Understanding Cryptocurrency Market Cycles

Cryptocurrencies come as unstable assets since their value and trade price can change drastically even within one trading day. An altcoin price tends to rise or fall, depending on multiple factors, occurring in the world. Thus, traders defined and set market cycles to guess the future movement of the price more precisely.

The ability to realize at what stage of the cycle an asset is helps traders to predict the price movement correctly, that is, increase their profit and eliminate the risk of losing funds. It’s vital for investors and traders to define market signs and study the history of an asset movement to develop a long-term successful trading career. The understanding of market cycles can be a powerful forecasting tool for a trader or investor. It will help them not to be caught off guard by the beginning of the next crypto winter and to recognize a bull run in time.

The Essence of Crypto Market Cycles

Cryptocurrency market cycles are usually called periods between peak and minimum asset prices. Cycles are characteristic of all financial markets, not just cryptocurrency. These are natural sequences that happen over and over again over time. The only difference between the cryptocurrency and stock market cycles is that the first one features much shorter cycles since the sphere is still quite young, which leads to higher volatility of assets, and, therefore, prices move faster.

Market cycles depend on trader mood and psychology. They behave differently in each phase of the cycle. Based on their behavior, 4 market cycles are distinguished. These are accumulation, markup, distribution, and markdown phases. Below, we’re going to have a deeper look at each stage.

Accumulation Phase

This stage comes as the first phase after breaking the minimum price point. Here, traders start accumulating shares, believing that the market is going to rise in the near future. The main features of this stage include low demand for extra assets among new investors and keeping the asset value below a certain threshold. The main benefits of the asset accumulation phase include:

1. Traders have a good mood, expecting an upcoming price rise.
2. The worst times passed. The growing price tendency is observed.
3. Certain stability is price movement is set on the market.
4. Investors start to pay attention to a crypto asset.

This growth may last from several weeks to several months. The pace of price rise depends on the trader’s behavior and mood.

Markup Phase

This stage is characterized by stable price growth once the market reaches a certain point of stability. Skilled traders identify this phase by making a tech analysis of the market cycle chart. Although the rise is stable, it’s not quick. The rising trend is observed since more investors are enrolled in the trading process. The following benefits are remarkable at this stage:

1. Stable price growth is guaranteed.
2. A positive mood among investors.
3. Slow-paced but stable market movement.

Here, investors buy assets trying to gain money on the upgoing trend. They predict the price growth.

Distribution Phase

This stage features the domination of sellers. Traders, who bought assets at previous phases, sell them to fix their profit and prevent losses. Since many investors tend to close their trades, the bullish trend weakens and turns into a bearish one. This phase is characterized by swinging the price within one value range. Such a swinging trend may last for several months. The main advantages of this phase are:

1. Real opportunities to get a big profit if investors manage to close deals timely.
2. The ability to identify a tun to an opposite market trend.

At the end of this stage, the market goes in the opposite direction switching to the bearish trend. Geopolitical and economic events in the world can affect the chart drastically in this phase.

Note that this phase is the best time to close trades but it’s the worst time to open deals. Thus, make sure not to open new trades during this stage since you have a high risk of losing funds and a low opportunity of gaining a big profit.

Another important feature of this phase is the combination of controversial emotions, such as fear, hope, and greediness. Chasing the desire to get the maximum profit, traders are afraid of skipping the moment to close deals and lose money. This is why this phase is unstable in terms of the emotional state of involved investors, which creates additional fluctuations and can affect price movement.

Markdown Phase

Finally, we enter stage 4 of the stock market. It features a descending trend, during which the crypto price will fall. At this stage, several scenarios are observed:

1. Those traders, who didn’t manage to close trades during a previous stage, lose profit. In most cases, these are newcomers and unskilled investors who entered the market at its height. Here, they are likely to lose funds.
2. Those investors, who closed their deals and benefited from trades, open sell deals, predicting price falling. Since assets lose their value, traders make money on the opposite trend, foreseeing chart correction.

Thus, the stage can be both beneficial and disappointing for investors. This is why it’s vital to make a comprehensible tech analysis of the chart. The analysis of the instrument chart helps identify what crypto cycle phase the market is in, which allows for eliminating the risk of losing funds.

Like the markup stage, this one can last for several months until the price reaches its lowest point, after which the cycle is closed, and the market returns to phase accumulation.

At its basics, the market is guided by emotions that traders experience at each stage of the crypto market cycle. Events on the world scene are another factor that affects the price drastically. However, the understanding of the market cycle and the ability to interpret it correctly helps investors allocate their funds effectively, enter the market timely, and make correct predictions of further price movement.