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.
The phrase “market cycles” is used to describe the general recurring characteristics of various market phases. Some assets will do better than others inside a cycle as large-scale economic shifts or the actions of influential market participants can both trigger these types of market events.
Because the majority of cryptocurrencies (with the exception of 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. Having an understanding of how the market cycle progresses from phase to phase will provide you with additional benefits and enable you to make more informed choices regarding whether you should participate in the market or sit on the sidelines.
Take a look at the four stages that the cryptocurrency market goes through:
The Wyckoff market cycle is a result of Richard Wyckoff’s findings on price movement. It is a theory that describes crucial components in the growth of price trends that are distinguished by intervals of accumulation and distribution. The cycle consists of four separate phases: accumulation, markup, distribution, and markdown. Wykoff also established guidelines to be used with these phases. These guidelines can also assist in locating and interpreting price within the vast range of upward, downward, and sideways market movements.
The Wyckoff Method, which he developed in the early 20th century, is still in use today. It continues to advise 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.
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 dominates 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 however be hesitant to purchase at this time. However, long-term holders of positions may view the accumulation phase as the beginning of a forthcoming positive market environment.
The accumulation or consolidation phase is an excellent moment for long-term holders to stock up and acquire the cryptocurrencies they have been wanting 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.
In the markup phase, commonly referred to as the bull market period, prices go up 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 as buying opportunities rather than warning signs during the markup phase. However, if unfavorable information about an asset becomes widely known, it could nevertheless lose value even if its price is usually rising.
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 begins to level out.
The market is expecting a protracted period of downward trends, which is what 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 have a tendency to remain contained inside a very small range until either the bulls or the bears give in.
There is a possibility that, over this time period, there will be a change in the attitude of the market, from optimism to greed to uncertainty. There are a lot of people who are going to be questioning if the present gain is going to continue or if there is going to be a bear market soon. 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 price action’s weakness, which ushers in the distribution phase, signals the conclusion of a bull market. When price weakness is felt, new investors may start selling in order to safeguard their capital, which fuels further price weakness and a downward trend.
Investors fear the Markdown phase the most since it marks the beginning of a bear market. As soon as supply outpaces demand during the previous market phase, this period starts.
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 that haven’t been 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 induce worry and panic throughout the market 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 out of 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.
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 major market cycles typically last several months or years.
The natural peaks and troughs of the cryptocurrency market will continue to occur notwithstanding the current period. Investors must control their emotions, continue to study, and constantly adhere to the basics.
Rickie Sanchez is an article writer specializing in cryptocurrency news. Since late 2017, he has been actively investing in cryptocurrencies. He is enthusiastic about everything that has to do with crypto and he hopes that the readers of his articles in the years to come will gain a massive understanding of blockchain technology.