As the crypto market stood fast during the initial financial crisis caused by the Covid Pandemic, 2020 saw a massive number of investors worldwide choosing cryptocurrency as the alternative investment asset of their choice. With this influx of new users in the crypto space that continues on as of the end of July 2021, it’s entirely plausible that a good number of them might not yet understand the structure of a crypto trade- how it all works and even how the market functions.
We know the basics of crypto- the crypto networks are decentralized (as in, there’s no central authority figure or institution watching over your trades) and run across a peer-to-peer network of nodes, or computers. As for buying or selling or holding your crypto assets, you can do so through various cryptocurrency exchange platforms in India, like Giottus, and store your crypto in digital wallets on these exchanges.
Now, in this post, we take a look at a couple of primary concepts you need to grasp to correctly understand and execute a crypto trade. We start with the idea of market cycles for crypto.
Market Cycles in the Cryptocurrency Space
As you can probably guess, the term market cycle refers to the fact that the crypto market acts out cycles, returning to the same places it’s been a certain amount of time ago. Market cycles happen in any market you can think of, but in the specific case of the crypto market, they’re a bit more difficult to comprehend since the crypto market moves swiftly and suddenly; however, that also makes understanding the crypto market cycles all the more important.
Very simply put: a crypto market cycle is a period we witness between a high and a dip in the market, as in the phases we see in between. Market cycles are primarily created by boom-and-bust cycles brought about by the culmination of user emotions and market mechanics. Therefore, a market cycle in crypto is the wave-like pattern formed by the various crypto assets as traders speculate about them and respond massively to things like the related fundamentals, emotional predicaments, and the chart patterns the asset produces.
(Source: http://wallstreetcheatsheet.com/)
On the chart above, a crypto market cycle has been laid out in detail. However, in simpler terms, here are the main phases of a crypto market cycle- accumulation, greed or the bullish cycle, distribution, fear or the bearish cycle, and repeat. This is how it generally goes: smart investors accumulate crypto during a relatively lower period that seems like anger and depression to users who have held it from the last peak. Next, the crypto’s value goes up as many more users get excited or contract FOMO and start buying. Then the crypto is distributed high, price action near the top continuing until complacency, and a massive sell-off ensues. Now the crypto’s price goes down, and people panic sell. Anger and depression come back, along with the accumulation phase, and thus the market cycle goes on repeating itself. The duration for a crypto market cycle could be anywhere between a week and a hundred years, and the phases would remain the same and in this exact order.
Ideally, to get your crypto trade right, you would have to understand the trader emotion enough to buy during the accumulation phase, hold through the bullish market, sell at the time of the distribution, and then exit the market or short when the bearish market is in place.
However, even if you’re aware of all this information regarding crypto market cycles, you must keep in mind that making the perfect trade based on this concept is much harder than it seems, and you must accept that at times you’d have to deal with pressure to buy high in the bullish market and sell low in a bearish phase.
What’s an Order Book on a Cryptocurrency Exchange?
Another core concept to know when you’re trying to figure out the structure of a trade is that of the order book. The order book on a crypto exchange essentially portrays the relationship between the buyers and the sellers in real-time, therefore signifying the interests of both parties. They show a list of outstanding orders for any crypto asset you’re interested in and the supply and demand for it.
To read an order book on Giottus, you’d have to be familiar with four things- bid, ask, total, and price. You can find information regarding them on the two sides of the order book- the buy-side and the sell-side, as we can see in the image below of the order book for a BTC/INR buy order on Giottus.
The two sides show opposing data. The price for every order displays at what exact amount each unit of crypto is valued, and the total is a running summation of the combined amounts.
The buy-side displays all the open buy orders under the last traded price. The offer from the buyer for a buy trade is called the bid. It shows the buyer’s interest, and the bid is then matched with an equivalent sell order, so as to complete the trade.
The sell-side, on the other hand, states all the open sell orders over the last traded price. The price is called the ask, and it’s paired up with a matching buy order.
If there are too many buy orders at once, a buy wall is formed. This phenomenon affects a crypto’s price because if a larger buy order is not executed, buy orders at lower bids can’t be completed either. The price of the crypto can not sink further as the orders under the buy wall will stay put until the large order is done with. Thus, the buy wall acts as a short-term support level.
On the flip side, if there are too many sell orders at a certain price point, a sell wall is formed. Due to a lack of demand at the particular price level, larger sell orders can not be executed, making the sell wall’s price level a short-term resistance point.
By studying the order book, you’ll get to take a look at the supply and demand levels for
crypto to identify order disparity, support and resistance zones, market manipulation, etc. so you can make more educated trading choices.
And that was all you needed to know about crypto market cycles and order books to understand the structure of a crypto trade! To trade in cryptocurrencies in India, make sure to give our website a visit!
