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The cryptocurrency market is usually considered an unpredictable and highly volatile market where anything can happen at any given time. However, some traders claim that the crypto market follows a cyclical pattern: whatever goes around comes around with time.
To see the cyclical pattern of the market, you have to see the bigger picture and historical data rather than focusing on sudden price surges and drops. The traders who believe in this cyclical pattern, wait for the right season for investing and hope to capitalize on the market hikes.
In this article, we will understand crypto market cycles and explore its different phases in detail.
What is Crypto Market Cycles?
Crypto market cycles are a method used by many cryptocurrency investors to predict market behavior. Here, the analysis includes historical crypto prices and market psychology. By using the data obtained, analysts find patterns and look for similar patterns in the current market.
At the beginning of a market cycle, there will be few activities in the market, with lower prices, when investors and traders notice low prices, they increase the trading volume and start buying more assets, which drives the demand gradually. During this period supply outweighs demand and price increases, which creates more exposure to the market.
At some point the price peaks and the interest drops, leading to more sell orders in the market, creating less demand and high supply, dropping the price down. This then paves the way to the next cycle.
This cycle is segregated into four major stages, namely, the accumulation phase, markup phase, distribution phase, and markdown phase. Let’s examine each phase in detail:
1. Accumulation or quiet consolidation phase
The beginning of a cryptocurrency market cycle is denoted as the accumulation phase or the quiet consolidation phase. This is a boring phase where the trading volumes across the board are lower and the interest of the general public reduces to a minimum, often making investors bearish – uncertain about the future value of their asset. During this period, crypto asset prices may plummet.
Since it may look like the price is dropping far from recovery, many individuals may feel uncertainty in entering the market because it can be hard to know for certain whether the market will stay down or become bullish shortly. However, many experienced investors, see the accumulation phases as an opportunity to buy cryptocurrency at a lower price, foreseeing its potential future.
The accumulation period is especially beneficial for long-term investors, who are trying to HODL – a trading strategy where the investors hold on to their crypto possessions, without paying attention to the market conditions. Typically speaking, the accumulation period is not a short stint, it can span from months to years before moving on to the next phase.
Identifying features:
- Price bottoms out and stabilize
- Reading volume decreases
- Caution heightens and greed lowers
2. The Markup Phase
By the end of the accumulation phase, media portrayals change, and more individuals will become more optimistic about the cryptocurrency market, then comes the second phase of the crypto market cycle, the markup phase.
In this phase, a new crop of market participants grows and it increases the overall amount of activities happening in the market, potentially leading to a positive curve or a bull market.
Here, the press and social media play an important role in spreading positive news about investment opportunities in the cryptocurrency market. Many individuals try out investing in cryptocurrency for the first time, leading to an increase the “Buy” orders, which can increase the demand for crypto tokens.
The trading volume increases and potentially the price also goes high. So, the markup phase is easy to notice with a bit of practice and knowledge.
In the markup phase, it wouldn’t just go on with an upward curve, instead, you may expect to see small dips in between. However, investors see this dip as an opportunity to invest rather than a caution signal.
Nevertheless, keep in mind that not all cryptocurrencies rise during the markup phase. Certain tokens may continue to dip despite the overall market trend, due to the unpleasant press around the token. So, you must pay attention to the headlines and market sentiments.
Identifying features:
- Price increases over time
- Participants become more optimistic
- Trading volume increases
- FOMO and greed may peak
- Press and social media spread more positive headlines
3. The Distribution Phase
In the distribution phase, some of the market participants who were buying the crypto tokens foreseeing their potential future, became uncertain of the sustainable growth and started selling their possessions.
However, the market still will be in the bull run and many investors should be still looking to buy. Here, the buyers and sellers evens out the matter and the trading volume wouldn’t dip.
Even so, the price of the cryptocurrency may fluctuate in a general limit, making more participants segregated into either bears or bulls. Here, the market sentiments are mixed and while some digital assets may perform well in this phase, some may face backlashes.
During this phase, many people fear a downtrend on the horizon and start to liquidate their assets, to make the maximum from their investments, before the next phase of the cycle – the markdown phase begins.
Identifying features:
- Bears and bulls exist simultaneously
- Limited price volatility
- The number of Buy orders and Sell orders almost evens out
- Trading volume increases without increasing the price
4. The Markdown Phase
The markdown phase is the final phase of a cryptocurrency market cycle. While in the distribution phase, the market had an even number of bears and bulls, in the markdown phase, fear outweighed optimism, and people started to sell their assets.
Here, the supply increases lowering demand, and the overall outlook of the market becomes negative. So, naturally, the headlines become pessimistic, which prevents the entry of new investors into the market.
