Crypto Market Cycles: A Comprehensive Overview

What are Crypto Market cycles?

A crypto market cycle is a regular pattern of price fluctuations that the market experiences and that over time reflects shifts in the dynamics and sentiment of the market.

These cycles are marked by patterns of growing and dropping pricing, and a number of factors, such as market adoption, investor attitude, regulatory developments, and technology advancements, can have an impact.

Making educated decisions and implementing the proper trading techniques require an understanding of these phases.

Market cycles usually consist of four primary phases: Distribution, Uptrend, Accumulation, and Downtrend.

Let us understand the phases of crypto market cycles in depth:

What are the Phases of Crypto Market cycles

Here are the four phases of crypto market cycles:

1. The Accumulation Phase

The time when prices have hit a new low and started to level out is referred to as the accumulation phase. Investors in a panic rush to sell their digital currencies at this point because they think the price will collapse much more.

Experienced traders and investors, however, will see the accumulation phase as a sign of an impending bull run. This phase is distinguished by slightly reduced market volatility.

As such, this is the perfect moment to enter the market and take advantage of the dip. In the following stage, the markup stage, traders who buy coins during the accumulation phase have a lot to look forward to.

2. The Markup Phase(Uptrend)

The market becomes more stable during the markup phase as bullish feelings start to emerge. We observe an upswing from the accumulation phase’s low point.

In the market, there are more buyers than vendors. All those who invest can profit as long as they hang on. As with everything related to cryptocurrencies, its duration is uncertain, but the market is firmly within the bulls’ grasp.

The markets are more exciting during this time, and cryptocurrency makes news for reaching new heights and expanding steadily. As more traders enter the market, even the less skilled ones benefit from buying at this point, however, what happens next is hazardous.

3. The Distribution Phase

In the case of a cryptocurrency market cycle, the distribution phase is the most volatile while the accumulation phase is the most stable.

This is when FOMO traders enter the market in an attempt to profit from the markup phase. Additionally, we witness the early adopters attempting to reduce their stakes and pocket their gains.

Consequently, a conflict between buyers and sellers causes the markup phase’s top to move into a horizontal trend.

In this market phase, there are equal amounts of joyful and depressed people for several months.

4. The Markdown Phase(Downtrend)

Investors are most afraid of the bear market, or downward phase. It starts when supply outpaces demand, which is frequently brought on by a rise in gloom and anxiety.

Prices see a significant drop during this time, occasionally rising back to pre-uptrend levels. While short-term investors stand to gain from short sales, most experience substantial losses during this time.

Still, this stage offers new investment opportunities as it comes before the next market cycle.

What are the factors affecting Crypto Market Cycles?

• Bitcoin Halving

A cryptocurrency’s technological innovations frequently serve as the impetus for the beginning of an asset’s markup or markdown phase.

Take the Bitcoin halving, for example. Every 210,000 blocks, Bitcoin miners’ payouts are halved as a result of this procedure.

Simply, it lowers the incentives for mining on the Bitcoin network, which in turn restricts the amount of new Bitcoins that can be created.

Due to this, the perceived lack of market supply will typically drive up the price of Bitcoin if demand is strong enough to sustain it.

Bitcoin’s halving has historically always signalled the start of a new markup phase, so it’s a useful indicator to watch.

• Bitcoin Correlation

It is important to keep in mind that, with the exception of stablecoins, all cryptocurrency assets have a significant link with Bitcoin, which, as of this writing, accounts for 54% of the market capitalization.

Therefore, the market cycles of smaller crypto assets are likely to mimic the Bitcoin market cycle in the absence of substantial triggers.

• Social Media’s Influence

A noteworthy finding about a lot of smaller cryptocurrencies is that influencers have a big impact on their values because of their little market capitalization. Elon Musk is one of the most influential persons.

The meme coin Dogecoin (DOGE) saw a 50% increase in value in February 2021 as soon as Musk tweeted about it.

Another time, the market value of the cryptocurrency dropped by 20% when Musk said, “none,” when asked how many Shiba Inu coins (SHIB) he possesses.

Crypto assets tend to fluctuate based on tweets or other kinds of social media involvement from influential persons, despite the fact that social metrics are difficult to measure or forecast.

