Bob Loukas, the creator of the Four-Year Cycle Theory, recently confirmed the commencement of Bitcoin's 4-year halving cycle in a 25-minute YouTube video.
The Four-Year Cycle Theory: This theory is primarily rooted in Bitcoin's protocol itself. Every four years, the Bitcoin network undergoes a 'halving' event where the reward for mining new blocks is halved, thus diminishing the supply of new Bitcoins coming into circulation. This scarcity drives up demand and, consequently, the price. According to Bob Loukas, this predictable, cyclical nature of Bitcoin can be leveraged for profitable trading.
Bob Loukas' interpretation of the 4-year cycle theory is fascinating, offering a potential roadmap for trading Bitcoin. It combines the mathematical predictability of Bitcoin's protocol with the wild, human unpredictability of the markets. However, as always, risk management and due diligence are crucial in any trading or investment strategy.
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Remember, this newsletter is a summary of Bob's video, so if you want the full depth of his insights and explanations, do check out the YouTube video. For those of you who don’t have 25 minutes, here's a distilled summary for your quick understanding: 👇
Overview
Confirmation of a New Bitcoin Cycle
Why the Early Stage is the Most Difficult Phase of a New Cycle
Sentiment as a Lagging Indicator
The Real Capital Gains Come From
Being Early
Maintaining a Long-Term Perspective
There Are Multiple Paths to the Box
Be Aware of Distractions Within the New Cycle
Why Trying to Beat the Market is the Absolute Worst
The Importance of Position Sizes and Risk Management
A Potential for a Left-Translated Cycle
Final Commentary
In his video, Bob Loukas delves into some speculation regarding Bitcoin's price trajectory throughout the 4-year cycle. He introduces the concept of a "timebox" - a target based on time rather than price.
According to Bob's predictions, he expects Bitcoin to rise to approximately $48k around the time of the next halving event (March 13th 2024). Further into his timeline-based estimation, he speculates that the peak of the upcoming bull market could see Bitcoin reaching a significant high of around $180k.
Confirmation of a New Bitcoin Cycle
Bob’s analysis of the early phase of the four year Bitcoin cycle is spot on. From Bob’s analysis, it indeed appears that we are now firmly in a new cycle, following the confirmation in the December video. The subsequent confirmation in March further strengthened this assertion. It's interesting to note the precise timing of the four year cycle low in month 49, which corresponds well with Bob’s predictions.
This early stage of the new Bitcoin cycle calls for resilience, optimism, and a thoughtful investment approach. The past bear market is behind us, and while there may still be echoes of its negativity, investors should focus on the opportunities that the new bull market brings.
Why the Early Stage is the Most Difficult Phase of a New Cycle
The early phase of a new bull market is often fraught with doubt, fear, and hesitation, stemming from the lingering pains of the bear market. The downturns of the bear market inflict financial damage and emotional distress on many investors, making it difficult to shake off that negative sentiment quickly. When investors experience losses, whether from not realizing gains, getting caught in hacks, or being impacted by exchange failures, it leaves a lasting impression. This creates a bias that can be hard to shake off, especially when you're only a few months into the new bullish phase.
Sentiment as a Lagging Indicator
Bob’s point about sentiment being a lagging indicator is also very insightful. When Bob talks about the lingering "negative sound bites" and fears spilling over from the bear market, Bob hits the nail on the head. These sentiments can definitely influence decision-making, and it often takes a considerable amount of time and positive momentum for them to fade.
Consequently, it takes a significant rally to bring participants back into the market in earnest. Fear of missing out (FOMO) becomes a powerful motivator at this stage. People tend to stay on the sidelines until they get enough confirmation from the market, peers, community members, and social media that it's safe to jump back in.
We are currently in this tricky phase, where fear and uncertainty can cloud judgment. Some people may be in the market but are constantly anxious, while others may be waiting for another dip to enter. So even though it's difficult, keeping an objective view of the market can help alleviate some of these fears.
Next, Bob draws attention to two very important aspects of participating in a bull market cycle – entering early and maintaining a long-term perspective.
The Real Capital Gains Come From A. Being Early
Being early to a cycle, as Bob pointed out, can substantially multiply gains even if you don’t nail the top perfectly. More importantly, it allows investors to establish a strong position at a low cost basis, which can provide much needed resilience during the inevitable market volatility. With Bitcoin's tendency for substantial shakeouts, having a low cost basis can prevent investors from being in a weak position and succumbing to fear, selling at inopportune times.
B. Maintaining a Long-Term Perspective
Bob also emphasized the importance of looking at the big picture, focusing on the majority of the rising portion of the cycle, and not getting caught up in the short-term volatility. This means having the discipline to hold your position for two to three years, looking towards the end of the cycle and aiming for new all-time highs. This outlook provides a useful framework to manage emotions and make better-informed decisions, reinforcing the notion that successful investing is a marathon, not a sprint.
