What are Cycles?
Market cycles are not only common for Bitcoin and cryptocurrencies, but also found regularly in traditional stock markets. In the US Stock market, such cycles happen over longer periods of time on average than Bitcoin and cryptocurrencies.
The previous famous lows of the US Stock Market were in the years 2000, 2008, and 2020. These three years in the market became globally know as the dot-com bubble, the sub-prime real estate crash, and the COVID-19 pandemic financial crisis.
As it can clearly be seen, the saying that “markets take the stairs up and the elevator down” is true for any other financial market or instrument and is especially evident in cryptocurrencies. The major differentiating factor between crypto and the traditional US stock market is simply volatility. While a sharp daily movement of NASDAQ is considered to be 1-2%, Bitcoin, which is considered the most stable cryptocurrency and the base asset, can fluctuate more than 20% in a single day.
Bitcoin’s Market Cycles
Bitcoin moves in 4 major market cycles and those cycles are determined by the halving event; accumulation, mark-up, distribution, and mark-down.
In the accumulation phase, the market has bottomed and early adopters see an opportunity to jump in and scoop up the asset at a fire sale discount.
In the mark-up phase, the market seems to have flattened out and the early majority is jumping back in, while the smart money is cashing out.
In the distribution phase, sentiment turns mixed to slightly bearish, prices are choppy, sellers prevail, and the end of the rally is near.
In the mark-down phase, late movers try and sell what they can, while early adopters look for signs of a bottom so they can get back in.
In this next section, we’re going to be breaking down a 2-Week (2W) logarithmic chart of Bitcoin (BTC) while using the Easy Loot Cycle Top indicator to identify where the top of the market is easily. If you would like to try out the Easy Loot Cycle Top indicator on your chart, all you need to do is click that link above and ‘Like’ the chart in order to add it to your favorites.
Example of a Cycle
Looking at the 2W logarithmic chart of BTC (Bitcoin) and using the Easy Loot Cycle Top indicator, we can identify each previous cycle top in Bitcoin. At the moment, some traders think the top is in and we’re going to dip, but the chart & I disagree. Bitcoin still has tons of room to grow before pulling back and creating another cycle top. Bitcoin’s cycles work in 4-year cycles, or halving where the supply on each Block Reward is cut in half, greatly reducing the amount of Bitcoins generated for circulation.
This cycle is going to turn out to be a double cycle top pattern just like we’ve previously seen in 2013 shortly after the 1st Bitcoin halving. This cycle that we’re currently in is just getting started with over a solid year before the next major correction, as of writing. There is no cycle top label hovering over the most recent price action and just by taking a look at the 2014-2017 bear market, its going to take a little bit of time before this cycle is complete.
How to Identify Cycles
Cycles are easiest to identify on higher time frames as you are offered by far the greatest amount of data to make your informed trading decision. The higher the chart’s time frame, the easier it is to spot the general direction of trend and identify which period of the market cycle the asset is in. This image shown above of the 2W chart of Bitcoin clearly shows the asset in a general upwards direction since its inception in 2009, with some minor hiccups (sell-offs) along the way. Cycles are easily identified on the charts with the most historical data and is almost near impossible to gauge what we’ve identified in the previous section without zooming out and seeing the full picture.
Psychology of a Market Cycle
Above is what a market cycle looks like on a chart. With Bitcoin specifically, using the terms that describe the phases of a market cycle from the above chart (not official terms, but useful terms) it might look like this:
- Smart money, institutional investors, early adopters, etc accumulate Bitcoin low (they accumulate during a lower period that looks like anger and depression to those who held from the last peak).
- Bitcoin goes up (it is wise to HODL through disbelief and hope – buy the dip at support).
- People get excited and the price goes up even quicker as many FOMO buy (those who bought lower start to distribute some as they mark up the price; it is wise to HODL and/or SELL through belief, thrill, and finally euphoria – start closing longs here).
- Bitcoin is distributed high (this phase consists of the price action near the top all the way until complacency; SELL).
- Bitcoin goes down (anxiety and denial; SELL if you haven’t, SHORT and play BOUNCES – short the rip at resistance).
- People get sad and panic (anxiety to panic; SHORT).
- Bitcoin goes down even quicker as people panic sell (play BOUNCES – start closing shorts here).
- Bitcoin bottoms out in a messy pattern that can see a gradual grind down of the rest of the market (anger and depression; this is the accumulation phase; range trade and accumulate).
If you could suss out all emotion and get it right every time, all you would do is buy at the bottom (accumulate), ride the wave up, sell during distribution, and then exit or short the market on the way down.
The concept being that human emotions and market mechanics create bubble-and-bust cycles called “market cycles.”
In other words, a market cycle is the natural wave-like pattern that all assets form as people speculate and react to the associated fundamentals, emotional states, and chart patterns that result on a mass scale.