Table of contents
- Understanding market cycles in traditional markets
- Bitcoin market cycles: the facts
- Four historic cycles for Bitcoin
- Understanding Bitcoin cycles
- Bitcoin market cycle strategies
- The Bitcoin Dominance
- BTC Dominance indicators
- How to take weighted decisions based on Bitcoin cycles understanding
Understanding market cycles in traditional markets
Market cycles – the periods between two highs or lows of a market, are a common thing. In the conservative stock market, such cycles happen over longer terms (years) on average. The image below shows the cycles of the US stock exchange (S&P500) throughout history, starting from the Great Depression in 1929.
The last famous recent lows of the cycles were around the years 2000, 2008, and 2020. They became known as the dot-com bubble pop, the sub-prime real estate crash, and the COVID-19 financial crisis.
Unlike the first two, following the COVID crash in 2020, it took just a few weeks for Wall Street to get back onto a bullish track. NASDAQ charted a new all-time high just several months following the 30%+ corona crash.
As it can clearly be seen, the saying that “markets take the stairs up and the elevator down” is true for any other financial market and is true, especially for cryptocurrencies.
The major differentiating factor with crypto, however, is volatility. While a sharp daily movement of NASDAQ is considered to be 1-2%, Bitcoin, which is considered the most stable cryptocurrency and the base asset, can fluctuate more than 20% daily.
Bitcoin market cycles: the facts
Bitcoin market cycles refer to the recurring patterns of growth, peak, and decline that have been observed in the price of Bitcoin over time. These cycles are often characterized by periods of rapid price increases, followed by periods of consolidation or correction.
Here are some key facts about Bitcoin market cycles:
- Bitcoin has experienced multiple market cycles since its creation in 2009, with each cycle typically lasting between 2-4 years.
- The most well-known Bitcoin market cycle occurred in 2017, when the price of Bitcoin soared from around $1,000 at the beginning of the year to almost $20,000 in December, before experiencing a sharp decline in early 2018.
- The current Bitcoin market cycle began in early 2020, after the price of Bitcoin bottomed out at around $3,800 in March. Since then, the price of Bitcoin has experienced significant growth, reaching an all-time high of over $64,000 in April 2021, before experiencing a period of correction.
- Bitcoin market cycles are often characterized by a "halving" event, which occurs roughly every four years and involves a reduction in the amount of Bitcoin that miners are rewarded for mining a new block. These halving events are believed to contribute to the cyclical nature of Bitcoin's price movements.
- Every low of a major cycle never reached the top of the previous one. I.e., the lowest price of 2017’s cycle, ~$3120, was way above the 2013 cycle’s top at ~$1150 (so far, it’s true for 2021’s cycle – the low was around $26k, which is above 2017’s high amid $20k).
- The latter is true, keeping in mind the base assumption that Bitcoin is a disinflationary asset whose purchasing power will increase over time in the long run.
- There is ongoing debate among analysts and investors about the causes of Bitcoin market cycles, with some pointing to factors such as adoption by mainstream investors and the increasing institutionalization of the cryptocurrency industry, while others believe that the cycles are driven by speculative trading and market manipulation.
Four historic cycles for Bitcoin
Bitcoin has experienced multiple market cycles throughout its history, but broadly speaking, four distinct cycles can be identified based on the price movements of the cryptocurrency:
- The Early Cycle (2009-2011): This was the period immediately following the creation of Bitcoin, and it was characterized by very low levels of adoption and trading volume. During this time, the price of Bitcoin was extremely volatile, with huge fluctuations in value from day to day.
- The Speculative Cycle (2012-2013): This was the first period of significant growth for Bitcoin, driven largely by increased interest and investment from early adopters and speculators. During this cycle, the price of Bitcoin rose from a few dollars to over $1,000, before crashing back down to around $200.
- The Institutional Cycle (2014-2017): This cycle was marked by the emergence of Bitcoin as a legitimate investment asset, with growing interest and participation from institutional investors and large financial firms. The price of Bitcoin during this cycle rose steadily from around $200 to over $20,000, before experiencing a sharp correction in early 2018.
- The Mature Cycle (2018-2021): This is the current cycle of Bitcoin, which has seen the cryptocurrency become increasingly mainstream and integrated into the global financial system. During this cycle, the price of Bitcoin has experienced significant growth, reaching an all-time high of over $64,000 in April 2021, before experiencing a period of consolidation and correction.
It's important to note that these cycles are not set in stone and can overlap or shift in unexpected ways, and there is no guarantee that Bitcoin will follow a similar pattern in the future. However, understanding these historical cycles can provide valuable insights into the behavior of Bitcoin and the cryptocurrency market as a whole.
Understanding Bitcoin cycles
Bitcoin cycles refer to the repeating pattern of boom and bust cycles that have characterized the price of Bitcoin. Understanding these cycles can be important for investors and traders who want to make informed decisions about buying, selling, or holding Bitcoin.
The chart below shows the cyclical nature of Bitcoins price and how it has played out in the past.
- Cycle 1: Bear Market
- Cycle 2: Early Adoption
- Cycle 3: Accumulation
- Cycle 4: Bull run
Let’s look at the numbers and first compare the ROI from bottom to peak for each cycle:
- 1st cycle – 64,468%
- 2nd cycle – 58,457%
- 3rd cycle – 11,951%
- 4th cycle – 2,091% (so far)
Next, let’s compare the duration of the cycles from bottom to peak:
- 1st cycle – 46 weeks
- 2nd cycle – 106 weeks
- 3rd cycle – 152 weeks
- 4th cycle – 152 weeks (so far)
Bitcoin market cycle strategies
There are several strategies that investors and traders can use to take advantage of Bitcoin market cycles. Here are some examples:
- Buy and Hold: This strategy involves buying Bitcoin during the early stages of a market cycle and holding onto it for the long term, regardless of short-term price fluctuations. This can be an effective strategy for investors who believe in the long-term potential of Bitcoin and are willing to weather the ups and downs of the market.
