One of the characteristics of the crypto market is its repeating movement in price. This movement is in a certain pattern called a cycle. The Crypto cycle covers the whole price movement in the entire crypto market, and it cut across all timeframes.
Everyone wonders about the recurring price pattern in the market, which is because the market moves in a way that is directly proportional to the action taken by the market participants. Humans are the participants and they control the market through their reaction to news or fundamentals.
What Is A Crypto Market Cycle?
The crypto market cycle is a cycle that covers the general activities in the crypto market. It covers the general movement of price, how price moves from the highest to the lowest point, and the area of least and most trading activities. The market cycle of any financial market is a recurring pattern in the market, that has played over time. This pattern shows the rise of the market, which is the peak, and the fall of the market, which is the low, and neutral point in the market.
All of these price movements are a result of the market participant’s behaviors and actions. The participants are the traders, investors, and every other institution that buys and sells in the crypto market. The market cycle occurs because the market moves as a reflection of the activities of its participants, which are humans. Humans move as a result of emotions, no matter what the news is if humans do not act there will never be a price movement.
Four Phases Of The Crypto Market Cycle
The crypto market concept can be divided into 4 phases, and each of these phases is a total reflection of the emotional behavior of the market participant. We have the accumulation phase, the markup phase, the distribution phase, and the markdown phase.
In other to understand and interpret each phase, let’s look at a pictorial explanation of the psychology of the market. This also best explains how emotions control humans.
This seems to be the first phase of a crypto market cycle because it comes immediately after the end of a downtrend. The accumulation phase has a mix of sentiments, which include disbelief, anger, depression, and buying opportunity. The market is neutral at this stage, there is less trading volume and a general loss of interest from the general public. It also gains less positive news from the media.
This phase is a buying opportunity for smart investors to accumulate more valuable assets at a very low price. To the inexperienced traders, those that bought at the peak of the market, it s a phase of sadness, sorrow, and fear. The fear of the market won’t recover, and the fear of losing leads to more depression, frustration, and anger.
An accumulation phase lasts for a long time, and only those with experience and knowledge can identify this stage. It is the stage when the market moves from neutral to positive, and signs of an uptrend start showing. The end of this stage then leads to the beginning of the next phase, which is the markup phase.
The Mark Up Phase
This phase is characterized by high trading volume, an increase in price, and high demand. It is the start of an uptrend, the market starts making a higher high and higher low, and money starts flowing in from new and old participants. The market sentiment gradually turns positive, and all indicators, price actions and fundamental turns bullish.
There is hope in this phase, people are optimistic about the crypto market and new beliefs from both old and new investors start getting strong. As the markup keeps going up, everyone gets excited forgetting the previous phases. At every little dip, more money is put in, which increases the price of every crypto asset. Then greed and euphoria start to kick in.
People start to say things like, “we’re going to be rich… I’m going to find the next 100x… We’re not taking profit… Just HODL and be wealthy”. The media will be 100% positive and everyone will definitely love and want to get into crypto. There will be extreme greed everywhere.
As this is happening, smart and experienced investors become scared, and they start looking to take a profit. They know and understand this is the time to close all longs, a time to rebalance their portfolio or to convert tostables and finally exit the market. While, the new, inexperienced and unknowledgeable traders and investors are pumped into FOMO. This then leads to a wrong trading decision and they are left holding their bad into the next crypto market phase.
The Distribution Phase
This phase depicts less demand and less movement in price. The general crypto market tends to range for a short period, before an increase in the selling pressure. Here, there is already so much attention from the general public and everyone is talking about the cryptocurrency market.
The knowledgeable traders and early investors increase their take profit, while new investors are still buying more with the belief it is just another price dip. Indicators and price action starts signaling a possible top, but this is looked away by many because of complacency, euphoria, and greed. There is an increase in demand reduction with an increase in selling pressure.
At this point, there is still fear, hope, and greed in the market. As newer investors and late buyers still believe the top is not near, the 2x gainers are waiting for a 100x return. Those with 100x returns are skeptical of what may happen next, so they sell more just to secure their gains. Hence, there is a higher increase in the selling pressure, which leads to the last phase of the crypto market, the Markdown phase.
The Markdown Phase
This is the final phase of the crypto market cycle, and it has lower highs and lower lows. It is a stage of anxiety and denial. The people who couldn’t take profit or exit their position at the distribution phase will never believe it is a downtrend.
Words such as, “it’s up only, it’s going back up… The fundamentals are great… and the team is building” will be the talk of the day. The denial stage will come to an end after a while, which will then lead to capitulation and panic selling. Capitulation is where they sell completely, it’s the stage where everyone accepts their losses and takes responsibility for their actions.
This markdown phase which is a downtrend obeys the law of gravity which states what goes up, must come down. It is also a phase of pain and sorrow for investors who still hold their position. Price movement in this phase is fast for the price goes up on stairs and comes down in an elevator. The end of the phase starts the accumulation phase, marking the crypto market cycle as a repeating pattern.
Conclusion
The crypto market cycle is not a new concept, it is being in existence but many of the market participants do not profit from it. This can be either because they are unable to control their emotion on any market news or they can not tell the exact phase in each market cycle until it’s at the end.
This brings us to a “barometer” used by many investors and traders as the start of a new crypto market cycle. It is called the bitcoin halvings, which happen every four years interval. BTC being the number one crypto asset directly or indirectly controls the general crypto market. This is why after each halving everyone is anticipating and guessing the start of a bull market.
Source www.wallstcheatsheet.com
