Understanding the Crypto Market Cycles and Psychology Behind it


“Every market that deals in assets whether stock or crypto has its cycles according to which the price of the assets goes up and down. These market cycles are derived from the psychology and emotions of the investors and this cycle keeps on repeating itself. Bitcoin alone has completed such 5 cycles in its lifetime of just over a decade. Understanding these market cycles help the investors in keeping their emotions in check while investing.”

Dissecting the Crypto Market Cycle

The crypto market might be extremely volatile in the short term but the same market cycle rule as for the stock market, applies to it in the long term. The crypto market cycle can be divided into various phases that follow each other in the same sequence and each complete cycle is followed by another cycle with similar phases. The only difference is the time and amount of rise or fall of prices in each cycle. The following chart shows the crypto market psychology and various phases that it constitutes:


Source: Karen Bennett, cheatsheet.com

Phases of Crypto Market Cycle

According to the chart above, the first phase Hope in the Market Cycle is followed by the last phase i.e. disbelief phase, confirming that the market cycle is recurrent in nature. At the first stage ‘Hope’, the market manifests a fresh potential for the Bull Run but the investors are cautious. Little investments at a time are done by the investors at this stage.

The second stage i.e. ‘Optimism’ occurs when the little money but fresh money invested by the investors in the previous phase starts to increase the price of the cryptocurrencies in the market. When this optimism extends for a longer period it starts converting into belief which is the next phase of the cycle. The ‘Belief’ Stage is the indicator of the starting of a Bull Market.

As the indication of the Bull Run is sniffed by the investors they are thrilled and this forms the next phase of the market cycle. In the ‘Thrill’ phase all the investors including new retail investors jump in as the FOMO (Fear of Missing Out) is generated in the market and the price starts to rise rapidly. The news of overnight millionaires starts to float in the market thus the greed takes control over the emotions of the investors that results in the phase of ‘Euphoria’ which is the shortest phase of all and this is the stage where the market peaks and shows the weakening of the bull run.

The investors start realizing that the Bull Run cannot continue indefinitely and the market starts to show reversal and in the process the losses creep in. This throws the market into ‘Complacency’ stage in which the investors think that this is a pause in the market before the continuation of the Bull runs and does not sell at a little loss. By the time, the market continues to dip and creates ‘Anxiety’ among investors and some investors enter the phase of ‘Denial’ and are not ready to sell in the belief of market rise. With the deterioration of the price further the bearish sentiment strikes and the fear of losing everything makes the investors sell in ‘Panic’ at a considerable loss. After this the phase of ‘Anger’ and ‘Depression’ follows throughout the bear market until consolidation occurs and the cycle once again resumes.

Why Understanding the Market Cycle is Important

Understanding the market cycle can help the investors in keeping their emotions at check and in ensuring that profitable decisions are made at every cycle by the investors without fear.

Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.

Photo by –  johnhain on Pixabay