Cryptocurrency market cycles

Cryptocurrency market cycles refer to periodic fluctuations in cryptocurrency prices, during which cryptocurrency prices can rise and fall very strongly. These cycles can last for months or even years and are influenced by many different factors, such as market sentiment, regulation, macroeconomic changes and technological developments. This text takes a closer look at the market cycles of cryptocurrencies and the factors behind them.

              
Phases of the market cycle
The market cycles of Cryptocurrencies typically contain four different phases, which are an up phase, a peak, a down phase and a trough. Each phase reflects changes in market sentiment and investor behavior, which together affect price movements. By understanding the different stages of these cycles, investors can better anticipate market movements and make informed investment decisions.
Rising phase (Bull Market): This phase is characterized by a rapid increase in the prices of cryptocurrencies. Its background can be e.g. the increase in the adoption of cryptocurrencies, positive news, innovations regarding new technologies or the general optimism of the market mood. Often this phase arouses great interest and can attract new investors to the market.
Market optimism: In the crypto market, optimism can increase as a result of various news or events, such as the relaxation of regulation, the entry of institutional investors into the market, or the increase in the adaptation and uses of cryptocurrencies.
Introduction of new investors: During the bullish phase, cryptocurrencies often receive considerable media attention, which attracts new investors to the market. The arrival of these investors may increase demand and further accelerate price increases.
Peak: As prices continue to rise, at some point a peak is reached where prices are at their highest. In this case, a "bubble" can arise, where prices have risen unusually high without a clear justification.
Price bubble: At the peak, a "bubble" may arise in the market, where prices have risen significantly without clear fundamental support. This may be due to speculation, where investors buy cryptocurrencies simply because prices are rising, rather than due to fundamentals.
Expectation of excess returns: When prices are at their peak, investors may expect excess returns and continue to buy regardless of the price. This can be a dangerous phenomenon, because when prices eventually turn down, many investors can suffer big losses.
Feeling-based trading: At the peak, trading is often driven by the fear of missing out (FOMO, Fear of Missing Out). This can lead to irrational trading and continued price increases beyond the true values ​​of cryptocurrencies.
Decline phase (Bear Market): After the price peak, prices usually fall. The reasons can be negative news, regulatory measures, a pessimistic market sentiment or large selling waves. The decline phase can last a long time and lead to a significant drop in prices.
Negative news: The decline phase is often triggered by negative news or large selling waves. For example, major hacking incidents or significant regulatory actions can act as triggers.
Change in market sentiment: When prices start to fall, market sentiment can quickly turn pessimistic. Investors may start selling their assets to protect against losses, which could further accelerate the decline.
Selling pressure: In the decline phase, many investors sell their assets in panic. This selling pressure can exacerbate the decline in prices and create a negative cycle in which prices continue to fall.
Bottom: The decline phase ends when prices stabilize at a lower level. At this point, many investors may be pessimistic, but in the long run, it could provide buying opportunities.
Market Stabilization: In the bottom phase, prices tend to stabilize and the market may experience less volatility. Investors who have held on to cryptocurrencies during the bearish phase can now start looking for signs of a market recovery.
Investor pessimism: At the bottom, the market sentiment can be very pessimistic, and many investors may lose faith in cryptocurrencies. However, this can provide opportunities for those who know how to look at the situation from a long-term perspective.
Increasing buying pressure: When prices have stabilized at a lower level and new positive news or technological advances begin to flow into the market, buying pressure may begin to increase. This could be a sign of the beginning of a new upward phase.
Macroeconomic effects
Macroeconomic factors significantly influence cryptocurrency market cycles, as they shape investor expectations and behavior on a global scale. The prices of cryptocurrencies are affected by, for example, inflation, monetary policy, geopolitical events and changes in the global economy.
Inflation and monetary policy
Cryptocurrency market cycles can be heavily dependent on the monetary policy of central banks and its effects on global economic conditions. For example, if inflation is high and central banks keep interest rates low, cryptocurrencies can be considered an inflation hedge based on their characteristics, which can increase their demand and prices. This phenomenon is especially true for the largest cryptocurrency on the market, i.e. Bitcoin.
Low interest rates and broad-based stimulus could also lead to investors seeking higher returns in riskier assets such as cryptocurrencies. Thus, a monetary policy that encourages borrowing and investing can create the conditions for a cryptocurrency market boom. On the other hand, tightening monetary policy and rising interest rates can reduce risk appetite and lead to lower cryptocurrency prices as investors retreat to safer assets such as government bonds.
Geopolitical events
Geopolitical events such as wars, conflicts, trade wars, and regulatory changes can cause significant uncertainty in the market, which is also reflected in cryptocurrency prices. For example, conflicts can increase interest in decentralized assets that are not tied to a particular country's economy or banking system. For example, due to its properties, Bitcoin has been considered a "digital gold" that investors can rely on in times of uncertainty.
Regulatory changes can also cause dramatic price fluctuations. For example, strict crypto regulations in a major market such as the US or China can create fear and lead to widespread selling, while clarification and improvement of the regulatory framework can increase investor confidence and lead to higher prices. In addition, regulatory changes regarding, for example, the taxation of cryptocurrencies or restrictions on trading can directly affect the liquidity and price of cryptocurrencies.
History repeating itself
In the cryptocurrency market, market cycles are not a new phenomenon, but tend to recur regularly over different time periods. In particular, the history of Bitcoin can be observed repeating cycles in which prices rise rapidly, reach a peak and fall dramatically. Bitcoin's historical market cycles have also shown the direction of the price development of the entire cryptocurrency market more broadly. Although past events are no guarantee of the future, many investors and analysts look to history to better understand future market reversals.
Cycles of Bitcoin
Bitcoin, the largest cryptocurrency on the market, has experienced several distinct market cycles throughout its history. Typically, Bitcoin's cycle has followed a period of about four years, which is timed between Bitcoin halvings. Bitcoin halving has often been the driver of significant price changes affecting the entire cryptocurrency market.
Bitcoin halvings and their impact on market cycles
Bitcoin's protocol is designed in such a way that a halving happens every four years or so, when Bitcoin's mining fee is halved. This mechanism reduces the supply of new Bitcoins, which in the case of historical demand stability or growth can lead to an increase in price. Previous halvings have shown a strong correlation to rising prices over the following months and years:
First halving (2012): Happened in November 2012 when the mining fee dropped from 50 bitcoins to 25 bitcoins per block. After this, the price of Bitcoin rose significantly, reaching around $1,000 in late 2013.