This is the most scary phase of the cryptocurrency market cycle, where the price of the assets drops and uncertainty prevails. However, this period is most beneficial for short sellers. They get to capitalize on the downtrend and make profits, meanwhile, the value of assets held by long-term investors dips.
After most of the sellers exit their positions liquidating their assets, the market stabilizes locally. While this can feel like the end of the cryptocurrency market, it has proved time after time that the market will wake up again and the next cycle will begin.
Identifying features:
- Trading volume comes down
- Price downtrend
- More sell orders than buy orders
- Trading volume increases
Factors Affecting Crypto Market Cycle
Much like the traditional finance verticals, the cryptocurrency market is also heavily influenced by several external factors that create a cascading effect. Some of the most important factors that affect crypto market cycles include:
- Political factors and agendas
- Media headlines and portrayals
- Financial Policies
- Performance of other markets
- Bitcoin halving
- Social media influences
How Does Bitcoin Halving Affect Cryptocurrency Market Cycle?
Bitcoin is the most dominant asset in the cryptocurrency market, and the entire market can sway according to the dips and hikes in the value of to token. One of the major catalysts of the Bitcoin market is the Bitcoin halving that happens every four years (approximately).
A bitcoin halving is an event where the blockchain automatically reduces the mining rewards in half. This reduces the creation of new Bitcoin circulation, thereby increasing the demand. Naturally, when the demand increases, the price experiences an upward trend.
When the price of Bitcoin hikes, the general public will have an optimistic view of the market, which invites new participants to the market. This new resurgence of investors can be beneficial for most of the altcoins other than stablecoins.
How Long Does Crypto Cycles Last?
Most of the cryptocurrency investors believe that in cryptocurrency, the cycle lasts about four years. This pattern is deduced by looking at the historical patterns and behaviors of the market. For example, the market first became bull in 2017, when Bitcoin hit its all-time high at that time of $20,000/token. However, the market dropped within a year and didn’t take off after four years in 2020.
The same repeated after the 2020 price surge, the bull run lasted till 2021, hitting another all-time high of $69,000, and reached the end of the cycle within 2023. By the start of 2024, the next bull run began, which brought Bitcoin to its all-time high of $73,000. It is also noteworthy that the Bitcoin halving also happens every four years.
Although the current market analysis corroborates the four-year cycle theory, the cryptocurrency market is young and highly volatile. So, it needs a larger data set, to have a clearer picture of the crypto market cycle.
How to Identify a Crypto Market Cycle?
While in hindsight it is easy to see the patterns after it has already happened, recognizing an approaching cycle is not that easy. Especially because the cryptocurrency market always has short-term price drops and hikes, which might not be an indicator of the market cycle. However, some tools can help you identify a crypto market cycle. They are:
1. Bitcoin Halving
It is not entirely clear whether Bitcoin halving triggers the bull run or not. However, the historic price variations of Bitcoin suggest that it does. Halving is one of the major updations in the Bitcoin blockchain which gets a lot of media attention.
The market has already accepted that Bitcoin will rise to an all-time high within a year of the halving event. So, expecting this price hike, many new market participants emerge during the period, increasing the trading volume and in turn the price. It has also been observed that the price of other cryptocurrencies also increases during the Bitcoin bull run.
2. Trading Volume
As we have mentioned in the earlier sections, trading volume swings according to the market conditions, and it can be a great indicator of the crypto market cycle. During the cumulative phase trading volume will be lower than average, and it goes up in the markup and markdown phases. You can check the trading volume corresponding to the price-changing trend to determine the current phase of the cycle.
3. Market Sentiments
You should also consider the general market sentiments of the participants to identify the crypto market cycle. The fear and greed factors greatly contribute to the uptrend and downtrend of the market. Several software tools offer fear and greed index measuring which you can use to your advantage.
While the above-mentioned tools can help investors identify, the crypto market cycles, there is no foolproof method. You should be aware that all crypto investments are subject to market risks, and no one can actually predict what the future holds for digital assets with accuracy.
Conclusion
Cryptocurrency market cycles refer to the theory that predicts that the cryptocurrency market behaves cyclically. This theory, states that the cryptocurrency can rise to the greatest high and fall deep only to make way for another uptrend.
In this article, we have explored the four phases of cryptocurrency, the accumulation phase, the markup phase, the distribution phase, and the markdown phase. We have also familiarized some of the factors that affect the cycle and understood some tools to identify the cycle.
However, be advised that the cryptocurrency market is a young marketplace where the available data is limited and there needs to be more study materials to predict the market behavior more accurately. So, before investing in crypto, do your own research.
