Market cycles and how to understand them correctly

September 20, 2023
Last Update December 07, 2023

Understanding how the market behaves and where it moves helps to catch a trend and earn money. Over time, some patterns are formed that help to determine how the asset prices may move and how to trade to earn. Four main drivers rule the market: supply, demand, news, and human emotions, and the crypto market is not different.

Any phase can be considered as a starting point. We picked the accumulation phase to start with but it is just an example. For every phase, we will check:

  • The activity on the market
  • The sentiment that drives that activity.

Crypto market cycle 1: Accumulation phase

Sentiment: the worst is in the past

Normally, this phase comes after a serious market crash and when the market starts turning. The big traders are confident that prices hit their bottom and will grow.

The trading activity is still low, prices are slowly increasing, and the first green shoots appear on the graphs.

The situation is still controversial. Many holders have lost faith in their coins and want to sell them now before the market crashes again. 

Traders with vision start buying by taking advantage of lower prices. Huge asset transfers happen at this point, and significant asset volumes are accumulated in the portfolios of some major traders.

Eventually, the growth becomes stable and more confident, and the market moves into the markup phase.

Crypto market cycle 2: Markup phase (bull market)

Sentiment: greed

Prices start growing, there is a consistent uptrend. The market sentiment is decidedly positive, approaching 100. People become more interested in the assets and are willing to pay more which, in turn, pushes the prices upward.

This phase is when asset prices hit their all-time high levels. 

This phase lasts until whales start looking for profit. They have purchased massive volumes of assets at lower prices, and at some point, they will start selling the assets.

Crypto market cycle 3: Distribution phase

Sentiment: the best is over

This phase marks the end of a bull run. Whales start selling assets in massive volumes. 

Trading activities are still stable, and prices fluctuate. The sentiment is split between fear and greed among different groups of traders.

Over time, the sentiment becomes more negative, fear increases, and people start trying to get rid of risky assets.

Crypto market cycle 3: Markdown phase

Sentiment: Fear over greed

This stage is characterized by the lack of buying interest and mistrust of crypto. Traders start selling their holdings massively. The prices are in a steady decline.

This stage is good for short traders. By shorting trades, they can earn on a declining market.

This phase lasts until the prices reach the bottom, where they cannot decline anymore. Prices stabilize, new buyers come, and the accumulation phase begins. After that, the cycle repeats.

Bottom line

To understand what market phase is there right now and how the market moves, you need to monitor the market sentiment, trading activity, and the movement of prices. It will help you to make the right trading decisions.