Crypto market cycles are price patterns in the cryptocurrency market that show fluctuations over time. While they might seem chaotic, they are linked to macroeconomic shifts and potential shifts in monetary supply and investor interest. Let’s explore how market cycles work and how they are defined.
- Crypto market cycles are recurring price and volume patterns that occur over a set period
- Four-year market cycles were triggered by Bitcoin’s halving event, which decreases the amount of BTC rewards for miners
- Institutional capital and Bitcoin getting absorbed by TradFi could cancel the previous four-year cycles
What are market cycles in crypto
Crypto market cycles are patterns that occur over a set time frame, during which the price of a token follows similar behaviours. In crypto, market cycles are identical to those in other financial markets, but are more prone to volatility spikes during the cycle. These cycles are often referred to as bear or bull market cycles, in which prices decline to find support before rising to new highs or returning to a range.
Investor psychology, macroeconomic events, and trader behaviour drive market cycles. Now, in crypto, these market cycles are triggered by fear, enthusiasm, and panic selling. As more liquidity has entered crypto markets, cycles have started to adjust to new realities.
How crypto market cycles differ from economic cycles
Crypto cycles differ from economic cycles since crypto trading has a different dynamic than traditional markets. In monetary cycles, the pattern refers to fluctuations in markets influenced by economic growth or contraction. These cycles can last years or decades in some cases.
In crypto, however, these cycles are influenced by investor behaviour, which responds to external factors such as policy shifts, macroeconomic events, and even economy-related news. Then crypto cycles occur every 4 years and reflect investors’ responses to economic events. These cycles also respond to price movements within the digital asset market.
While a strong economy with low interest rates can create a favorable environment for riskier assets like crypto, the crypto market often moves to its own rhythm.
Crypto market cycle phases
A typical crypto market cycle comprises four distinct phases. Recognizing the characteristics of each phase can help investors identify opportunities and manage risk more effectively.
Phase 1: Accumulation
The accumulation phase follows a major market crash and is characterized by low prices and thin trading volumes. During this time, public interest drifts away, media coverage is neutral to negative, and smart money, as institutional investors, are buying assets. While the market may appear flat, this period of stability lays the groundwork for the next bull run.
Phase 2: Uptrend (Bull Market)
The second phase is a bull market or an uptrend, in which market sentiment shifts from pessimism to optimism as prices begin to rise. Retail is returning to crypto, driven by positive news, technological advancements, and increasing adoption, which are fueling the rally. In crypto, this phase is often characterized by parabolic price increases. Bitcoin typically leads the charge, followed by a rotation of capital into altcoins.
Phase 3: Distribution
In the distribution phase, early investors start taking profits, selling their holdings to newcomers who’ve entered an euphoria stage. Volatility increases, with sharp price drops followed by quick recoveries, creating uncertainty. Many new investors see this as a consolidation, when in fact it’s a sign of a market top.
Phase 4: Downtrend (Bear Market)
The downtrend, or bear market, is triggered when selling pressure overwhelms buying pressure. Prices begin to fall, and the decline accelerates as panic sets in. Investors who bought near the top are forced to sell at a loss, creating a cascade effect. The market sentiment shifts from denial to fear, and eventually to capitulation and despair.
The role of Bitcoin in market cycles
As the primary driver of the crypto market, Bitcoin’s price movements significantly influence altcoins. This influence stems from its first-mover advantage, making it the most well-known and widely held digital asset. Furthermore, Bitcoin’s market dominance—its large share of the total crypto market capitalization—is crucial, as many altcoins are priced and traded against it.
Cycles of Bitcoin
Bitcoin is characterized by four-year cycles, during which the asset price fluctuates from all-time highs to support levels. The cycles have been catalyzed by Bitcoin halvings, which shrink the supply of Bitcoin in circulation, driving the asset’s price higher.
2012–2015 Cycle: The first halving in November 2012 was followed by a massive bull run in 2013, with Bitcoin’s price soaring to over $1,000. A prolonged bear market followed this in 2014 and 2015.
2016–2019 Cycle: After the second halving in July 2016, Bitcoin embarked on its famous 2017 bull run, reaching nearly $20,000. The “crypto winter” of 2018 followed, with prices crashing over 80%.
2020–2023 Cycle: The third halving in May 2020 preceded the 2020-2021 bull market, which saw Bitcoin hit an all-time high of around $69,000 in November 2021. A significant downturn followed this in 2022.
The role of halving in market cycles
Bitcoin halving is a pre-programmed event that occurs every 4 years, reducing miners’ block rewards by 50%. The mechanism is meant to reduce asset inflation by shortening the time required to produce the same amount of BTC. In short, this reduced the supply of new Bitcoin.
Historically, each halving has been a significant catalyst for the subsequent bull market. By creating a supply shock, the halving often leads to a price increase, assuming demand remains stable or grows. This predictable event has become a focal point for market psychology.
How to identify market cycles
Identifying the current phase of a market cycle is more of an art than a science, but several indicators can help:
Technical Analysis: Tools such as moving averages (e.g., the 200-day moving average), trading volume, and momentum indicators (e.g., the RSI) can help identify trends.
Market Sentiment: Gauging the market’s general mood is crucial. Tools like the Crypto Fear & Greed Index can provide a snapshot of sentiment, with extreme fear often correlating with market bottoms and extreme greed signaling market tops.
On-Chain Analysis: Examining blockchain data can provide insights into the behavior of different investor cohorts.
Macroeconomic Factors: Keep an eye on the broader economic landscape. Factors such as interest rates, inflation, and geopolitical events can influence investor risk appetite and the crypto market.
Why four-year market cycles are changing
While the four-year cycle anchored by the Bitcoin halving has been a reliable model for predicting Bitcoin price cycles, including the Stock-to-Flow model, dynamics are changing. Increased regulations, more institutional liquidity, and a maturing market are shifting how investors see Bitcoin’s price action.
There is a stronger correlation between the global M2 money supply and Bitcoin price movements. Some argue that the four-year cycle following recent cryptocurrency policy changes will prolong cycles. According to research, the global money supply has increased from $50 trillion to $100 trillion, while Bitcoin’s price has grown by 700x.
As Bitcoin and other digital assets become more integrated into ETFs and traditional finance, they tend to behave differently, driven by greater liquidity and a maturing market. This leads to lower volatility and fewer price spikes than in previous periods.
Finally, the crypto ecosystem is no longer solely dependent on Bitcoin. The growth of robust sectors like DeFi, NFTs, and Layer-2 solutions means that other narratives and technological developments can also drive market cycles, potentially decoupling them from Bitcoin’s four-year rhythm.
Charting Bitcoin’s course
Although crypto market cycles are evolving, with longer durations and less volatility, the market remains erratic. Investors must understand the signs of a potential cycle reversal or rally.
For those who want to navigate crypto markets without worrying about cycles and volatility, Yieldfund offers plans for every investor type. With three investment options providing up to 60% annual interest and weekly payouts, crypto investing can shift from complex analysis to a source of consistent yields.
FAQs
How long are market cycles in crypto?
Crypto market cycles have lasted approximately four years, aligning closely with the Bitcoin halving schedule. However, within these larger cycles, there can be smaller, mini-cycles that last several months.
Do altcoins have different market cycles?
No, since altcoins follow Bitcoin’s lead, when Bitcoin enters a bull market, capital will flow into altcoins, causing them to rally. There is, however, a delay in altcoin cycles compared to Bitcoin’s.
What are crypto seasons?
“Crypto seasons” refer to periods when a specific sector of the crypto market experiences significant growth and attention. The most well-known is alt season, a period when many altcoins outperform Bitcoin.
