Market cycles are specific patterns typically emerging from the psychology of market participants and the greater economic environment. Crypto has seen several market cycles. Additionally, crypto market cycles start with little or no interest. However, while market movements seem random and unpredictable over time, they follow a fairly predictable pattern.
Understanding this pattern helps you to make better and more informed decisions.
Therefore this article aims to explain these market cycles, which gives an insight into your investment journey.
Crypto Market Cycles Phase
There are four phases of a market cycle.
The market activity and the passion driving the behavior are the two properties defining each stage. Therefore, let us look at each phase through the scale of these two properties.
1. Accumulation Phase
This is the first phase of each market cycle following a significant market crash. Additionally, it is called the Consolidation Phase. As such, it happens after the sellers have exited the market and prices begin stabilizing. The market volume is lower than the average as interest remains low. Therefore, no clear trend comes up.
This phase has the following characteristics:
Price volatility is low.
The trading volume is low
There is a lot of uncertainty and disbelief in the market.
2. The Markup Phase
In this phase, the price action price moves at a consistently increasing rate. There is positive interest in the market as assets begin to outweigh supply.
This Phase is a good time for new participants to enter the market.
It has the following characteristics:
Increase in trading volume
Economic conditions are favorable
Optimism and excitement dominating the market
An increasing price chart.
3. The Distribution Phase
In this phase, the buyers and sellers in the market are at equilibrium. As others are looking to buy, others want to sell and lock in their profits. Therefore, this causes the market sentiment to turn into separation because of greed and fear. The prices of assets fluctuate within a limited range, with the view becoming inconsistent between different groups.
This phase has the characteristics below:
There is low price volatility
Elevation in trading volume without a price increase.
Greed, fear, and overconfidence cloud the market sentiment.
4. The Markdown Phase
This is the final phase in the market cycle, with high levels of fear and less greed. The outlook in the market has become increasingly hostile. The more the fear of the upcoming market state, the more the selling pressure builds. The traders begin to sell their holdings to mitigate their exposure. However, this sell-off leads to a sharp decline in prices.
Its characteristics are as follows:
Elevation in trading volume
Economic conditions are unfavorable
There is fear and anxiety in market sentiment
Final Words
While there is no way to predict the future, we can understand the bigger picture and the game itself. Knowing how market cycles work helps us to make better decisions in handling our crypto portfolio.
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