Learn How to Take Advantage of Each Phase in the Crypto Market Cycle

Cryptocurrency is getting a lot of attention for different reasons. As an investment, it has the potential for higher returns than traditional vehicles. It also lets consumers conduct transactions without a middleman. But before you open an account with a crypto exchange and start investing, you should understand how the crypto market works. It consists of four phases: accumulation, markup, distribution, and markdown. This article highlights the distinct characteristics of each cycle so you can recognize when to get in and out of the market.

Phase 1: Accumulation

The first or early phase of the crypto market cycle is known as the accumulation phase. This is marked after significant price drops, usually after a bear market. Large investors, such as institutional and experienced investors, start to buy up cryptocurrencies at relatively low prices in anticipation of price hikes in the future.

There are a few things to note during this period:

• Prices are fairly low and stable.
• Because the outlook is bearish, most people aren’t paying attention to the crypto market.
• Larger investors are buying quietly.
• The news is quiet and relatively negative, which is why most average investors are afraid to jump into the market.

Savvy investors can recognize signals of the accumulation phase on charts through sideways price movements and horizontal trades, which can last from weeks to months. This period is best for long-term investors who can afford to lock in their money. It isn’t suitable for short-term traders, though.

Phase 2: Markup

Once the accumulation phase is over, it’s followed by the markup phase. This signals the beginning of a bull market, which is why it’s also referred to as the bull market phase.

During the markup phase, prices begin to break out and rise steadily. Investors start to notice and take an interest, which is why they start to jump in. With more buyers and sellers participating, trading volume begins to increase.

Even with the positive sentiment, there may be some dips in the market, as some assets won’t necessarily follow the upward trend. Traders often use these as buying opportunities, especially if there is a fear of missing out, also known as FOMO.

If you’re a momentum trader or a long-term trader who missed out during the accumulation phase, you still have a chance to jump in during the markup phase.

Phase 3: Distribution

The bull run is followed by the distribution phase. Prices begin to peak and plateau. At this point, there is mixed sentiment in the market.

There is some uncertainty as some investors start to sell their assets and take profits. These are usually the more savvy and experienced investors (the investors who bought during the accumulation phase) who begin to sell their coins before the market crashes.

This phase is also characterized by optimism from other investors as they begin entering the market, as they are confident the bull run isn’t over. Although trading volume may be higher, price increases tend to slow down during this period.

Phase 4: Markdown

The final phase of the crypto market cycle is called the markdown phase. Also referred to as the bear market, it marks the end of the bull run. Investors who bought cryptocurrencies at the top of the market start to see losses and may start to panic, selling to avoid further price drops.

This leads prices to drop significantly as selling pressure starts to exceed buying demand. Trading volumes decline as interest starts to wane even more. This can create a good opportunity for short sellers who can profit from the downturn in the market.

The markdown phase sets up the next accumulation phase in the cycle.

The Bottom Line

It’s important to understand how the market cycle works before you invest in and profit from cryptocurrencies. Taking the time to study the nuances of the market can make you a smarter investor so you can stay focused and keep your emotions in check, regardless of the hype.