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UNDERSTANDING THE MARKET CYCLE

https://cryptocurrencyfacts.com/market-cycles-in-cryptocurrency/

Bitcoin Market Cycles: The Facts

As per the short history of the 2009-born Bitcoin, the market cycles lasted approximately 4 years.

The BTC halving event, which happens once every four years, is believed to be in the middle of the market cycle. This is what happened in the 2012, 2016, and 2020 halving events.

Every low of a major cycle never reached the top of the previous one. I.e., the lowest price of 2017’s cycle, ~$3120, was way above the 2013 cycle’s top at ~$1150 (so far, it’s true for 2021’s cycle – the low was around $26k, which is above 2017’s high amid $20k).

The latter is true, keeping in mind the base assumption that Bitcoin is a disinflationary asset whose purchasing power will increase over time in the long run.

The Psychology of a Market Cycle: Wall St. Cheat Sheet

Karen Bennett, a writer at CheatSheet, created the following chart, showing the psychology of a market cycle. It describes the most common emotions investors experience as the market fluctuates. These human emotions drive our financial markets much more than the fundamentals.

The 10 Stages of a Market Cycle

These 10 stages repeat over time and define a market cycle. Not every market cycle will follow this exact chart and the exact time it takes.

However, it should give some valuable insights into the psychology of market cycles. All markets go through these stages over the short term. The duration and amplitude of these cycles are partially defined by risk (which is very high for the crypto market). Keep in mind – market cycles are hard to predict.

What we can take away from this is that markets don’t go up indefinitely, but they also don’t fall to zero (assuming they’re legitimate over the long-term). In the past, they’ve always “reverted to the mean.”

Stage 1: Hope

‘Hope’ is the first sign of recovery after “the serious disbelief” stage (see Stage 10 – last in the cycle). The market is showing positive signals for a new bull run. However, investors are still cautious. Small amounts of money are being invested.

Stage 2: Optimism

Optimism defines the second stage where prices are rising as new capital flows in. This stage is reached when the market has been in a sustained uptrend for many months. The market has a positive outlook, and therefore many investors are comfortable investing money at this point.

Stage 3: Belief

As time goes by, optimism turns into belief. This stage of ‘belief’ is defined as one of the first signs of a bull market. Investors seek new opportunities in the market.

Stage 4: Thrill

Searching for alternative investment options can be a good idea if you know what you are doing. People easily get caught up in feeling thrilled as they select random projects because they believe nothing can go wrong. Everything is running up.

It is important to keep track of your excitement level, as being overexcited is a clear sign for closing a position.

Stage 5: Euphoria

The end of a huge run-up is defined by euphoria. Human emotions are taking over, nothing can stop us now, it’s all rainbows and sunshine. There is only one direction – up. In this phase of the bull run, the “dumb money” jumps on board, and it’s usually the first to leave. At this stage, expect the press to write about the bull market, and you get the “meet the new young millionaires” articles. However, during this time, the smart money is taking profit throughout the parabolic movement.

Stage 6: Complacency

At this stage, the bull run is stagnating as people’s lofty expectations are not met. The first signs of a reversing market start to pop up. This is a very dangerous time as people think the complacency stage is just a short break before the bull run continues. Many investors are ill-prepared for the upcoming market reversal.

Stage 7: Anxiety

Finally, people become aware that this bull run can’t go on forever. They see the market is reversing, losing value and money. The fear of losing lets traders delay the realization of a loss, which then turns into much greater losses.

Stage 8: Denial

The value of your investments continues to drop, and many people refuse to sell, hoping for an even bigger correction upwards. Investors act defensively as they are convinced they have allocated their money wisely. However, generally, almost no coin is able to come out scot-free. When there is rain, everyone gets wet.

Stage 9: Panic

The market continues to decline as the bear market has become a new reality. Investors try to save their funds by desperately selling their investments, as they are afraid to lose everything. Often we see a major sell-off happening at the panic stage.

Stage 10: Depression

People lose all hope and their belief in the existing market conditions. The market is at its lowest point in the current cycle (as will be noticed afterward). This is where stabilization and consolidation start building again. This stage can take a very long time.

Crypto Cycle Trends: FIAT – Bitcoin – Altcoins and Vice Versa

There are two major trends we generally see in a crypto market cycle:

Entry of Liquidity

New FIAT money flows into the crypto markets. Being the first and primary cryptocurrency, most of this money goes directly into Bitcoin as this is the entry point to the cryptocurrency markets .

“Be fearful when others are greedy and greedy when others are fearful.” said legendary investor Warren Buffett.

In other words, when the market is in a state of disbelief and depression, it might be a good time to consider building up a position, keeping in mind you invest for the long-term and the market might continue declining over the short-term.

On the other hand, when the market enters the stage of overconfidence and euphoria, it might be time to consider realizing profit.

Watch out, because market cycles do not always exactly follow this pattern. In some extreme situations. It is entirely possible that you enter into a prolonged bear market where further losses are on the horizon. The other is also true – extreme euphoria can send the market even higher, blowing off the current peaks and skyrocketing even higher.

https://cryptopotato.com/what-are-crypto-market-cycles/



The average length of a bear market is 289 days, or about 9.6 months.

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