Understanding The Four Stages Of A Crypto Market Cycle

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By CNBCTV18.com IST (Published)

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After examining historical data, four distinct stages emerged within a crypto market cycle. Each stage has certain characteristics and pinpointing these stages can help you make better investment decisions. So, tag along as we describe the stages of a market cycle and how to identify them.

Crypto markets are cyclical. They generally follow a pattern of highs and lows. The price of a coin tends to rise when demand outweighs supply. However, interest begins to weaken after a while, and the price starts to fall. This rise and fall constitute one cycle.

After each cycle ends, a new one begins, forming a recurring pattern over time. Moreover, after each cycle, prices generally establish higher highs and lows. This is one of the reasons why experts suggest holding onto or buying more coins during a market crash. The hope is that owing to the cyclical nature of cryptocurrencies, prices will rise to new highs in time.

Further, after examining historical data, four distinct stages emerged within a crypto market cycle. Each stage has certain characteristics and pinpointing these stages can help you make better investment decisions. So, tag along as we describe the stages of a market cycle and how to identify them.

1. Accumulation phase

The accumulation phase refers to the period where a new low has been reached, and the prices have begun to flatten out. At this stage, panicked investors continue to sell their coins, fearing further price drops. However, seasoned investors and traders will see the accumulation phase as an indicator of a bull run.

This stage is characterized by marginally lesser volatility in the market. Therefore, it is the ideal time to jump into the market and buy the dip. The traders who purchase coins in the accumulation phase have plenty to look forward to in the next stage, the markup stage.

2. The markup phase

In the markup phase, we see more stability in the market as the sentiments begin to turn bullish. From the low point of the accumulation phase, we see an uptick. There are more buyers than sellers in the market. Everyone buying in can make profits if they just hold on. Like everything else with cryptocurrencies, we do not know how long it will last, but the bulls are truly in control of the market.

This period brings more excitement to the markets, and crypto makes headlines with new highs and consistent growth. More traders flock into the market, and even the inexperienced ones get rewarded when they’re buying at this stage. However, what comes next is dangerous.

3. Distribution phase

If the accumulation phase is the most stable phase of a crypto market cycle, the distribution phase is the most volatile. It is the period where FOMO traders make their way into the market, seeing the returns from the markup phase. We also see the early profiters trying to exit their positions and book their profits. As a result, a collision between buyers and sellers pushes the peak of the markup phase to a horizontal trend. This market phase can last for months, leaving equal numbers happy and sad.

4. The markdown phase

At some point during the distribution phase, sellers (supply) might outpace buyers (demand). This causes prices to decline, and FUD takes over the market. Sell ​​pressure begins to mount, especially once the price drops below 50 percent of the highest high.

At this point, the market is at its most pessimistic outlook, and two kinds of investors emerge at this stage. The first begins selling their holdings for a loss while the other holds on for another cycle in anticipation of the next markup phase.

What’s a crypto supercycle?

Mass adoption is a factor that contributes heavily to how the crypto market performs. If a tech revelation gets millions of users or investors over a relatively short period, we see that the markup phase is followed by highs after highs after highs for months. We saw this trend during the pandemic (until November 2021), when the market moved from its regular cycle and kept pushing for newer highs. Such a phenomenon is known as a super cycle.

Conclusion

While there is enough historical data to broadly divide the market cycle into phases, there is never enough data to predict the exact moments when the stages begin or end. Therefore, it is important to exercise caution while making money moves based on the perceived stages of a crypto market cycle.

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