There Are Multiple Paths to the “Timebox”
Staying focused on the long-term time frame, regardless of short- term fluctuations and events, is critical. Bob’s 'timebox' concept comes into play, emphasizing time rather than price as a guiding parameter for investment strategy. Bob emphasized the multiple paths that can lead to our target.
The road to reaching our long-term goal could have many twists and turns – price levels could dip and surge. However, focusing on these short-term events may distract us from the long-term goal, which is to maintain a position throughout the cycle and extract maximum gains.
Be Aware of Distractions Within the New Cycle
Maintaining a disciplined, long-term perspective can be challenging, particularly when there's so much noise and distraction in the market. It can be tempting to follow trends or to try to avoid downturns by exiting and reentering the market. Moreover, the discipline required to maintain a position for years can be tested by the allure of 1000x short-term gains in other memecoins or sh*tcoins, as we see often in the crypto space.
Why Trying to Beat the Market is the Absolute Worst
Bob’s mention of the tendency to exit and re-enter the market to avoid potential declines and accumulate more Bitcoin is a common pitfall many investors may face. However, Bitcoin, with its notorious volatility, can often reverse trends abruptly, catching investors off-guard. Therefore, playing this game can often lead to missing out on significant potential gains.
Bob emphasizes a key aspect of investing, particularly when it comes to Bitcoin: the necessity of weathering volatility. Throughout Bitcoin's history, it has experienced numerous significant price drops, sometimes as much as 30-40%, or even more. However, those who have held their positions through these periods of extreme volatility have often been rewarded with substantial returns over the long run
Bitcoin's history also shows that these volatility events are not just one-off occurrences, but a recurring feature of the asset. It's always good to remind investors that such episodes should not necessarily be seen as a sign of danger, but rather as potential buying opportunities, especially given that we are in the early stages of a new cycle.
The Importance of Position Sizes and Risk Management
Overexposure to Bitcoin, or any asset for that matter, can lead to emotional distress during periods of high volatility and potentially result in panic selling, undermining the potential benefits of long-term investing. It's recommended to manage risk prudently and consider one's financial circ*mstances and risk tolerance when deciding how much to invest. If you wish to increase your position size, waiting for substantial price dips, typically around 30-40%, can help keep your average cost low and strengthen your position to weather the remainder of the cycle. This approach requires discipline and a clear understanding of Bitcoin's historical price behaviour.
A Potential for a Left-Translated Cycle
The potential for a "left translated cycle" where a significant surge occurs earlier than usual in the four-year cycle, possibly within the first year to 18 months. This could lead to an influx of retail traders, elevated market sentiment, and speculation of extreme price targets. If we had a significant move by the end of summer, the supercycle narrative would be in play, with projections at $1m or more. Sentiments are relatively neutral, if not bearish, so there are less chances of this happening. If it does happen, we should be concerned and not fall prey to the supercycle narrative.
Bob’s call for investors not to fear another market top prematurely. It's a common fear that can lead to hasty decisions, but as Bob rightly pointed out, it's too early in the cycle for that to be a realistic concern. Concerning potential price tops, it's important to remember that in the early phase of a four-year cycle, it's generally unlikely for a top to occur so soon and far from the previous all-time highs.
While a left translated cycle, wherein the peak occurs around year one to 18 months, remains a possibility, it usually comes with a very significant impulse move. It's too early to be worried about this scenario at this stage in the cycle.
Final Commentary
Bob's video mainly serves as an encouragement and a bolstering of belief, encouraging you to forget past losses from a bearish market and look forward to the opportunities in future. However, past experiences tend to influence our choices significantly, thus the need to focus on future expectations and adjust our stance accordingly.
Investment essentially revolves around three key actions: the entry, the exit, and strategy.
Entering the market is the step we're dealing with presently; if you're still on the sidelines, it would be wise to make your move and brace yourself for the potential market fluctuations.
Our exit from the market is still a future event we needn't obsess over just yet. Predicting exit points or target prices, a query Bob frequently faces, is not pertinent at this stage. The priority now is to establish a position in the early phase of the cycle, with the aim to best gauge the optimal time for an exit when the cycle matures.
In order to reach a lucrative exit point, however, you must give due attention to the holding period. The choices you make during this period can significantly impact your returns from the cycle. There's no need to fret about exiting at the market peak or timing the market perfectly. What's essential is to enter the market as efficiently as you can, making the decision to exit considerably more straightforward.
Remarkable returns aren't solely the preserve of those who exit near market highs. The secret to achieving this lies in making prudent decisions. Often, in a long-term commitment like this, the wisest decision is no decision at all - merely being content with your early positioning, sitting tight through the market turbulence, and acknowledging that dramatic, FOMO-inducing events will occur.
The key is to trust the process, stick to the plan, and steer clear of distractions in the form of new, enticing investment opportunities that could potentially derail your focus.
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