Second Halving (2016): The May 2016 halving reduced the mining fee from 25 bitcoins to 12.5 bitcoins. After this event, the price of Bitcoin steadily increased, eventually leading to the market crash of 2017, when Bitcoin reached a price level of almost $20,000.

Third Halving (2020): The May 2020 halving reduced the mining fee from 12.5 bitcoins to 6.25 bitcoins. After that, Bitcoin experienced a significant rise, culminating in November 2021 at a price of around $69,000.

Fourth halving (2024): The most recent Bitcoin halving took place in April 2024. With this halving, the Bitcoin mining fee dropped from 6.25 bitcoins to 3.125 bitcoins.
At this point, it is good to remember that halvings alone do not determine the price of bitcoin, but they are a key part of the broader market psychology and investor expectations. As the halving approaches, investors anticipate a decrease in supply and possible price increases, which in itself can increase demand before the event itself. This anticipation can create speculative buying pressure that drives the price up.
On the other hand, post-halving cycles can include several steps:
Anticipatory movement: As the halving approaches, the market often begins to experience increased interest and buying desire, which can push the price up before the event.

Post-halving reaction: After the halving, a temporary price correction may occur as the market adjusts to the new supply situation. This can be seen as smaller price fluctuations before the next uptrend.

Rising phase: The effects of the halving start to be reflected more widely in the market, which can lead to a significant price increase within several months or even years.

Peak and correction: As in previous cycles, a bullish phase is often followed by a peak followed by a bearish phase as the market corrects excess valuations.
While the market will never behave exactly identically, Bitcoin's historical cycles give investors an indication of how future cycles may play out. Many analysts try to predict the next price peak or bottom by studying the duration and dynamics of previous cycles. While market development and wider acceptance of cryptocurrencies may make future cycles different, the concept of history repeating itself remains an important part of cryptocurrency market analysis.
The recurrence of cryptocurrency market cycles and their connection to Bitcoin halvings make the cryptocurrency market unique compared to traditional asset classes. Investors should note that although history gives hints about the future, nothing is certain. Global economic outlooks, regulatory changes, and technological innovations can shape cryptocurrency market cycles in unpredictable ways.
Summary
Cryptocurrency market cycles are multi-stage processes where prices rise and fall periodically due to market sentiment, regulation, macroeconomic factors and technological developments. The bull phase is characterized by rapid price growth that can lead to a peak and a price bubble, while the bear phase often occurs as a result of negative news and selling pressure. History repeating itself, especially in connection with Bitcoin halvings, is a significant phenomenon that affects the market cycles of the entire cryptocurrency market on a broader level. However, investors should be aware that while history can provide an indication of the future, cryptocurrency market cycles can change due to unforeseen factors such as the global economic outlook and regulatory changes.

Mikko Soon
Head of Northcrypto Private