J-curve

What’s a Crypto J-Curve – and Why Should You Care about It?

What is a J Curve?

A J-curve can be defined as a financial trend line that represents an initial loss followed by a surge in gain. In a graphical format, it is represented by the capital letter “J”. The trend line in a J-curve usually terminates when there is an improvement from the starting point.

It is most efficient to demonstrate the effects of an occurrence or action over a quantified period of time. If we were to explain it to a 5-year old, it is the curve that says, “things are going to get worse before they get better.”

Look at the letter J below. It first goes down before rising up significantly.

J-curve

What is the J-Curve in Economics?

The J curve phenomenon is frequently used in economics. It can exquisitely elaborate how a country’s balance of trade deteriorates after its currency has been devalued; and then recovers to surpass its initial performance.
From an economical perspective, the J-curve is used to keep an eye on the consequences of a weak currency to its balance of trade.

This can further be explained using international trade. When a nation’s currency depreciates its value, its imports get more expensive, as the exports get cheaper. This results in a worsened trade deficit. When this occurs, it triggers an increase in the sales volume of the country’s exports due to the relatively cheaper prices of export.

Simultaneously, the local consumers begin to purchase more locally manufactured products as these have become more affordable. Over a period of time, the balance of trade is restored and may even exceed the pre-devaluation time.

J-curve

That is a classic J curve.

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Why is the J Curve Important in Cryptocurrencies?

Bitcoin has gone through various cycles of growth and recessions, the most common of which is a sharp rise in 2013, when amidst growing interest, bitcoin first passed the mark of $1,000, and the subsequent drop to a meager low of $175, which progressed unto January 2015. At the time of this article, bitcoin is steadily moving towards the $65,000 mark. This is a four-fold increase since 2017; with the bullish run indicating an increase of enthusiasm in bitcoin.

The J-curve can help you gauge the mood of the market. When the yields are initially high, the price is also at a high level and vice versa. Once false returns begin to disperse, the price also goes lower. The higher the current value, the higher the expected value of returns.

A J curve comes and goes in waves throughout the market cycle. It occurs on both the macro and micro levels. There will always be J-curves in different assets. In crypto, most often, a J-curve normally starts when a project launches. At this point, interest is high, investors are excited, which paves the way for the first spike in price. Those who heard about the project FOMO in, a fare of missing out.  The earlier investors would take some profit, then the new investors panic sell. The project price would move sideways for a few months while working on their promises. Once the project starts to release products, which they promised, FOMO will set in, and then we have the J-curve

What Should I do when I Spot a J-Curve in a Token?

This curve simply shows that the price of a coin or token is growing exponentially. There is a famous saying in cryptocurrency (and stock) markets – that past growth does not indicate future growth. While a J curve is a good indicator of growth, it should never be used as a basis for an investment. It is impossible to time the market and knows when to buy or sell.

 

Written by Anthony Fernandez
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