- Dollar Cost Averaging: Dollar cost averaging involves investing a fixed amount of money into Bitcoin at regular intervals, regardless of its current price. This strategy can help to smooth out the effects of market cycles, as investors are buying Bitcoin at different prices over time.
- Short-Term Trading: Short-term traders can take advantage of market cycles by buying and selling Bitcoin over shorter time frames. For example, traders may buy Bitcoin during the early stages of a bull market and sell it during the later stages, when prices are at their highest. This strategy requires careful monitoring of market trends and can be more risky than longer-term strategies.
- Contrarian Investing: Contrarian investors take positions that are opposite to the prevailing market sentiment. For example, during a bear market, a contrarian investor may buy Bitcoin when most other investors are selling, in the hopes of buying low and selling high when the market recovers. This strategy requires a strong understanding of market trends and can be more challenging than other strategies.
- Scalping: This strategy involves making multiple trades during the day to take advantage of small price movements. Scalping is a high-risk strategy that requires significant market knowledge and technical analysis skills.
Overall, investors and traders can use a combination of these strategies to manage risk and take advantage of Bitcoin market cycles.
The Bitcoin Dominance
Bitcoin Dominance is a measure of the percentage of the total cryptocurrency market capitalization that is held by Bitcoin. It is calculated by dividing Bitcoin's market capitalization by the total market capitalization of all cryptocurrencies.
Bitcoin Dominance can be a useful metric for understanding the relative strength of Bitcoin compared to other cryptocurrencies. When Bitcoin Dominance is high, it indicates that investors are placing a greater value on Bitcoin compared to other cryptocurrencies. Conversely, when Bitcoin Dominance is low, it indicates that investors are placing more value on other cryptocurrencies compared to Bitcoin.
Bitcoin Dominance can also be used as a market indicator. When Bitcoin Dominance is high, it may indicate that investors are less interested in taking risks with other cryptocurrencies and are instead choosing to invest in Bitcoin, which is seen as a more established and stable cryptocurrency. Conversely, when Bitcoin Dominance is low, it may indicate that investors are more willing to take risks with other cryptocurrencies, which could lead to increased volatility in the market.
It is important to note, however, that Bitcoin Dominance is not necessarily an accurate predictor of future market trends.
BTC Dominance indicators
There are several indicators that investors and traders can use to track Bitcoin Dominance:
- Market capitalization: The most straightforward indicator of Bitcoin Dominance is market capitalization. This can be calculated by multiplying the price of Bitcoin by the total number of coins in circulation. When Bitcoin's market capitalization is high relative to other cryptocurrencies, it indicates that Bitcoin Dominance is also high.
- Trading volume: Trading volume is another important indicator of Bitcoin Dominance. When trading volume for Bitcoin is high relative to other cryptocurrencies, it suggests that investors are more interested in trading Bitcoin compared to other cryptocurrencies.
- Price movements: Changes in the price of Bitcoin relative to other cryptocurrencies can also be an indicator of Bitcoin Dominance. For example, if Bitcoin's price is rising while other cryptocurrencies' prices are falling, it suggests that investors are placing more value on Bitcoin compared to other cryptocurrencies.
- Google search trends: Google search trends can be used as an indicator of public interest in Bitcoin compared to other cryptocurrencies. When more people are searching for information about Bitcoin compared to other cryptocurrencies, it suggests that Bitcoin Dominance may be increasing.
- Trading pairs: The number of trading pairs that include Bitcoin can also be used as an indicator of Bitcoin Dominance. When more cryptocurrencies are traded against Bitcoin compared to other cryptocurrencies, it suggests that Bitcoin is still the dominant cryptocurrency in the market.
These indicators can be useful for investors and traders who want to track Bitcoin Dominance and make informed decisions about their investments in the cryptocurrency market.
How to take weighted decisions based on Bitcoin cycles understanding
Making weighted decisions based on Bitcoin cycles understanding involves analyzing the historical performance of Bitcoin and identifying patterns in its price movements over time. Here are some steps you can follow:
- Learn about Bitcoin cycles: Before making any decisions based on Bitcoin cycles, you need to have a good understanding of what Bitcoin cycles are and how they work. Bitcoin cycles refer to the cyclical movements of Bitcoin's price over time, which are driven by a variety of factors such as supply and demand, investor sentiment, regulatory developments, and technological advancements.
- Analyze historical data: Look at historical data on Bitcoin's price movements and identify trends and patterns. You can use tools like charts and technical analysis to help you visualize and interpret the data. This will help you understand the behavior of Bitcoin over time and identify potential patterns that could inform your decisions.
- Look for indicators: There are several indicators that can help you predict Bitcoin's future price movements, including the Moving Average Convergence Divergence (MACD) indicator, the Relative Strength Index (RSI), and the Bollinger Bands. These indicators can help you identify trends and momentum in Bitcoin's price movements and make more informed decisions.
- Consider market sentiment: Market sentiment can also play a role in Bitcoin's price movements. By tracking news and social media sentiment, you can gain insight into how investors are feeling about Bitcoin and make decisions based on this information.
- Use risk management strategies: Finally, it's important to use risk management strategies when making decisions based on Bitcoin cycles understanding. This may include setting stop-loss orders or diversifying your portfolio to reduce risk.
In summary, taking weighted decisions based on Bitcoin cycles understanding involves analyzing historical data, identifying patterns and indicators, considering market sentiment, and using risk management strategies. By doing so, you can make more informed decisions about investing in Bitcoin and manage your risk effectively.