Crypto Market Cycle is an important aspect of the cryptocurrency market and crypto trading. Crypto market enthusiasts often look for better opportunities for trading. With the volatile crypto market, not all time of the year or all stages of a cryptocurrency is suitable for trading. The crypto market undergoes a couple of cycles that either favour or go against trading. Thus, it is important to know and understand these cycles to enjoy better crypto trading of your assets.
What Is The Crypto Market Cycle?
A crypto market cycle is considered to be the phases of the crypto market. Usually, the crypto market cycle consists of four different price trend phases caused by various types of external factors. An individual crypto market cycle lasts for four years on average. The key factors that affect the cycle include its correlation with the promising cryptocurrency Bitcoin (BTC), Bitcoin Halving, and social metrics.
At a very high level, the market cycles show specific patterns that usually emerge from the psychology of the crypto market participants as well as the greater economic environment. This is, however, a natural phenomenon and occurs in every market. That said, the cryptocurrency market is no exception.
The market cycles of the crypto market start with very little to no interest in the market. With the spike in interest and demand, the prices of the assets usually rise to support the increasing demand. At a specific point, the prices reach a peak and then suddenly start to drop. Demand outweighs supply as interest declines. Each cycle ends with a new one.
What Are The Phases Of The Crypto Market Cycle?
Market cycles can be difficult to predict, but most cryptocurrencies (excluding stablecoins) go through similar phases. In order to participate in the market in a more informed way, you should understand the characteristics of each stage and how a typical user may approach each stage. Here are the phases with their specific characteristics in detail.
1. Accumulation Phase
This is the very first phase of every crypto market cycle. When the sellers have left the market after the previous cycle, and the prices are perceived to be stabilizing, the new cycle begins. This phase is characterized by low market volume than the average owing to the fact that the interest remains low. Thus, the assets usually trade within a tight range and no clear trend emerges.
- Uncertainty and disbelief dominate market sentiment
- Low price volatility
- Low trading volume
During the accumulation phase, also known as the consolidation phase, the downtrend typically comes to an end. As it can be hard to tell whether the asset’s trend will continue lower, some market participants may still consider it an uncertain time to enter the market. A longer-term holder may consider the accumulation phase as the precursor to the start of a bull market, however.
For long-term users looking to buy and hold, this period is especially attractive. Short-term traders, however, need patience, as this phase can last for weeks, months, or even years.
Market participants’ attention can be captured by positive news about the market at large, potentially pushing the market into the next phase – the markup phase. For more cryptocurrency market update and related news, visit https://cryptoventurenews.com/category/cryptocurrency-news/.
2. Markup Phase
This phase is commonly referred to as the “Bull market Phase”. An increase in price occurs during this phase. When new market participants enter the market during the markup phase, volume generally increases at the start of this phase. In terms of market sentiment, despite being conscious, market participants are optimistic about the future. Additionally, the press and companies begin to publish positive headlines. A price appreciation occurs when the demand for an asset outweighs the supply.
- Optimism and excitement dominate market sentiment
- Price chart showing an upward trend
- Trading volume increases
- Economic conditions are favorable
New participants may benefit from entering the market during the markup phase because upward price movement is easier to recognize. In addition, dips or pullbacks in the markup phase are mostly considered an opportunity to buy rather than a warning sign.
The price of assets will not necessarily rise during the markup phase, despite the overall optimism. It is possible for some assets to go against the general trend even if they follow the overall trend, due to negative news specific to them.
3. Distribution Phase
There is a point when some buyers become sellers following a bull run. This state is known as the Distribution Phase. In this phase, the buyers and the sellers in the cryptocurrency market are at equilibrium.
Participants in the market are still looking to buy, as they believe the bull market isn’t over. In contrast, sellers want to lock in their profits. The bears and bulls are at odds because of this. There may still be high trading volumes in this phase, but asset prices are generally fluctuating within a limited range until one side of the market surrenders.
Consequently, this phase can lead to a separation between greed and fear, with the prevailing uncertainty of whether the uptrend will continue or a bear market may follow. In order to gauge this change in overall market sentiment, analysts use the fear and greed index.
- Overconfidence, greed, and uncertainty all affect market sentiment
- Low price volatility
- An increase in trading volume without an increase in price
After a bull market, the distribution phase is also the first sign of weakness. Therefore, some may conclude that a further downtrend is on the way. In preparation for what they perceive to be an upcoming bear market, several participants who bought assets during the markup phase may begin liquidating their positions.
4. Markdown Phase
The bear market or the markdown phase is the scariest of all for most participants. It occurs instantly when the supply exceeds the demand in the previous phase. This period is fueled by fear in the crypto market owing to the fact that the outlook becomes excessively negative. Selling pressure increases the more participants begin to fear the market’s future state. An asset’s price can reach new levels as a result of this cascading effect in some situations.
A downtrending chart and a high-volume price decline define the markdown phase from a technical perspective. When news articles begin to use words like ‘recession’ in their titles, market sentiment begins to shift negatively.
- Panic and anxiety dominate market sentiment
- Price chart with a downward trend
- An increase in trading volume
- An unfavorable economic environment
Short sellers are most likely to benefit from market drawdowns during the markdown phase. As a result of the current harsh market environment, even good news can’t pull an asset out of a downtrend during this period. The good news is that markdown phases don’t last forever. A new crypto market cycle generally follows this phase. Another markup phase may lie ahead.
Future performance cannot be predicted or guaranteed based on past performance. It is possible to lose all or a substantial amount of your purchase price if the value of a crypto asset increases or decreases. In order to make the best possible judgment when assessing a crypto asset, it’s critical that you do your own research and due diligence.
That’s all folks! Thanks for sticking around. We hope that this read has increased your knowledge of the crypto market cycles, its characteristics, sentiments, and psychology. Comment below with any valuable thoughts you may have. We would appreciate it if you did so. If you enjoyed this article, share it with your friends and colleagues!