Day 7 of Navratri: Understanding Crypto Market Cycles

Since the inception of Bitcoin, the Crypto market has seen several ups and downs, popularly known as market cycles. Each cycle of the crypto market has several stages which often coincide with the larger economic landscape. Today, in the 7th blog of our 9-part series, let us understand the different stages of a crypto market cycle.

A market cycle often starts with early adopters taking positions before the masses discover the price movements. This is because the fair majority of the retail market waits for price movement in a bullish direction before taking a buy position. Moreover, when the price starts to move in a bullish direction, investors often wonder if the price has peaked. Amid this confusion, opportunities are lost. Therefore, it is important to analyze markets in a longer time frame and buy fundamentally robust crypto assets which are truly solving a problem. With that, let us explore the various stages of a market cycle.

The Stages of a Market Cycle

Accumulation Phase

This stage is marked by less volatility. Most retail investors sell their assets during this stage contemplating the fear of a price drop. However, seasoned investors take this opportunity to accumulate their holdings as the asset is cheaply available. Periodic accumulation of assets during this stage can prove to be beneficial from a long-term perspective provided that there are no black swan events in the industry and other macro-economic factors and regulatory factors support the market.

Markup phase

The Markup phase usually marks the beginning of a bull run where the price takes strong support and starts moving upwards. The bulls begin to gain control in this phase and many short positions tend to break. News about the market is aggressively covered by the media and investors can smartly take positions. Increased news coverage also increases the possibility of new investors venturing into the crypto market which adds fuel to the bull run.

Distribution Phase

This is a stage where the price usually peaks and can breach the previously set all-time high. FOMO traders, the ones who are taken over by greed end up buying in this phase with the hope that the price reaches even further. Lack of research often blinds investors from looking at the larger picture. This is also a stage where the seasoned investors who usually take buy positions in the accumulation phase end up selling their holdings and hence the bulls turn into bears. When the “Smart Money” starts leaving the market, a strong resistance is encountered and the market usually reverses marking the beginning of the Markdown phase.

MarkDown phase

At this stage, the market takes a pessimistic outlook towards the industry and Fear, Uncertainty and Doubt set in. The investors who end up buying assets in the distribution phase often get their hands burnt and end up exiting the market at a loss. The price drops to a point where another strong support is encountered. At this stage, most FOMO investors exit the market and the seasoned investors see the sign of accumulation and again take buy positions and the whole cycle continues.

Bitcoin Cycles

Since its inception in 2009, Bitcoin has seen close to 4 cycles, and each cycle can be broken down into the above-mentioned phases. Here is a snapshot of Bitcoin’s price movement since its beginning. These cycles can be understood better when the price of Bitcoin is seen on a logarithmic scale rather than a linear scale. This is because the current price of Bitcoin is way higher than the price during its inception.

Crypto Pulpit