Bitcoin market cycles

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While this sounds unpredictable and scary, it has also allowed trading analysts to observe the cyclical nature of these activities. This information allowed investors and customers to better understand the crypto market cycles, and more importantly, use them to their advantage.

In this article, we'll show you how to not only understand the crypto market cycles but how to identify and use them to your advantage. Reaching beyond the cryptocurrency market and across a wide range of assets, market cycles are no stranger to stocks, commodities, etc. They are regular occurrences and can be summarised as the stages in between the all-time high and the low of a market.

Whether trading traditional stocks, money, or assets built on blockchain technology, market cycles are prevalent across the board. These phases in the cycle are categorized by the accumulation, markup, distribution, and markdown phases and will be outlined based on analysis and research below. This takes place when the market has reached a low and prices have flattened.

While many view this as a negative stage in the market cycle, many others particularly ones with experience in the crypto market view it as a prime time to buy the asset.

When traders accumulate the undervalued asset, this is referred to as "buying the dip" and is often a lucrative endeavour. These low price swings are often paired with a lot of indecision in the market as weak hands exit the market and long term traders enter it, representing a period of consolidation. This typically happens before an uptrend. The accumulation phase is over when the market sentiment moves from a negative stance to a neutral one.

During this phase, a lot of money is both entering and leaving the market at the same time. As the sentiment shifts, the market begins to climb and more stability takes shape. Typically more experienced traders will continue buying, further igniting the bullish trend, and in turn saturating the crypto's buying power. This will eventually fuel FOMO, drawing many buyers into the market and in turn pushing up the price.

As the market greed increases and trading volumes spike, the markup phase will see high-profile investors begin to sell. This slows the price increases and causes a pullback in the market.

As the accumulation phase saw a move from negative to neutral sentiments, the markup phase represents a shift from neutral to bullish to euphoria. 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. Typically, the distribution phase is coloured with many bullish price indicators such as head and shoulder trading patterns and double or triple tops, however, the sentiment will eventually shift to a negative space, easily triggered by bad news.

The distribution phase can take place over a short period of time, or last months on end, depending on the number of consolidations, breakouts, and pullbacks and is known to be the phase with the highest levels of volatility.

The distribution phase will witness the sentiment turning negative. The markdown phase is the fourth and final phase in the market cycle and can be the most upsetting for inexperienced traders caught off guard. While some traders might sell at a loss, others maintain their positions looking to leverage a later phase of the next cycle. 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. The sentiment is unequivocally negative. Looking at the Bitcoin network, many traders believe the cycles revolve around the halvings. Bitcoin halvings are when the miners' rewards for mining a new block are reduced by half, which takes place every , blocks roughly every 4 years.

To date, three Bitcoin halvings have taken place, each one instigating a bull run in months to follow. Market cycles are based on the cryptocurrency's overall trading patterns and not on any exchange activity. There is typically a noticeable increase in trading and market volume. During the markup phase, the market is generally characterized by a bullish sentiment. Media attention starts to increase and the press starts to produce positive headlines.

The demand for a particular asset starts to surpass the supply of that asset, which ultimately leads to an increase in the value of the pricing. As this phase starts to mature, more investors start to buy in, as FOMO fear of missing out starts to kick.

More investors are experiencing FOMO, buying near the top. This is where smart money and insiders start unloading their bags.

They view these smaller dips or pullbacks as opportunities rather than warning signs. The hype almost becomes so real that people believe the market will continue to rise. The distribution phase is the third phase of a market cycle.

This is where both fear and greed run rife. So much so that an equilibrium is reached. This is the distribution phase. During this phase, there are two sides. There are those who have confidence in the bull market and are still looking to buy. And on the other hand there are those who have lost confidence in the market and are looking to sell and lock in their profits. This is why the distribution phase is known as the most volatile. Prices can often stay locked in a trading range for months, but eventually, one side gives in.

The distribution phase is often regarded as the first sign of weakness of a bull market. This is usually a sign that a downtrend may be coming. At this point the smart money has already exited and the market is made up of fear, greed and anticipation. This phase usually marks the very top of a bull market and is when the market begins to reverse and the bear market comes into sight.

Eventually, the sellers begin to overtake buyers. This is known at the start of the markdown phase, or the bear market. The markdown phase starts as soon as the supply of an asset exceeds its demand. The markdown phase is fueled by fear in the market. The market sentiment becomes increasingly negative and many investors start to lose hope.

During this phase, the market is characterized by fear and panic. The media turns negative as prices continue to fall and the market reverses.

This phase is psychologically difficult for most investors, especially newbies. Many people land up selling too late or at a loss, while others end up trying to hold their crypto until the next markup phase. Always remember: There have been cycles in the past, and there will continue to be cycles in the future. All markets have a natural inclination to follow this pattern.

The good news is that as soon as one cycle is through, another one will start. The accumulation phase is the best time to buy into the crypto market. This phase presents investors with great opportunities. Investors who believe in the long-term potential of a particular crypto may choose to buy it at a lower price, in anticipation of future growth.

