While investors are treading on thin ice with the market witnessing the brutal crypto winter, most firms are looking to shake the chills. Nevertheless, investment managers, venture capitalists, and crypto biggies expect the crypto market to pick up in 2023.
But to tell you the truth, the Bitcoin cycle is far from reaching its peak and the prices will continue to reflect the steep downtrend. You can also check out this Trading Platform to know more about how to sail through the crypto winter while keeping losses at bay.
Moving on, it’s easy to predict the pattern when you are aware of how bitcoin undergoes different stages to complete its cycle. Though it is challenging to pinpoint the beginning or the end of a bitcoin cycle, you can determine the bull and bear tendencies of the market.
Compared to this time last year, the price of bitcoin has dropped by over 75% during the last few months from its record high. These statistics have a lot to do with the Bitcoin cycle and they can help you tremendously to make rational investment decisions irrespective of market conditions.
In this article, we will walk you through all the stages of the Bitcoin cycle to help you approach the market in a more informed way. This way, you can make better investment decisions with an understanding of the characteristics and trends that bitcoin follows in each phase of its cycle.
What is the Bitcoin Cycle?
The Bitcoin cycle is a set of specific patterns that typically play out based on the trading sentiments of market participants and the crypto market at large. This is a phenomenon that manifests itself in every market, and the crypto industry comes under its ambit as well.
The Bitcoin cycle begins with little to no interest in the market, which shows bare minimum trading activities initially. With time, more people start participating, which in turn increases the demand and interest in the community that is seeking a good opportunity to enter the market.
This pushes Bitcoin prices upward to keep up with the increasing demand. At some point, prices reach a peak and, from there on, begin to drop. It happens when interest declines and supply surpasses demand. This pattern forms a repeating cycle that ends only to begin again.
To understand it better, let’s divide the whole bitcoin cycle into four stages, reflecting on each one to help you minimize your risk and maximize your returns.
The BTC Cycle’s Stages
Here, we will discuss the four different phases of price trends that the bitcoin cycle typically reflects. Note that, the bitcoin cycle and the crypto cycle are strikingly similar to each other as both go through the same market phases.
Each bitcoin cycle lasts four years on average and is affected by various external factors such as correlation with the crypto cycle, economic conditions, social metrics, the halving of bitcoin, and market sentiments among others. Read on, to learn how to strategize your investments as per each bitcoin cycle stage.
Stage 1: Accumulation
The accumulation stage is usually the ending of a prior phase where the bitcoin sellers have exited the market and the prices seem to begin stabilizing. In this phase, the market has already bottomed out and it’s the best time for early adopters to dip their toes to participate in the upcoming bull run.
This stage is referred to as the beginning of a new cycle where the bitcoin price is the lowest. In investor lingos, it is called the “buying the dip” period. The market sentiment here shifts from negative to neutral.
Stage 2: The Markup Phase (Bull run)
The markup or run-up phase of the bitcoin cycle is referred to as a bull market when early adopters jump right in to play their right cards. This is the time when market direction becomes clear and overall crypto community sentiment is optimistic.
With the entry of new groups of market participants, bitcoin sees a notable increase in trading volume at the beginning of this phase. With the media publishing positive headlines, the late majority starts buying bitcoin near the top prices in fear of missing out. Soon the market enters the excessively high valuation stage and smart investors begin selling.
When prices start to balance out, the market falls into the distribution phase with the final wave of investors who try to capitalize on an uptrend.
Stage 3: Distribution Phase
The distribution phase of the bitcoin cycle is the first sign of a weakening bull market. During this time, some participants who bought bitcoins before or at the beginning of the run-up phase may begin selling their holdings in preparation for a potential bear market.
Generally, the market witnesses buyers and sellers achieving equilibrium. This means the overall market sentiment swings between greed and fear. While some expect the uptrend to continue and others start liquidating their positions in anticipation of a bear market. Thus, this puts the bitcoin cycle in its final stage called the markdown phase.
Step 4: The Markdown Phase (Bear run)
The markdown or run-down phase of the bitcoin cycle is referred to as the bear market where the supply overwhelmingly exceeds the demand in the distribution phase. It is a period where investors are in constant fear and social media floods with a hard-held belief that the price will keep going up.
However, many people learn some of the hardest lessons in trading during this phase. It is also a time when investors may choose to ignore the bitcoin cycle, resulting in either selling bitcoins too late or HODLing for the next bullish conditions which sometimes take years to arise.
Bitcoin Halving:
The bitcoin halving also plays a great role in impacting the bitcoin cycle. Bitcoin halving is the process that involves the halving of rewards for bitcoin miners after every 210,000 blocks, taking place every 1275 days. This translates to: it reduces the rewards for mining on the bitcoin network and ultimately leads to the limited supply of new bitcoins.
In case the demand remains strong, the phenomenon pushes the bitcoin price higher due to a perceived lack of market supply. This stage fosters a new makeup phase, which again is a good indicator to trade cautiously.
In the next section, you will get to know how to utilize the bitcoin cycle to reap the benefits and stay ahead of the curve!
Advantages of utilizing Bitcoin Cycle
Though bitcoin cycles may not always follow the same patterns and investors typically can’t determine expected price movements, it gives a fair idea to strategize investments.
- Understanding the bitcoin cycle can help you in managing your portfolio so that you are prepared for markdown phases. This also means, you would be aware and won’t be caught off guard in bearish market conditions.
- As market cycles are inevitable, you can analyze the trend and pattern while keeping in mind the potential market sentiment in each bitcoin cycle’s phases to make informed decisions.
- Having familiarity with the expected price fluctuations in each cycle, you can easily identify the best time to enter and exit the market. Thus, you can minimize the risk involved while also not missing any potential opportunity.
Also Read: How to Use Bitcoin For Online Payments
Takeaways
The Bitcoin cycle is essential in predicting the nature of reality when it comes to trades. Some people tend to go against the market trends, fueled by their sentiments and emotional state. Once you learn how to patiently make moves as per the stages of the bitcoin cycle, not only will you reduce stress but also make considerable profits.
The greatest takeaway is, the accumulation phase is the best time to buy into the market or say to “buy the dip”. In addition, the end of the markup and before the beginning of the distribution phase is best suitable for selling Bitcoin.
Note that, no matter how rigidly you stick to the plan, prices sometimes come down unexpectedly with sudden market events and many times turn even the dull market into bull mode.
For instance, governments cracking down on cryptocurrencies can cause turbulence while celebrities endorsing some assets can temporarily pump the prices.
Hence, always do your own research and don’t get carried away with market sentiment. Knowing the bitcoin cycle can surely keep you from indulging in risky investments, provided you are well aware of the crypto market.
