While cryptocurrency is a highly volatile asset, investors and traders have found ways to manage price swings and capitalize on their profits safely. Whether the crypto asset found more stability over time, as in the case of Bitcoin, or users balanced unstable coins with established ones, the argument that crypto is generally inefficient can be disproven. Many investors today also explore secure platforms to buy crypto coins with Bullpen, which allows them to diversify and manage their portfolios more effectively.
There is a significant amount of predictability in cryptocurrency if analyzed properly. Accurate crypto predictions are based on strategies such as fundamental, technical, and on-chain analysis, which leverage vast amounts of historical data and tools like AI to predict future trends.
Crypto users may be overwhelmed by the amount of information available about cryptocurrencies, but they sometimes overlook the market cycles that influence prices. Let’s talk about them and find out how they can take advantage of their patterns.
Market cycles are common in financial assets, including stocks and commodities, so it’s no wonder they’re present in cryptocurrency as well. They exist because trends and patterns change in terms of supply, demand, and even human emotions. Therefore, crypto market cycles are closely connected to the real world.
They tend to seem unpredictable because there are simply too many factors that trigger price changes. Cryptocurrency values also move in different directions, and their distinction in market capitalization (Bitcoin compared to any meme coin) is a significant factor. This is how they manifest.
The first phase in the crypto market cycle typically follows a significant crash that leads to a market turning point. Hence, the worst that could happen has passed, and it’s determined by accumulation, as big traders start becoming confident in increasing prices. With moderate trading activity, long-term HODLers may sell their positions, while whales will resume buying coins, triggering a massive asset transfer.
These traders will accumulate assets that other users would consider useless now, having lost hope, especially since, in general, each market cycle spans over four years. However, market pioneers can capitalize on these negative sentiments and leverage their investments to their advantage.
The markup phase is an overall positive cycle, as prices are securing a long-term and consistent trend. Interest in assets increases, as does risk, so it’s a phase that can be described as a two-edged sword. FOMO is also most prevalent during this period, as users are willing to pay higher prices, thereby pumping up the market. Therefore, new all-time highs (ATHs) happen during these moments, where coins make history.
However, the market takes another turn, as there’s a lot of greed and less caution. According to the Fear & Greed Index, investors and traders should take a calculated approach to the crypto market, rather than letting their emotions guide them. That’s because the markup phase can include bull markets, which are always followed by a less lucrative session.
The distribution phase occurs when the bull market ends, resulting in an overall negative sentiment. This is why FOMO intensifies during this period, prompting investors to start liquidating their assets in preparation for the upcoming bear market. However, not all traders share the same view, which is why others will continue to buy and hold their money, seeing the price uptick as an opportunity.
Interestingly, this phenomenon created a stable trading activity between the bulls and the bears. Still, this momentum doesn’t last as long, since the sentiment will continue to grow negative towards the market. It may be one of the darkest moments within the cycle, as there will be overall negative media coverage of the market evolution. Traders will experience ambiguity, and prices will be affected by these factors.
The markdown phase is when the “bubble bursts,” when prices are at their lowest at the beginning. The sentiment goes towards fear over greed, so during this cycle, the buying interest will grow, and new capital will enter the market. Still, initially, short sellers will capitalize on these price declines, while optimistic new buyers will enter the market when prices finally stabilize.
This transition sets the tone for the new beginning of the market cycle, marking the accumulation phase. From this point on, things are more positive for investors and traders, as they have passed the “crypto winter” moments. But how easy is it to seize these changes before they occur?
While the patterns are clear for changing cycles, observing their movements can be challenging. According to Binance.com Research, "The traditional four-year market cycle is nearing the end of the bull run, but this time may differ. Institutional Bitcoin ownership has risen from 0.9% in 2014 to 19.8% now, which could mean smaller pullbacks." Therefore, investors and traders must carefully calculate their next move.
There are several ways to monitor these changes and adapt a more lucrative strategy, including the following:
On-chain market data helps gain historical information related to coin movements and market activity;
Sentiment monitoring considers volatility and social media activity to understand behavior within the Fear and Greed Index;
Navigating the cryptocurrency market cycle is challenging for any user, as being knowledgeable is often not enough to mitigate risks. People must be wary of the potential vulnerabilities of the market and prepare accordingly. That’s why timing is everything here when they can capitalize on the accumulation phase or be lucky to catch an early part of an uptrend.
It can also be helpful to identify bull and bear markets, as they extend over the four market cycles. For example, in a bull market, sustained price increases occur, while a bear market triggers a decline in prices.
The four market cycles in cryptocurrency form the backbone of market analysis, as they help investors and traders understand when to capitalize on their investments, hold the assets, or simply sell. Being wary of cycles could also prevent FOMO and take advantage of bear and bull tendencies. Additionally, forecasting when the next cycle will occur can help traders and investors succeed.