• Recession in Market trends

In today’s market and economic circles, the word recession is often mentioned. When assessing if a country’s economy is experiencing a recession, several indicators are considered important.

An inverted bond yield curve, a decline in consumer confidence and expenditure, an increase in unemployment, a gloomy stock market, and several declines in GDP are some of these indicators.

On the cryptocurrency market, a recession will probably have a number of repercussions. The value of cryptography first decreases.

Secondly, investors steer clear of high-risk ventures and instead opt for the lowest-risk offerings. Third, there is a rise in layoffs at crypto firms.

Fourth, trade volume and activity on the cryptocurrency market are declining.

• Media Coverage

Since cryptocurrencies are unregulated, as opposed to traditional currencies, they are quite susceptible to positive or negative news.

Consequently, public sentiment and, consequently, the value of any popular sentiment or point of view influenced by favourable or unfavourable news coverage are directly impacted.

It has been established that individual tweets from well-known people, such as Elon Musk, can influence cryptocurrency prices.

What are the Stages in Crypto Market Cycles?

Below given are the early stages of crypto market cycles:

1. Optimism

Traders and investors begin to notice favorable returns on their investments in the early stages of an uptrend. This inspires hope and optimism for future successes. Participants in the market think that the asset is undervalued and that its price will rise further.

Positive news and developments in the cryptocurrency field, such as new alliances, governmental approvals, or technological improvements, might boost positive attitudes during this phase.

News sources and social media are vital in disseminating this confidence and generating a feedback cycle that draws in further investment.

2. Euphoria

Optimism can transform into euphoria as prices climb. Strong feelings of joy and a sense of limitlessness are experienced by traders. This stage, known as the greed phase, is known for the fear of missing out (FOMO) overpowering reason in decision-making.

Because traders assume the current trend will last forever, euphoria can result in high indebting and risky trading. Past instances include the Bitcoin bull run of 2017, during which euphoria propelled prices to previously unheard-of heights.

3. Fear

Fear grows as the prices keep falling and the downturn becomes more obvious. Panic sets in as traders start to worry about possible losses. When traders hurry to sell their holdings in order to reduce losses, this panic may cause a wave of selling.

Selling motivated by fear can cause prices to drop precipitously, which can become a self-fulfilling prediction. A good example of a bear market for Bitcoin in 2018 is when panic selling and fear caused a long-term decline

4. Denial

Refusal Many traders ignore the change when prices begin to fall after reaching a peak. They hang onto their possessions in the hopes of a speedy recovery. The recent recollection of quick gains and the expectation that the market will rise to its prior highs serve as fuel for this denial.

Denial might induce traders to make bad decisions by ignoring red flags and unfavourable news. This habit is made worse by cognitive biases like anchoring, which causes traders to become fixated on the peak prices.

5. Sorrow

The traders who weathered the slump feel a great deal of regret and hopelessness as prices plummet to new lows. They feel stuck since they were unable to take advantage of the higher selling prices. Significant financial losses frequently accompany this period of emotional depression.

When traders sell their assets at a loss because they believe the market will never recover, it can result in capitulation due to sorrow. This conduct is typical of the latter phases of a bear market, as demonstrated by the 2018 crypto winter.

6. Depression

Traders may get depressed and despairing as a result of sustained low pricing. They can completely give up on the market and stop engaging in trading and investing. Low market activity and decreased trading volumes are common during this era.

As seen by the protracted bear markets in both traditional finance and cryptocurrency, market depressions can persist for protracted periods of time, frequently until fresh, upbeat occurrences or patterns surface to pique investor interest again.

7. Hope

Trader optimism grows as prices level down and the first indications of a rebound show up. Due to market participants’ caution regarding fake recoveries, this fresh confidence is frequently cautious.

Positive news, like expanded market infrastructure, improved technology, or more lucid regulations, usually inspires hope. First steps of an uptrend are initiated when traders reenter the market as a result of the prices gradually rising.

8. Relief

After a period of decline, traders feel relieved when prices begin to increase gradually. Buying activity picks up during this phase as investors think the worst is behind us and a fresh bull market is about to start.

Prices are still very cheap when compared to prior highs, making the relief phase an excellent time to accumulate. Early recovery indicators allow traders to put themselves in a favorable position for the subsequent market cycle.