit with cryptocurrencies, we suggest signing up for our crypto bundle package. This will show you ways to make money through trading, investing and passive income.

Why You Should Avoid Trading on Media Hype

The mainstream media has a tendency to only report news after the fact. When it comes to the market the media is usually late to the party. People who base their trades on media hype will always be one step behind the markets.

Buy High and Sell Low?

During the run up to $1200, the media was on fire with positive bitcoin news. Some speculators were even suggesting that prices could go as high as $1 million per coin.

The media love affair for bitcoin quickly turned sour after the price crashed. Once the markets hit a low of $166 talking heads were proclaiming the death of Bitcoin, adding to its long list of obituaries. As it turns out, that was the bottom for 2015.

In fact, later that year bitcoin gained 200% in value!

Sure enough, by the end of the year the same news outlets that were scorning Bitcoin changed their minds yet again, calling it the best investment of 2015.

If you chase price based on the media, you will buy high and sell low every time.

Smart vs Dumb Money

Smart and dumb money are two technical terms used in the investment world.

Smart money consists of contrarian traders who get skin in the game a couple of steps before the herd. They base their trades on technical and fundamental analysis to exploit price inefficiencies in the markets.

Dumb money refers to people who base their trading decisions on emotional whims. They like to chase the markets to buy tops for fear of missing out and panic sell bottoms.

In the Skill Incubator, our cryptocurrency mentoring students focus on learning how to spot smart and dumb money, which helps us with finding potential trade and investment opportunities.

I personally don’t fully subscribe to “efficient market hypothesis”, which states that you can’t beat the markets because everything is “priced in”.

There are more than enough traders and investors with direct experience who can disprove this theory. Now, I’m not going to completely discard this theory because it does have some relevance. The markets are efficient most of the time, especially when prices find equilibrium in a consolidation pattern.

That said, when the markets are driven by dumb emotional money prices are often exaggerated and become inefficient. Trading is a zero sum game and price discovery is a tug of war between buyers and sellers.

EMH states that it’s “impossible” to beat the markets but logic states that someone has to be the first to get in on the early trends. New trends are a race and the smart money are the investors who get priced in early. You would be hard pressed to argue that the price of bitcoin was efficient at $1200 and $166.

I know many professional traders who made a killing being contrarians during these severe market inefficiencies.

Perhaps EMH applies more accurately to a highly centralized stock market where large institutional investors can front run price discovery. In some ways EMH is correct in that retail investors can’t beat the institutions because the house always wins.

Cryptocurrencies are a free market and in the wild west dumb money drives price. This is why crypto is one of the easiest markets to trade.

The Phases of a Market

Dow Theory states that the markets are cyclical and that trends have different phases. Smart traders and investors who recognize this pattern can usually position themselves ahead of the herd.

Here’s a synopsis of these market phases:

Accumulation

The accumulation phase is the first stage of a new bull market. This happens after a long downtrend when market sentiment is at its lowest. I generally see a long period of consolidation within a tight price range during this phase.

This is the area where smart money quietly accumulates supply at cheap prices. Often prices will go sideways at bottom support because these investors are the ones holding the markets up. The idea is to accumulate as much as you can without pushing the price. This can be done by placing buy walls at various levels on the order book.

It’s often during this accumulation phase that the media will declare financial armageddon and encourage the masses to sell their investments at a loss. Perhaps the smart money controls the media narrative and uses it as a tool to acquire cheap investments?

Public Participation Phase

Eventually prices move past the accumulation range which attracts fresh liquidity as traders chase the breakout. This can often build momentum which sets the stage for the public participation phase. The markets turn bullish and the added volume leads to a series of breakouts producing higher lows and highs.

Smart investors may simply hold their position while smart traders seek to maximize their gains through buying dips and breakouts.

Once this phase reaches the end of its life cycle, the markets move into the excess phase. This is when prices get exaggerate by irrational excitement.

You know the party may be coming to an end when all the financial pundits become market cheerleaders. The most recent example of this can be seen in the ether markets. Notice how all the major news outlets are declaring ethereum as Bitcoin’s winning rival only after a 1500% gain in price. Where was the media when ether was trading at $1?

In the crypto world you know the end may be near when the moon chanting hits its peak. Pride comes before the fall.

Distribution Phase

This is the first phase of a new bear market where the early smart investors take profit and distribute their assets at a premium to late comers. Although prices start to make lower highs and lows, there is still an air of optimism in the markets as bag holders hold on to hope.

This phase is accompanied by a new cycle of public participants as people start selling off causing a bear trend. The final nail in the coffin is the panic phase where bag holders give up and dump their investments at a loss. These cheap investments are dumped into the hands of smart money looking to accumulate and the cycle starts again.