The following is a guest article from Evgeny Filichkin, investment advisor at neobank Keytom.
When Bitcoin broke above the $69,000 level and set a new all-time high, it resulted in what is known as “”zone of euphoria” — a phase of the market cycle characterized by extreme optimism and speculative frenzy among investors.
As April quickly approaches, all the hype surrounding it only adds to the exuberance. This sentiment drives the BTC rate higher as more investors rush to buy into the market, perpetuating a self-reinforcing cycle of optimism and price escalation.
But what can we expect when the event hits the market? Halvings have historically strongly affected investor behaviors, and we've already gotten a head start this year. So how should investors modify their strategies in the current bullish environment? Let's take a closer look.
Halving 2020 vs. 2024: How Has the Bitcoin Context Changed?
This halving will be the fourth in the history of BTC. Since the previous event in 2020, Bitcoin has made great strides toward widespread adoption, highlighted by notable advancements in regulatory frameworks and technological infrastructure.
Among the most recent events, the introduction of Bitcoin ETFs to the market has also contributed greatly to propel positive investor sentiment to new heights. Their approval by the US SEC marked a significant milestone in the acceptance of Bitcoin as a legitimate investment asset. Additionally, ETFs have expanded access to BTC for new investor segments, including financial advisors and capital markets allocators. This broader access invites a significant influx of capital.
As Bitcoin continues to gain traction among institutional investors and retail traders, anticipation around the 2024 halving event is building, with expectations surrounding its potential impact on market dynamics.
How can the timing of the new all-time high affect investors' positions?
Historically, Bitcoin has seen notable price fluctuations following halving events, such as block reward reductions. has led to a decrease in the supply of new BTC entering the market. With growing demand and limited availability, Bitcoin's appeal is amplified, sparking more investment interest.
However, the period leading up to the 2024 halving has already differentiated itself into a unique scenario in which Bitcoin reached the new all-time high of $73,000 well before the event itself. This deviation from past trends suggests that market sentiment is ahead of historical trends, and that dynamics following the April halving could differ significantly from previous instances.
The old business adage “buy the rumor, sell the news” might prove apt in the context of Bitcoin’s halving this year. Fueled by anticipation of the event, investors are actively accumulating Bitcoin, thereby “buying the rumor.” However, once the event passes, they might engage in profit-taking instead of driving prices up even more and, in doing so, “sell the news.”
Since market dynamics are unfolding more quickly this year than in previous cycles, once the halving event passes, the BTC price will likely have no room to grow around this news. If investors choose to take the profit-taking route, this would reflect the market's ability to price in future events and adjust accordingly, leading to a period of price correction and recalibration.
Be careful not to succumb to the euphoria zone
Investors should exercise caution and maintain a balanced approach to Bitcoin investing, especially during periods of euphoria like the one we are currently experiencing. While it's natural to be excited about the potential for big returns, the euphoria zone is also characterized by increased volatility. Many investors may overlook the fundamental factors that determine Bitcoin's value, instead focusing only on short-term price gains, which can lead to unsustainable market dynamics.
At the same time, price corrections are a natural and necessary part of any asset's upward trajectory, for several reasons. Rapid and sustained price increases can lead to overvaluation, in which the price of the asset exceeds its intrinsic value. This can create a speculative bubble, further fueled by investor exuberance than anything else. Price corrections help deflate these bubbles, returning the price of the asset to its true value and restoring market balance.
As for when this correction will take place this time, it is difficult to say with certainty. Traders should remember that markets generally do not have fixed peaks or troughs. Just because the price of an asset has already reached a high point does not mean it has to fall again. And the opposite is also true. This highlights the unpredictability of markets and the need to exercise caution in trading decisions.
As investors navigate the opportunities and uncertainties presented by the 2024 halving, a good understanding of market dynamics and risk management strategies will be essential to maximizing potential returns. If you are considering investing in BTC, make sure you are doing so for the right reasons, after properly considering its long-term viability and the risk factors involved.