The 4 Stages Of Crypto Market Cycle in 2023
Financial markets are defined by cycles of micro and macro movements, and the crypto market in 2023 is no exception. These cycles reoccur throughout time, providing opportunities to forecast future price fluctuations.
When one crypto market cycle ends, another begins. A crypto market cycle is essentially the timespan between a market’s peak and its bottom. It generally encompasses four distinct price trends triggered by various kinds of external factors. Crypto market cycles are typically seen to have four main phases. Different phases will react to dynamics differently at various points of an entire market cycle. The 4 phases of a crypto market cycle include accumulation, markup, distribution, and markdown.
Accumulation
The accumulation phase occurs when a new bottom has been established and prices have begun to flatten out. Panic-stricken traders are still selling their coins at this point, anticipating greater price reductions. Experienced traders, on the other hand, will perceive the accumulation period as a precursor to a bull run.
This stage is distinguished by slightly lower market volatility. As a result, it is an excellent moment to enter the market and buy the dip. Market sentiment is shifting from pessimistic to neutral and crypto traders that buy coins during the accumulation phase have a lot to look forward to during the markup phase.
Price Volatility: Low
Trading Volume: Low
Market Sentiments: Disbelief, Hope
Markup (Bull Market)
The markup phase begins when the crypto market has achieved a steady threshold and is gradually increasing in value. Entrants detect market movements and capitalize on their technical analysis abilities. Growth is slowing since there are still sellers depressing prices. The bulk of early entrants is drawn to crypto as a result of media attention. Traders with experience can see the growing number of higher lows and higher highs. As FOMO and inherent curiosity boost trading and transaction volumes, prices begin to skyrocket. At this point, greed reigns supreme and logic takes a second seat.
Price Volatility: High
Trading Volume: High
Market Sentiments: Euphoria, Complacency
Distribution
The distribution phase is when the crypto sellers will start to take control of the market in the third stage of the market cycle. This stage of the cycle is distinguished by a period during which the preceding phase’s bullish attitude transforms into a mixed outlook. Prices are frequently trapped in a trading range that can linger for several weeks or possibly months. The distribution phase is an incredibly emotional moment for the markets, with traders seized by periods of utter terror intermingled with anxiety as the market appears to be resuming its upward trajectory. Typically, sentiment gradually and steadily shifts, but an unfavourable geopolitical occurrence or particularly terrible economic news might hasten the changeover.
Price Volatility: Low
Trading Volume: High
Market Sentiments: Anxiety, Denial
Markdown (Bear Market)
This is the last stage of the market cycle. The market declines and people are pessimistic; there is fear and disbelief. The most distressed traders are those who still possess crypto. These traders are typically inept and inexperienced, and their investments have most probably lost value. This indicates that the bottom is near and the market falls even faster as they panic sell. It is crucial to note that this phase, particularly near the conclusion, is the perfect opportunity to purchase cryptocurrency at the lowest available price.
Price Volatility: High
Trading Volume: High
Market Sentiments: Anger, Depression
How Long Do Market Cycles Last?
Market cycles in markets typically run 6-12 months on average. Nevertheless, fiscal and monetary policies in either the US or global markets may have a significant impact on the duration of a market cycle. For instance, if the Federal Reserve dramatically raises (or decreases) interest rates, as it is now doing, it may prolong a negative market pattern for some time. As compared to other asset categories, the crypto market is still in its infancy. There is a scarcity of historical statistics to show the span of market cycles.
What Are The Factors Affecting Market Cycle?
There are supply factors such as the Bitcoin halving and burning mechanism that can significantly affect the prices of crypto and create a new markup phase. It is worth mentioning that, with the exception of stablecoins, most crypto assets have a significant association with Bitcoin. This means that if the price of Bitcoin falls, the prices of other coins are likely to fall as well. In addition, the prices of crypto assets frequently vary and fluctuate in response to tweets or other kinds of social media involvement from notable personalities.
How To Take Advantage of Market Cycles?
Despite market cycles being relatively straightforward, crypto assets are still a new asset class with new core technologies. This can add additional greater degrees of intricacy when it comes to determining where the market sits in relation to the cycle. Furthermore, market cycles do not always follow similar patterns, and market players usually cannot identify until they look back in hindsight. Always exercise thorough risk management to prevent being trapped in this whirlwind.
Recognising that markets are cyclical and structuring your crypto portfolio to adjust for markdown periods might enable you to avoid being taken off guard. As much as we’d all desire our investments to solely appreciate in value, market cycles are unavoidable.
Understanding the Crypto Market Cycle
Unlike traditional investments like stocks or bonds, crypto trading is extremely volatile. Things may swiftly turn worse, with many traders being taken by surprise when the market falls. To prevent getting dragged into a crypto market sinkhole, you must first grasp how the 4 stages of market cycles work. To become a skilled trader in 2023, it may be crucial to learn how to make use of market cycles to create regular profits. Comprehending market cycles is essential for price analysis and forecasting since they have a predictable structure.
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Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.