Crypto Market Cycle: The 4 Main Phases
Financial Markets are characterized by cycles of micro and macro trends, this also happens in the Crypto Market. These cycles are repeated over time and “gives you the opportunity” to predict future price movements. The Phases are cyclical, the rise, the peak, the dip and the bottom out. When one crypto market cycle is finished, another begins, this is happening in every market.
But what exactly are market cycles in cryptocurrencies? Have these cycles impacted the prices over the long or short term? How to identify these phases?
Cryptocurrency market cycles provide valuable insights for traders and investors about the price variations of a particular crypto asset.
Crypto Market Cycle is an assemblage of all phases between the highest and the lowest prices of the market.
If you learn to read them you can know when is the right time to buy and sell your crypto.
A lot of people use the phrase “market bubbles”, but do you know what exactly is?
A “market bubble” is one of the market phases, but if you want to recognise it, it is important to understand what these phases are.
The 4 Phases of a Market Cycle
The majority of investors and traders fail to recognize when is what phase. Even if you’re aware of market cycles, it can be challenging to pick the top or bottom of a cycle.
Firstly, let’s take a look at the psychology of the market cycles and then we will interpret every phase separately.
- Disbelief: Institutional investors and early adopters accumulate Bitcoin during the lower period (bottoming prices) due to the depression and anger of those who held their assets from the last peak period.
- Hope: When Bitcoin (or other cryptocurrencies) goes up, investors hold their crypto due to disbelief and hope. Smart investors hold and buy the dip at support during the markup phase. The market is showing positive signals for a new bull run.
- Optimism: When prices are rising as new capital flows in, the main sentiment is optimism, the market has a positive outlook and investors are more friendly to invest.
- Thrill, Belief & Euphoria: As the markup phase progresses, people get excited and many FOMO buy (those who bought lower from those who got in earlier), which causes the prices to go up quickly. The market sentiments are belief, thrill and euphoria, and with these sentiments would be wise to sell or hold. Investors seek new opportunities in the market.
- Euphoria & Complacency: At this phase, bitcoin is distributed high. This is the best time to sell.
- Anxiety & Denial: Bitcoin starts to go down, the market sentiments are a mixture of anxiety and denial. It is your second chance to sell (if you haven’t already) or short and play bounces as the Bitcoin prices fall over.
- Panic, Capitulation & Anger: Bitcoin nosedives further and quicker. The first sentiment is panic and sadness. Due to the panic, people sell to the short market, play Bounces and Start closing Short.
- Anger & Depression: When the markdown phase ends, bitcoin bottoms out. The main sentiments are anger and depression. This is a signal that one other cycle begins. At this time early investors start to accumulate and range trade again.
- A new Crypto Market Cycle begins. (Repeat)
The 4 Phases of Market Cycle:
1st Phase — Accumulation
This phase of the cycle marks the fall in prices when the market has fallen too low relative to the levels it was at. At this point, the market innovators start buying again at low prices thinking that there will be no further decline. The valuations are attractive for any seller who resigns and sells his position, while a smart buyer finds the opportunity and buys at the lowest possible prices.
Now, there is a loss of interest, some frustration, boredom, as well as a lack of positive thinking about growth. Media highlight a catastrophe and gloom, causing only anxiety, frustration. The overall market climate is slowly starting to change from negative to neutral.
2nd Phase — Mark up
This phase starts at the moment when the cryptocurrency market has reached a stable point and is starting to rise steadily in value. So, the early majority recognize the changes in the market and are starting to get on the bandwagon. The media starts to discuss this phase with positive news stories to support this change and more investors are interested. As this phase matures, more investors jump on the bandwagon as fear of being in the market is supplanted by greed and the thought of being left out. Then, the rise slows down, at this time people who have been sitting on the sidelines see this as a buying opportunity. The cycle is nearing the top.
3rd Phase — Distribution
This is the third phase of the crypto market cycle, bitcoin and other cryptos are traded at high prices. In the Distribution phase, sellers begin to dominate and the bullish sentiment of the markup phase turns into a mixed sentiment. Prices can often stay at the same trading range for a few weeks or some months. This phase starts and ends very quickly. When the distribution phase ends the crypto market will move down.
This phase is very emotional, the market dominated by the combined emotions of fear, greed, and hope. A number of investors (commonly early investors) cannot decide whether it is the right time to sell or not. Sentiment starts to change and move slowly down. But this situation can happen very quickly based on strongly negative news. Investors start to question bullish sentiments.
4th Phase — Mark Down
This is the final phase of the market cycle. The market goes down and the impressions are negative, there is anxiety and denial. Investors who still hold cryptocurrencies are in the most distressing position. These investors usually are new and inexperienced or their investment has fallen below what they paid for it. This is a sign that a bottom is imminent. But on the other side when the market falls by 50% or more a big number of investors buy during the end of the distribution phase or at the start of the markdown phase. People get sad and panic and the Market goes down even quicker as people panic sell.
It is important to mention that this phase, especially at the end, is the best time to buy crypto at the lowest possible price. It’s also the signal for another cycle.
Smart money and early investors start to accumulate again.
Be careful, market cycles do not always exactly follow this pattern!
It is important for traders and investors to understand that all crypto markets move in cycles
and to identify these 4 main phases. It is impossible for every market to only move upwards. Market cycles can provide a useful macro angle. The best time to buy is during the accumulation phase due to the fact that prices stop falling. When the crypto market picks up during the Mark-up phase, investors who can identify it, hold and wait for the prices to “catch” the highest possible growth. The distribution phase signs the end of the markup phase. So, smart investors who can recognize the different phases of the market cycle can have more profits.
When the market is in a state of disbelief and depression, it might be a good time to consider building up your position (long-term investment), if the market continues the decline don’t be afraid and confused.
When the market enters a period of overconfidence and euphoria, it might be time to consider taking a profit.
“Be fearful when others are greedy and greedy when others are fearful,” said Warren Buffett.
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