Cryptocurrency Market Cycles

“Be fearful when others are greedy and greedy when others are fearful”

Warren Buffett

Just like stocks, commodities, and every single asset class on earth, cryptocurrency is subject to market cycles. Traders and investors seek to beat the market by identifying these cycles and hitting ‘buy’ and ‘sell’ at the right moment

Technical analysis titan Richard Wyckoff pioneered our understanding of these market cycles by looking at crowd psychology and how retail investors — also known as dumb money —  are naturally inclined to make mistakes that work in favor of institutional big investors, also known as smart money.

The Psychology of a Market Cycle

As a nascent market with few real fundamentals, the cryptocurrency market is driven primarily by sentiment — human emotions

Feelings—from deep depression to euphoric mania — compel traders to buy and sell assets in an emotional cycle.

This creates a repeated pattern that manifests itself over and over again, allowing anyone to use the sentiment as a compass to deduce what stage of the cycle we are in.

The Stages of a Market Cycle


After a market crash, the first signs of a recovery are hard to believe. Retail investors are cautious and unwilling to put large amounts of money in the market.

Institutional investors recognize this time as the point of maximum financial opportunity and are busy accumulating the asset.

Hope and belief

As prices rise up from the bottom, investors become more hopeful. Eventually, a steady uptrend is established and the positive outlook makes more people comfortable with investing large amounts.

Thrill and euphoria

In the next stage, the bulls take full control of the market.

With the thrill of positive returns, investors begin to feel like everything they touch turns to gold, and analysts call for all-time highs that previously seemed impossible.

Some crypto investors become so optimistic that they start buying altcoins, enthralled with the prospect of realizing even greater returns.

At this moment the rising price putts cryptocurrency in the headlines with tales of fresh millionaires. This brings new ‘dumb money’ into the crypto space, and the price paints a parabolic curve on the chart as retail investors hit market buy on exchanges.

Meanwhile, the smart money or institutional investors are selling their bags to prepare for another downturn.


As the price pulls back from the parabolic curve, new investors are not too concerned.

In fact, many expect this to be just a short break before the march upwards continues, and are unprepared for the market reversal just around the corner.

Anxiety and Denial

As the price continues to swing lower, investors start to lose their cool. After all, the bull run can’t last forever.

But even though the market is now showing clear signs of reversal, ‘dumb money’ investors are still unwilling to surrender, and this fear of losing leads them to keep holding.

This leads into the stage of denial where despite the continued drop investors hold out hope for a continuation of the bull run.

Capitulation and depression

In the final shakeout, the retail investors give up and sell their investments in desperation. This moment creates a major cliff-edge drop on the chart as investors panic and withdraw from the market entirely.

At this stage all hope is lost, and those that are still in the market feel deep remorse at staying so long. But, despite the despair, the price is actually finding a floor. And this floor will be the springboard for the next stage of the market cycle.

Disclaimer: This information is not financial advice, and should not be treated as a recommendation to buy or sell. It is to be used for educational purposes only.