The best time to buy during a market cycle will depend on your individual circumstances and investment strategy. The distribution phase, just before the previous phase turns markup phase , is the best time to sell.

This is when the market sentiment is the most bullish, prices are still climbing, often reaching new All-Time Highs ATHs. This is when the smart money starts to sell. 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 cryptocurrency market is highly volatile and can often be difficult to predict. It is often hard to predict exactly how long a market cycle will last. While the crypto market is still relatively young when compared to traditional markets, there is still some historical data to compare.

According to historical data, a crypto market cycle generally lasts roughly 4 years. As mentioned above, the crypto market is still young and the historical data is scarce.

While previous cycles may have lasted around 4 years, this may not always be the case. Market cycles are not perfectly predictable. The length and severity of each phase can vary, and there may even be multiple cycles within a single year. There are various factors that can influence the length and direction of a crypto market cycle. Some of the most significant factors include:. For example, a positive investor sentiment can drive up the price of digital assets, while negative sentiment can cause prices to decline.

Similarly, regulatory changes can have a major effect on the crypto market, as can global economic conditions such as interest rates and inflation. Knowing and understanding how market cycles work can help investors make informed decisions about when to buy and sell their crypto. For example, if an investor knows when a market usually experiences a period of rapid growth, they may be more inclined to buy more just before this period. Understanding market cycles can help investors manage their expectations and prepare for potential variations in market conditions.

This can help investors remain calm and collective during periods of market volatility.

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UTXO bands do not reveal the economic intent of transactions, meaning that many observed on-chain transactions may be unrelated to selling. However, it is not necessary for the validity of the dynamic supply thesis that all observed transactions reflect selling intent, only that a sufficient amount of them do. In short, the cyclical repetition of bitcoin price movement is theorised to indicate successive new classes of long-term investors being initiated to bitcoin each cycle.

These investors resist the urge to sell their coins below acquisition cost during at least one cycle downturn, restricting supply as they hold on to coins until finding profits in the next upswing. Their success in turn emboldens a new generation of long-term holders, who are often brought into bitcoin by a powerful narrative such as the supply halving, to undergo the same rough sequence of events and the cycle repeats. In accordance with the maturation concept explained above, this could imply that discovery and exposure of bitcoin by broader audiences, who observe the success of previous cycle holders, may act as a catalyst unlocking additional tranches of demand and enhance its value proposition in successive waves of adoption.

Meanwhile, successive generations of bitcoin holders keep facing the same psychological pressures to restrict and release supply in a similar fashion to previous holders when faced with similar price conditions. Taken together, these factors do point to at least some probability that bitcoin price cycles might continue in a similar fashion as they have in the past.

Gox which was the largest exchange by far during the bull market phase halving cycle. The information contained in this document is for general information only. Nothing in this document should be interpreted as constituting an offer of or any solicitation in connection with any investment products or services by any member of the CoinShares Group where it may be illegal to do so.

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Powered by Cookiebot by Usercentrics. Fundamentals Tactical Investment Store of Value. Figure 1. General Cyclical Patterns. Figure 2. Figure 3. Figure 4. Figure 5. Figure 6. Figure 7. Figure 8. Average Bitcoin Transaction Fees usd. Related Content. More About Fundamentals. Fundamentals Flows Mining Portfolio Allocation. Market cycles are a natural advent in any market. However, because the cryptocurrency market moves so quickly, market cycles are especially important to understand in cryptocurrency specifically.

Here is one of the more useful infographics on the stages of a market cycle, or phases of a market cycle, from wallstreecheatsheet. Above is what a market cycle looks like on a chart. With Bitcoin specifically, using the terms that describe the phases of a market cycle from the above chart not official terms, but useful terms it might look like this:.

If you could suss out all emotion and get it right every time, all you would do is buy at the bottom accumulate , ride the wave up, sell during distribution, and then exit or short the market on the way down.

Simple as that really. Be we talking about a year cycle, year cycle, 1-year cycle, or cycles that happen within days, weeks, and months, the concept is the same. In other words, a market cycle is the natural wave-like pattern that all assets form as people speculate and react to the associated fundamentals, emotional states, and chart patterns that result on a mass scale.

Markdown occur. Accumulation, Markup, Distribution. Four major parts of a market cycle. Further, one can stretch this concept in a few different directions to discuss other aspects of markets for example I would consider the rotation of which cryptos or types of cryptos that are doing well at any one time to be a part of the overarching market cycle, I would consider volume and liquidity trends to be part of the market cycle, and I would consider the historic relationship between alts and Bitcoin to be types of market cycles, etc.

Anyway, that is the basic concept. All those will leave you with the same answer as to what you should do: Accumulate when everyone is sad and fearful, distribute sell when everyone is happy and greedy, refrain from using credit speculate at the top unless you are shorting the market , and then be ready to do some summersaults when a fake-out occurs and everything suddenly goes the other way.

This will help you to avoid mistiming the market.