The first phase of a market cycle is accumulation. It starts after the previous cycle ends, indicated by stabilizing prices, denoting a beginning of a new cycle.
At this phase, the 'innovators' and 'early adopters are the ones who begin to buy, while the overall interest in the market remains low. Some market participants would see the accumulation phase as an uncertain time to enter the market because it’s difficult to infer if the crypto’s value will trend down. Hence, the market volume is typically lower than average.
This phase usually attracts long-term holders who are looking to buy and hold for quite a long time because they’re optimistic that there will be a start of a lucrative bull market. But, short-term traders would need to have patience because this phase could last unpredictably – from weeks to months or even years.
The Markup phase is also commonly known as the “Bull" market phase where the market has been stabilized for a while and is beginning to have an increasing price at an increasing rate.
More market participants are becoming interested and optimistic about the future of the market. They enter the market as the market receives positive media overage. As a result, demand increases and exceeds supply, causing asset prices to appreciate in value.
This phase usually attracts long-term holders who are looking to buy and hold for quite a long time because they’re optimistic that there will be a start of a lucrative bull market. But, short-term traders would need to have patience because this phase could last unpredictably – from weeks to months or even years.
The third phase of the market cycle is identified by a period in which excitement sentiment from the previous Markup phase shifts into a mixed sentiment – a separation between greed and fear.
Some participants are still optimistic that the bull market isn't over, hence they keep on buying. On the other hand, some participants are in fear that a bear market is coming, thus they try to secure profits by selling off their assets as they're uncertain if the uptrend will continue.
As result, prices fluctuate and progressively reach an equilibrium peak that can come and go quickly, moving to the next Mark Down phase.
This final phase of the cycle is the most depressing for those used-to-be-optimistic holders.
This starts when supply outweighs demand, and the market outlook becomes increasingly negative. Many choose to still hold their investments and refuse to let go even though their investment's value has fallen below what they paid for. But, at a certain point where the market dropped 50% or even more, they'd give up.
Although this period is thrilled with fear and panic, many need to remember that the Markdown phase doesn’t last forever. There’d usually be a new crypto market cycle, or another markup phase afterward.
What factors would affect the crypto market cycle?
What are the drivers that could create a new phase or end an existing one in a crypto market cycle?
But one of the most important drivers of the crypto market cycle is the Bitcoin Halving.
The Bitcoin halving, which happens roughly every 4 years, refers to an event when the mining reward is cut in half. This rule was established at inception of the Bitcoin blockchain and is a fundamental principle driving the deflationary nature of the asset (the reason why it increases in value with time). Satoshi himself (founder of Bitcoin) put this into effect because of his view of rampant money printing and greed that took place during the 2008 financial crisis.
The overall effect of the halving is that it reduces the rate at which new Bitcoins are created, hence it slows down the available amount of new supply.
When demand for Bitcoin stays strong (or increases), Bitcoin Halvings would push the Bitcoin price higher due to the perceived lack of market supply. Based on history, Halving leads to a new markup phase in the market cycle.
For example, the first Halving in 2012 saw the Bitcoin's price rise from $12 to roughly $1,150 within a year. The next halving event happened in July 2016 where the price rose from $650 to almost about $20,000, which eventually lowered down to $3,200. At the time of writing, the most recent Bitcoin Halving was in 2020, which saw its price to reach a value of $69,000 from nearly $8500.
Note that Bitcoin's inventor Satoshi Nakamoto decided that only 32 Bitcoin Halvings would ever exist – there will be no more halvings after that as the maximum supply of 21 million Bitcoin will have been reached.
There are additional unique factors that can specifically affect the crypto market, such as market psychology and notable influencers.
It's important to note that these factors don't necessarily change the price direction of assets in the market cycle, the cycle itself is normally played out in 4 year lengths. These factors add fuel to the already established momentum of the market. For example positive news in a bull market is overblown and forces prices much higher than the same news in a bear market. In fact, positive news in a bear market often hardly shifts the market at all whereas negative news in a bear market is similarly overblown and makes the market panic forcing prices much lower.
Market momentum cannot easily be shifted so determine where you are in the market cycle before responding to any of the following drivers.
Excessively positive market segment (e.g. extreme greed) can make an asset overbought. An example is the Bitcoin bull market of 2017 from January to December, it rose from roughly $900 to a high peak of $20,000. During the rise, market sentiment became increasingly positive, leading myriads of new investors to enter the market and be trapped in the excitement of the bull market. Excessive optimism, greed, and ‘Fear Of Missing Out’ swiftly boosted the price – until it didn't.
The reversal phase began in late 2017 and 2018 when a downward price trend occurred. Some people insisted on HODLING (i.e. crypto slang for 'hold on for dear life'), yet the market continued to plunge and everyone was panicking. As a result, many sell out their high-cost Bitcoin asset at the bottom price and suffer huge losses.
Elon Musk is one of the social influencers who can change the crypto market cycle. The billionaire was able to switch up and down the prices of crypto assets like Bitcoin and Dogecoin, only through a less than 280-character tweet.
In May 2021, when Musk tweeted that Tesla would no longer accept Bitcoin as payment due to environmental concerns, the price dropped by around 15 percent. But when in June 2021 he tweeted that Tesla would re-accept Bitcoin once miners moved to clean energy usage, the crypto price increased up 8 percent. Further, his tweet about Tesla possibly accepting Dogecoin for merchandise payment caused the Dogecoin price to rise by 15% in January 2022.
Not only tweets, but influential Youtube channels and podcasts can also affect the crypto market cycle. ‘BitBoy Crypto’, or Ben Armstrong, is one of handful influencers who offers advice on cryptocrurency. Although his advice is controversial as some critics think that it’s dramatic and groundless, many of his followers follow his prediction upon crypto values. Other popular channels also have many thousands of followers and can easily affect the price of small-cap cryptocurrencies.
Some argue that the general rule of thumb is to buy at the Accumulation phase because prices stop falling. Investors should hold and wait during the Markup phase, then sell at the highest peak.
Smart crypto investors are able to recognize different phases of the crypto market cycle and make the best decision to maximize profit.
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