Crypto market cycles: The Psychology of Market Cycles

Crypto market cycles

Crypto market cycles

The graph summarizes the expected trajectory of the current crypto cycle. During this period, many regulatory authorities threatened to introduce stringent laws governing cryptocurrencies. For example, the United States Securities and Exchange Commission issued a lawsuit against Ripple. In addition, China banned Bitcoin mining, resulting in most of its BTC miners having to relocate to other countries. Crypto markets have been in a bear cycle for just over a year now which is uncannily similar to those of previous market cycles. The market continues to decline as the bear market has become a new reality.

Of course, it’s possible to wait for the next run-up in price however, this can significantly reduce your ROI and limit future investing opportunities. Again in mid-2021, we saw this same curve show up in the price of bitcoin rising sharply from $11k and peaking at $63k and then dropping down again to $30k. If you are a graphics designer, you may know it by the name of Gaussian function . In statistics, it’s often referred to as the “normal distribution” or “standard deviation” as it’s used in probabilistic distributions. Yet, most people are likely familiar with its common name the “bell curve” — the name which best describes its shape. And since the industry is new and bitcoin has a 38% market dominance, the market as a whole and bitcoin move in tandem for the most part.

Crypto market cycles

Market cycles include four phases of market growth and decline, which is driven by business and economic conditions. One of the best examples of the market cycle phenomenon is the effect of the four-year presidential cycle on the stock market, real estate, bonds, and commodities. The theory about this cycle states that economic sacrifices are generally made during the first two years of a president’s mandate. As the election draws nearer, administrations have a habit of doing everything they can to stimulate the economy so voters go to the polls with jobs and a feeling of economic well-being.

What Does the Crypto Market Cycle Look Like?

In the case of a new project, this is when early adopters or insiders buy into the project. CMCFor example, if we look back at the first major bitcoin bull run in late December 2017, when the price went from around $3,000 to almost $20,000, the bell curve shape can be identified. We’re passionate about the transformational nature of DeFi and want to help onboard the next billion users into crypto.

This can be beneficial for an investor’s overall investment strategy. At the end of the day, the best time to sell in a market cycle will rely on the specifics of your investment strategy and goals. For example, if you are looking at investing long-term, you may want to hold your assets through more than one market cycle. The accumulation phase is the best time to buy into the crypto market. In this phase, prices are often at their All-Time Lows which often attracts investors.

That is, there are several conflicting sentiments at any point in time. This occurs when sellers have abandoned the market and prices are perceived to be stabilizing. Because investors are not overly bullish about the market at this point, volume is frequently lower than expected. Assets frequently fluctuate in a narrow spread due to the absence of a clear trend. This approach can be a safe way to build wealth over the long term, especially if you are investing in quality assets.

In the run-up and distribution phases, it may be advisable to take profits and reassess your investment strategy. By following a disciplined approach that is based on a thorough understanding of market trends, you can maximize your potential for success in the cryptocurrency market. While accumulation occurs at the low end of a price range, distribution happens at and near an asset’s peak. Prices tend to hover at these high levels as more sellers pressure buyers from the recent markup. Typically, the distribution phase has an equal number of buyers and sellers, and prices trade in a tight range.

Crypto market cycles

The recent COVID-19 pandemic led to a slight pullback, but the market has quickly rebounded and continues to make new highs as of August 2020. Classic patterns like double and triple tops, as well as head and shoulders patterns, are examples of movements that occur during the distribution phase. This phase occurs after the market has bottomed and the innovators and early adopters begin to buy, figuring the worst is over. At this phase, valuations are very attractive, and general market sentiment is still bearish. It is thus important to understand how emotions affect traders, often turning the most logical thinkers into irrational investors. The market is always changing, and external events often affect the market outlook.

Crypto Market Cycles Phase 1: The Accumulation Phase

Markets move in four phases; understanding how each phase works and how to benefit is the difference between floundering and flourishing. In crypto trading, indicators like the Fear and Greed Index, Bitcoin Rainbow Chart and Ethereum Rainbow Chart are often reliable indicators for long-term predictions. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Charts, graphs and references to any digital assets are for informational and illustrative purposes only. When the value of Bitcoin starts decreasing, it suddenly becomes less and less attractive to trade the altcoin for Bitcoin. To protect themselves, the investor trades the altcoin for Bitcoin before the value of Bitcoin drops any lower.


Although the crypto market has had significant “booms and busts” following prior Bitcoin halvings, there’s no guarantee BTC’s supply change will always result in a price increase. Events such as a hack, interest rate hike, or a crypto company bankruptcy can invalidate this model. Also, if the demand for a digital coin can’t outpace its circulating supply, the price will decrease. Experts suggest researching every aspect of a digital currency before investing. Also, since crypto hasn’t been around as long as assets such as precious metals or stocks, there’s not as much historical data to confirm previous patterns.

However, there may be groups of market participants who are hopeful and eager to keep buying in the expectation that the current bull market will continue. As uptrends strengthen and investors experience optimism as the bulls take control of the market, charts will display more green candles. This could be a great time for new players to enter the market because the price increase is more noticeable during the markup period. It continues to advise investors and traders on the best ways to select winning assets, the best times to acquire them, and the best risk management strategies to employ. During the course of a cycle, asset classes perform better than others because the business models of the former are better suited to conditions favorable to growth and development. Cryptocurrency markets tend to be cyclical since they exhibit a pattern of highs and lows throughout their existence.

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In terms of sentiment, this phase is typically characterized by high levels of fear and low levels of greed. Leading to a lack of buying interest or new capital entering the market. Some participants, believing the current surge to have peaked, may start liquidating their positions in preparation for an upcoming bear market. Checking the market each day might not yield much wisdom – but observing the patterns over time certainly will.


In a perfect world, the cryptocurrency’s trading patterns will reflect the four phases mentioned above in this set order, allowing a set amount of time between transitions. The markdown phase sees a decline in price and is a strong indicator that a bottom is approaching. When the price reaches half of its peak value there is generally another mass sell-off, driving the downtrend further into the red. It’s at this time when classic technical analysis patterns such as head and shoulders or double/triple tops can be found and is an indication of a change in direction. There are four key phases to a market cycle, and technically it is possible to consider any of them could as the starting point.

The report noted that the current Bitcoin market has seen a 376-day period from peak to trough. What followed the cycle low was a long period of consolidation and slow accumulation, which is what we could be seeing at the moment. To avoid getting caught in this whirlwind, always practice meticulous risk management. When it comes to cryptocurrency trading, we’ve prepared a list of 15 crypto trading tips that you can take a look at to optimize your process.

This is a natural phenomenon that occurs in every market, and the crypto market is no exception. In this phase, early adopters and market insiders begin to sell off assets as market liquidity becomes high. However, distribution phases tend to be short, with market sentiment quickly reverting to a downward trend. The dominant sentiments are often mixed, ranging from greed to fear and hope.

Reflecting significant market greed for the asset in question, and low levels of caution. Meanwhile, market pioneers and whales with a vision take advantage of these low prices and start buying, confident the market will soon recover. With a significant portion of the market ending up in the hands of just a few first movers – hence the name “accumulation”.

When armed with this knowledge, you’ll be able to spot the longer-term trend, which will be your insurance during rough market patches such as a crypto winter or bear market. With the price reaching its peak, the mixture of sellers and buyers send the market into sideways trading. The sentiment is a combination of greed, fear and hope as some believe the market could spontaneously surge again.

There is typically a noticeable increase in trading and market volume. During the markup phase, the market is generally characterized by a bullish sentiment. The run-up phase, or bull market, follows the accumulation phase and is characterized by a dramatic increase in price.