The Cycle Theory In Crypto Market

Why are there times when Bitcoin rises sharply and Altcoins follow. But why are there times when Bitcoin soars, Altcoins plummet?

I. Market context

At the time of writing, both Altcoins and Bitcoin are going through a crazy period. Bitcoin has increased continuously from $10K to $16K in just the past few weeks. Meanwhile, Altcoins is also recovering, although it’s not significant compared to the red candles witnessed in the previous weeks.

So, why does this happen? Why are there times when Bitcoin rises and Altcoins follow. But why are there times when Bitcoin soars, Altcoins plummet? In this article, we are going to discuss the theory of market cycles to have a better understanding of the causes of the mentioned situation.

II. What is the Market Cycle?

The financial market itself is a collection of many investors participating and making decisions. The decisions made by investors, which are mostly influenced by many factors, are based on specific rules. These rules are made up of elements such as time, place, context of the financial market. Looking at these elements, investors can know the common points, which in turn create a cycle for them.

So, What is the Market Cycle?

The market cycle is a mix of trends, one after another. Just like spring, summer, autumn and winter alternately come and go, the market cycle also goes in stages.

For example, a market rally usually begins with a large number of buyers pouring their money into the market. When there are not enough buyers, the number of sellers start to increase, the price will flat and gradually go down, and then repeat. To fully understand this, let’s take a look at the Wallstreet Cheatsheet below!

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III. Market Cycle Cheatsheet Explanation

Stage 1: Hope - the recovery

“Hope” is the first sign of recovery, happening after the “Disbelief” phase. At this time, the market usually shows positive signs for a new bullrun season. However, at the same time, most investors are still relatively cautious. Money flow into the market is quite moderate.

Stage 2: Optimism - optimistic about the market future

This stage begins when the price starts to increase, and the capitalization or “new money” also increases relatively. Optimism phase usually lasts at least 1 month, when the market starts to trend up, and most investors from the “Hope” stage start to make profits.Stage 3: Belief - All in time

When the uptrend lasts for a long time, optimism will turn into belief. At this time, old investors often put more money in, bringing in new investors and causing the price to go up. The difference between the way of using money is that old investors often pour a lot of money in the market at this stage, while new investors will spend money cautiously and carefully.

Stage 4: Thrill - Tell everyone to buy

This is the stage that most early investors will look for other opportunities when their previous investment is making strong returns. This is also the time when the excitement of new investors is at its peak, and they will bring in other new investors. In general, the whole market is happy, optimistic and doesn’t think much about taking profit.

Stage 5: Euphoria - I’m a genius, we’re going to be rich

Every game has to come to an end, and often, a bullrun or rally season ends when the market goes up for days without any correction. At this time, most investors in the market are highly greedy. The greed is pushed to the maximum, there are signs of buying houses, cars, quitting jobs. The target is also usually unbelievable (Similar to the DeFi season in 2020, I did predict that DeFi ended while at the same time, there were posts on FB and Twitter like if Coin A x20 in price before the end of the year, each person in the group will be given 100 million VND)

The price skyrockets, newbies who don’t know anything also start rushing into the market. Sadly, this is the period when the most money flows in, and that is the peak.

Stage 6: Complacency - It’s ok, that’s just a correction

During this phase, the price still goes up, but with smaller amounts and lower highs. People’s expectations at stage 5 are starting to fade. This is also the most dangerous period because most investors are sleeping on their victory, and they are all thinking “this is just a correction”. At this point, the smart money starts to take profits and exit, while most new investors with no experience will start DCA - buy more at this point.

Stage 7: Anxiety - Should I stoploss? The market may recover soon.

This is when most people realize that bullruns have limits. Most investors will start to lose money at this stage, only a few will exit in time. The scary thing about this stage is that with Crypto, it usually goes very quickly, making most investors unable to react. This is also the time when the amount of USDT is very low because new investors often DCA too early. In general, at this stage, the majority hopes the market will recover so they can exit.

Stage 8: Denial - What's the point of cutting losses now? I hold the potential coin, then it will recover.

However, there was no rebound at all. And at this point, most players look at the peak price and think "Ah, selling now is a loss, the price will recover soon". At this stage, those who use margin/leverage to “long” will most likely burn out or suffer heavy losses. The whole market often goes down with quite a large volume, making it difficult for most new investors to understand a simple question: "Who is selling at this price"?

Stage 9: Panic - I need to get out ASAP.

At this time, the market continues to go down, the bulls are still hiding and the bears seem to be quite aggressive. If it’s at the end of the year or at the end of quarters, things will be even worse, when the pressure to take profits increases very strongly. Small investors began to take profits in bulk because of the fear of losing more money. This phase will end when we see a long red candle with large volume dropping to the long-term support zones.

This is when inexperienced investors start to swap to USDT.

Stage 10: Depression - Anger. I wish I didn't know about this crazy market.

Often, this is the end of the downtrend. Market price usually goes lower than stage 9 - Panic a bit, but mostly the time the market will flat, with relatively low volume. This is the period when the market is lonely, no one cares, and there are not many new entrants to the market.

And this is where the really experienced - smart cash flow people started to step in, and rebuild everything. And after step 10 is over, welcome to step 1 - Hope. Another cycle begins, and new investors are born.

In general, the steps mentioned above are often repeated, and form a market cycle. Not all cycles are the same, and prices don't always go that way. However, this article is the most accurate description of what happens in the psychology of investors participating in the market, from bullrun to bearrun.

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These psychological steps work with most markets, even with charts in general. Based on that, we can accurately know phases of trends as well as cycles to apply in trading. In the next article, I will take a closer look at the stages of the market, as well as how to apply it to invest in altcoins.

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