The cryptocurrency sector has a solid reputation for volatility and dynamism, and these characteristics were revealed in May, when the rapid fall in the bitcoin price (BTC) from $ 60,000 to $ 33,000 led to a massive emigration that took away $ 1.2 trillion. … At a price of the total market value.
While many in the ecosystem blame the decline on things like negative tweets from influencers and influencers like Elon Musk, or another announcement that the Chinese government has banned Bitcoin, more experienced traders and analysts are warning of the possibility of a severe downturn a few weeks before the massive sales. …
The rapid rise in prices in 2021 showed some classic signs of bubble behavior: alarm bells rang when overbought, while Uber drivers and merchants were happy to have their say on what the next big engine would be.
Now, however, it seems like a good time to review the various phases of the market cycle to better understand what the market has been through so far and what to expect in the months and years to come.
Four stages of the market cycle لدور
The four main stages of the market cycle that all traders should have a general idea of are the accumulation stage, the profit margin stage, the allocation stage and the discount stage.
Phases in the market cycle. Source: Investopedia
The build-up phase takes place after the market has reached the bottom and is characterized by innovators and early users who buy an asset based on its long-term potential, before any significant price change occurs.
This phase has been observed in the cryptocurrency market since around December 2018, when the price of BTC fell below $ 3,500, and lasted until October 2020, when the price was significantly above $ 12,000.
BTC / USD 1-day chart. Source: Bitstamp
The earnings growth phase has already begun to pick up in December 2020 and will last until January 2021 as the BTC and Decentralized Finance (DeFi) sectors received global attention, with a total market value of over $ 2.5 trillion in May as distribution. The scene has begun.
The total market value of cryptocurrencies. Source: CoinMarketCap
In the distribution phases, sellers begin to dominate, and the previous trend becomes a mixed price, setting prices in a trading area. The scene ends when the market changes direction.
Some of the typical map patterns observed during this time, according to Investopedia, are double and triple peaks along with the well-known head and shoulder patterns, which were the warning signs represented by BTC that technical analysts have seen recently. Sale.
As with the 2017-2018 bull market, the bitcoin price reached a new all-time high (ATH) and then began a downward trend, which caused funds to flow from bitcoin to the altcoin market, bringing the total market value to a full-time high. $ 2.53 billion May 12.
For the experienced cryptocurrency trader, this pattern was a sign that a halving phase was approaching, and that it would be prudent to make a profit when Bitcoin hovers between $ 40,000 and $ 60,000, and the cryptocurrency gathered to record highs in preparation for the sale. … -of and receive discounted tokens the next day.
Distribution of funds in the accumulation phase
Now that the market has experienced a severe pullback and continues to search for a low price level, it is time to track price movements, with particular attention to finding good entry points to viable projects.
Perhaps the most famous graphic depiction of a typical market cycle is Wall Street’s “Psychology of the Market Cycle”. This pattern has emerged in all kinds of markets, from stocks and commodities to cryptocurrencies and real estate.
Phases in the market cycle. Source: Wall Street Cheat Sheet
If we look at the Bitcoin chart, we see a similar price pattern that started at the end of 2020 with a possible “infidelity” phase that started in November. Early January looks like the “hope” phase in the chart above, followed by a multi-month meeting to reach a happy high in April.
4-hour BTC / USDT chart. Source: TradingView
The price then fell from $ 64,000 to $ 47,000 and then returned to $ 53,000 to $ 60,000 when the decline began. The May sale pushed the market into phases of worry, denial, panic and abandonment, and the ecosystem’s response to Musk’s tweets, as well as other downward pressure on the market, triggered much social outrage.
The challenge now is to tackle the downturn caused by significant portfolio depreciation and try to determine if the market has bottomed out, indicating that it’s time to reallocate funds, or best of all, sit back and wait.