TL;DR
- There are 4 phases in the crypto market cycle: Accumulation, Markup, Distribution, and Markdown phase.
- The accumulation phase is the start of a new market cycle. It is characterized by uncertainty because some investors may still be hesitant to enter the market after the steep price drops.
- The markup phase is characterized by optimism as the bulls dominate the market.
- The distribution phase happens when the bulls and the bear reach an equilibrium.
- If the bear wins during the distribution phase, the markdown phase begins. This phase is commonly called the bear market.
Market cycles is a broad term referring to trends and patterns that appear during different markets. Within a cycle, certain assets will outperform others and vice versa. This can happen because of macroeconomic events or the influence of market players.
Most cryptocurrencies (aside from stablecoins) go through similar phases of a market cycle, which makes it challenging to identify if the cycle has started or is it ending. Having the knowledge of each phase in the market cycle will give you additional advantages, letting you make better decisions on whether you should get involved or just wait on the sidelines.
With that, let’s take a look at the four phases of the crypto market!
The Accumulation Phase
The accumulation phase happens at the beginning of every cycle. This happens sellers have left the market and prices are seen to be stabilizing. At this stage of the market, volume is often lower than usual because investors are not very optimistic about the market. Due to the lack of a discernible trend, assets tend to move in a narrow spread.
This phase is dominated by fear, uncertainty, and doubt, which leads to players not taking much action resulting in low price volatility and trading volumes.
The accumulation phase, often called consolidation, typically happens after a bear market. Though the price of the asset may seem to have stopped going down, investors may still be hesitant to buy at this time. But investors who want to keep their positions for a long time may see the accumulation period as the start of a bullish market condition that is about to happen.
For long-term holders, the accumulation or consolidation phase is a great time to accumulate and purchase the crypto that you have been wanting to buy. The accumulation phase may last for weeks, months, or even years, thus, short-term traders looking to make a quick profit might need to have some patience waiting for the market to enter the next cycle.
The Markup Phase
The markup phase, also known as the bull market period, is characterized by rapid price increases. Because of the influx of new buyers and sellers and trading volume during this period tends to rise sharply.
Though the increase in volume might signal a hopeful and positive sentiment, investors might still be wary. At the same time, as trading volume increases, the prices of cryptos will start to see an uplift.
Charts will show more green candles with uptrends picking up and investors feel optimism as the bulls dominate the market. Since the price increase is more obvious during the markup phase, this might be an excellent moment for newcomers to enter the market.
During the markup period, investors also see market corrections as buying opportunities rather than warning signs. Even if the price of an asset is generally going up, it could still go down if bad news about that asset gets out to the public.
The Distribution Phase
After a sustained upswing, some investors will begin to pivot and start selling. This brings us into the distribution phase of the market when demand and supply start to balance out.
This is characterized by widespread panic as the market anticipates a prolonged period of declining trends. However, there might have optimistic groups consisting of market players who are eager to continue buying in the hopes that the current bull market will continue.
Conversely, sellers who are in the green are trying to secure a portion of their profits. Bulls and bears are now at odds because of this conflicting sentiment. In spite of the strong trading volume, asset prices tend to stay inside a narrow range during this phase until either the bulls or the bears give in.
During this period, there may be a shift in market attitude, from optimism to greed to uncertainty. Many investors will wonder if the current rise will continue or if a bear market is on the horizon. One typical indicator used by analysts to track this shift in market sentiment is the fear and greed index.
The end of a bull market can be identified with the weakness in price action, which leads to the distribution phase. When weakness is prices is felt, new investors who want to protect their capital may start selling which leads to more weakness and a downtrend in prices.
The Markdown Phase
The Markdown phase is the most dreaded period for investors because it signals the start of a bear market. This period begins as soon as supply exceeds demand during the last market phase.
As traders and investors become increasingly pessimistic about the future, this increases selling pressure which can start a chain reaction causing asset prices to dip to levels not seen since the initial markup.
From a psychological viewpoint, the markdown phase starts when headlines start to include pessimistic terms like "recession", “market crash” and “collapse” which builds anxiety and panic all over the market because of an unfavorable economic environment.
However, in a markdown phase, short sellers can profit from the decline by selling an asset at a low price and re-buying it at a lower price in the future. During these tough times, people are taking extra steps to protect themselves from losses, so even positive news might not pull an asset out of a slump.
Markdown periods are challenging, but there is hope since they do not continue forever. Typically, a new crypto market cycle begins as this one comes to a close. Another markup period might be just around the corner.
Taking Advantage of the Crypto Market Cycle
Let's admit it. Cryptocurrency has unimaginable potential for its underlying technology. However, it is still in the infancy stages. Despite the fact that market cycles are very straightforward to comprehend, there are several layers or factors to the story which further complicate assessing the present state of the market in relation to the crypto cycle.
It's also worth noting that market cycles don't necessarily follow a consistent pattern, and that market participants usually have no means of knowing this until after the fact.
Market cycles are unavoidable, and we all hope that our investments will always go up in value. One way to do this is to readjust your portfolio once in a while to ensure that it fits your risk tolerance.
Despite the current market phase, cryptocurrency will still experience its natural ebbs and flows. What's important for investors is to keep their emotions in check, keep learning, and always remember the fundamentals.
Surviving the Four Market Phases
“Past results are not indicative of future performance.”
One of the best ways to “weather the storm” is to invest in the underlying technology rather than just the price of an asset. Many long-term investors purchase the cryptocurrency they believe in and hold it for a long period of time, hence, the market phases don’t matter to them because they believe that the technology behind the cryptocurrency will improve and get further adoption.
If cryptocurrency projects are too volatile for you, investing in stablecoins and staking them on Defi protocols is another way to earn additional income during a bear market. This allows your money to grow and protects your money from inflation as well.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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