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The Four Phases Of The Crypto Market Cycle Explained

Author

Rickie Sanchez

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Tags Editor's Choice / Slider Posts

Reading time

5 mins
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Author

Rickie Sanchez

Tags

Editor's Choice / Slider Posts

Reading time

5 mins
Last update

Author

Rickie Sanchez

Tags

Editor's Choice, Slider Posts

Reading time

5 mins
Last update

Crypto Market Cycle

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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. When there is greater demand than the overall supply, the price of a coin will often go up. However, when some time has passed, interest begins to wane, and the price begins to decline as a result.

What Is The Crypto Market Cycle?

The phrase “market cycles” describes the general recurring characteristics of various market phases. Some assets will do better than others inside a cycle as large-scale economic shifts or influential market participants’ actions can trigger these types of market events.

Because most cryptocurrencies (except stablecoins) go through the same phases of a market cycle, it can be difficult to determine whether the cycle has just begun or is nearing its conclusion. 

Understanding how the market cycle progresses from phase to phase will provide additional benefits and enable you to make more informed choices about whether to participate in the market or remain on the sidelines.

Take a look at the four stages that the cryptocurrency market goes through:

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Wyckoff Method

The Wyckoff market cycle results from Richard Wyckoff’s findings on price movement. It is a theory that describes crucial components in the growth of price trends distinguished by accumulation and distribution intervals.

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The cycle consists of four phases: accumulation, markup, distribution, and markdown. Wykoff also established guidelines for these phases to assist in locating and interpreting prices within the vast range of upward, downward, and sideways market movements.

The Wyckoff Method, which he developed in the early 20th century, is still used today. It advises 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.

Accumulation

Every cycle starts off with the accumulation phase. 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.

Fear, uncertainty, and doubt (FUD) dominate this phase, which prevents market participants from engaging much and results in low price volatility and trade volumes.

After a bear market, the accumulation period, also known as consolidation, usually occurs. Even though it may appear that the asset’s price is no longer declining, investors may be hesitant to purchase now. However, long-term holders of positions may view the accumulation phase as the beginning of a forthcoming positive market environment.

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This phase is an excellent moment for long-term holders to stack up and acquire the cryptocurrencies they have wanted to buy. Short-term traders hoping to turn a quick profit may have to wait patiently for the market to begin the next cycle because the accumulation period can linger for weeks, months, or even years.

Markup

In the markup phase, commonly called the bull market period, prices increase rapidly. The volume of trade tends to increase significantly at this time due to the entrance of new buyers and sellers. Investors may still be cautious even though the increase in volume may indicate a hopeful and optimistic sentiment in the markets. The values of cryptocurrencies will also start to rise as trade volume rises.

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.

Investors also view market corrections during the markup phase as buying opportunities rather than warning signs. However, if unfavorable information about an asset becomes widely known, it could nevertheless lose value even if its price is usually rising.

Distribution

Some investors will start to reposition and start selling after a significant rally. This ushers in the market’s distribution stage, when supply and demand begin to level out.

The market is expecting a protracted period of downward trends, which makes this time characterized by widespread panic. 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.

On the other hand, sellers who are already in the green are attempting to lock down some of their earnings. As a result of these conflicting feelings, bulls and bears are currently at odds with one another. During this phase, despite the high volume of trading activity, asset prices remain in a very small range until either the bulls or the bears give in.

There is also a possibility that, over this period, the market’s attitude will change from optimism to greed to uncertainty. Many people will question whether the present gain will continue or if there will be a bear market soon. 

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The fear and greed index is a common indicator that financial experts use to track this shift in the general sentiment of the market.

The weakness of price action signals the conclusion of a bull market, and investors may start selling to safeguard their capital, fueling price weakness and a downward trend.

Markdown

Investors fear the Markdown phase since it marks the beginning of a bear market. This period starts as soon as supply outpaces demand during the previous market phase.

As traders and investors become more gloomy about the future, selling pressure rises. This can set off a domino effect that causes asset prices to fall to depths not seen since the boom.

From a psychological perspective, the market enters the markdown phase when headlines begin to utilize negative terminology like “recession,” “market crash,” and “collapse,” which induces worry and panic due to an adverse economic situation.

Short sellers, however, might benefit from the decrease during a markdown period by selling an asset for a low price and then repurchasing it at a lower price in the future. Even good news might not be enough to lift an asset from a downturn in these hard times since consumers are taking extra precautions to guard themselves against losses.

Although markdown periods are difficult, there is hope since they do not last indefinitely. As this cycle of the cryptocurrency market ends, a new one usually starts. There might be another markup session coming up soon.

Final Thoughts

Markets often follow a cycle, and while each cycle has an average length of time, political and economic decisions can either lengthen or shorten particular phases. Short-term mini-cycles are common in the financial markets, but long-term market cycles typically last several months or years. The cryptocurrency market’s natural peaks and troughs will continue despite the current period. Investors must control their emotions, continue to study, and stick to the basics.