A Guide to Cryptocurrency Market Cycles
Tags: Cryptocurrency, Wyckoff, Bitcoin, Blockchain, Resources

From evolution and agriculture to our moods and mental states, most aspects of the human experience are cyclical. This is especially true for markets that are characterized by cycles of micro and macro trends.

In the early stages of a bull market, people are fearful, and there is a period of accumulation followed by appreciation or “mark up.” Accompanied by various pullbacks along the way that provide buying opportunities for savvy buyers, a bull market eventually blossoms into a bubble.

In a bear market, there is a distribution of supply by “smart money” followed by a depreciation that is accompanied by multiple failed rallies along the way. While it is a fool's game to try and predict the exact top or bottom of any market cycle, understanding these cycles can help one make prudent, financially sound decisions that are bound in logic versus emotion. In this article, we will walk through the four phases of the last market cycle and describe each in detail.

www.wallstcheatsheet.com

Phase 1: The Accumulation Phase of 2015

After plummeting for most 2014, the cryptocurrency market finally reached a bottom in 2015. Early adopters, traders and money managers began to accumulate crypto at a very favorable risk to reward ratio. Valuations were very attractive, as the general market sentiment was extremely bearish. Those who were holding on through the majority of the bear market gave up and sold out the rest of their holdings, creating a state of capitulation in the market. As prices flattened out throughout most of 2015, the final sellers were shaken out and “smart money” began quietly buying up the remaining supply. Although barely noticeable at first, by November 2015, the market broke to the upside, ripping through the resistance that plagued the market for most of the year.

Phase 2: The Mark-Up Phase of 2016

As Bitcoin broke out of the accumulation phase and entered the markup phase, more of the population started to get on the bandwagon while traders recognized the trend change. The media added fuel to the fire with positive news stories to support this change in trend. It was towards the final stages of the mark-up phase that speculators re-entered the market, and “fear of missing out” (FOMO) emotions set the stage for the rocket ship of 2017.

Phase 3: The Distribution Phase of Early 2018

After reaching the maximum height of the 2017 bubble, we began entering the distribution phase — the first phase of the bear market. While not all distributions result in bear markets, all bear markets are created by whales distributing the supply they have accumulated over the previous months or years. This phase is characterized by extreme risk tolerance, belief the price will rise indefinitely, and the idea that “this time it’s different.”

Just as a bull market is riddled with unsustained dips, a bear market is filled with failed rallies. This is because smart money, especially in a market as small as cryptocurrency, can never just sell their entire supply all at once. Although retail investors can sell hundreds or thousands of dollars at a whim, whales with millions don’t have such a luxury. Since they hold most of the supply, they are subject to “slippage” and are at risk of selling much lower than they intended.

For example, a whale setting an order to sell 15,000 BTC at a price of $18,000 (a $270,000,000 position) may risk actually selling for an average price of $16,500 because such a massive order would outnumber all currently open buy orders. Therefore, whales need to manufacture rallies of false hope, luring hopeful investors that previously saw rising prices into the market.

In late 2017, mainstream retail investors started to dip their toes into the market. The media relentlessly pushed a flow of bullish news, and CNBC even discussed how to buy XRP live on their show. Alas, this was the beginning of what would be known as the longest “crypto winter” in history. Recency bias took hold and fear of missing out started to attack the will power of those that were trying to resist entering the market. Then, at the peak of investor greed, prices tanked and the two-year bull cycle came to an end.

Phase 4: Depression Phase of Late 2018

In any market, prices never go straight up or down. Even in a market as volatile as cryptocurrency, the bleeding on the way down was slow and painful. Just as many thought the price of Bitcoin bottomed around $6,000 towards the end of 2018, prices unexpectedly tanked over 50%, shaking out some of the most loyal holders. This was perhaps the most emotional and volume-heavy stage of the bear market cycle, as very early investors began questioning whether holding was the right move in the first place. At the same time, those that came late and bet big were overcome by the fear of losing it all. As depression set in, the market finally found a bottom in December 2017 and quietly began setting up for its next accumulation phase.

What’s Happening Behind the Scenes

Despite prices rapidly falling in 2018, blockchain companies have been hard at work turning bold dreams into real-world applications and products. Notwithstanding overall market fluctuations, the last year and a half were an especially productive time for Jibrel:

On both the B2B and the B2C sides, Jibrel has successfully managed to establish a foothold in the Middle Eastern market. In 2018, we announced a partnership with Abu Dhabi Global Market (ADGM) and Al Hilal Bank to build the next generation of compliant Sukuk bond transactions. This was followed by the release of the Jwallet across Android, iOS, and Web.

Jibrel was also recently accepted into the Gulf Bonds and Sukuk Association (GBSA). Not only does the acceptance aid in solidifying our foothold in the Middle East, but it also provides the opportunity to create better products and enable access to key institutional players.

One such institution is Emaar Properties, one of the biggest real estate developers in the world. Jibrel recently became an approved broker-dealer, allowing us to sell Emaar-owned properties on-chain. In addition to becoming an approved broker, Jibrel is able to facilitate the purchase of Emaar properties using digital assets (BTC, ETH, JNT).