The 4-year increase-decrease cycle of the cryptocurrency market
The cryptocurrency market operates on a relatively predictable 4-year cycle. This cycle typically includes 3 years of prolonged decline (bear market) and 1 year of strong growth (bull market). Understanding this cycle helps investors make better decisions and avoid common pitfalls.
Cycle 2014-2018: A prolonged bear market lasting 177 weeks, during which the value of cryptocurrency continuously declined, and investors experienced a long bear market phase. Afterward, the market only rose for about 34 weeks, closing a cycle with a brief period of bull market growth.
Cycle 2018-2022: A bear market lasting about 157 weeks, followed by a 47-week growth phase as the market recovered and established new highs.
Cycle 2022-2026: Currently, the market is still in a bear phase, without establishing a new all-time high. Investors hope that the market will return to a growth phase shortly after, but certainty remains a question mark.
Market cycle psychology
Investor psychology tends to change according to the stages of the market cycle. Recognizing the psychology in each phase can help investors avoid emotional decisions, thereby optimizing their strategies.
Red phase (The peak of euphoria and complacency): When the value of cryptocurrency reaches its peak (ATH - All-Time High), the market is often filled with complacency, believing that prices will continue to rise. However, as prices begin to fall, the mentality shifts from anxiety to denial and panic. Many investors will sell off as the market begins to 'capitulate,' taking early profits or retreating to avoid further losses. This is also when many newcomers to the market may get swept in and suffer heavy losses.
Gold phase (Accumulation and skepticism stage): When prices drop significantly and begin to stabilize, the market shifts to a mood of discouragement and skepticism. During this phase, investors tend to participate less due to disappointment from the previous phase. However, this is also the stage where patient and long-term vision investors start to accumulate, waiting for a potential recovery.
Green phase (Explosion and breaking ATH): When prices start to recover strongly and even break previous highs, confidence gradually returns, and many investors feel excited. The optimistic mentality gradually turns into frenzy, as many join the market hoping not to miss out on opportunities. However, enthusiasm often peaks just before the market turns down, and many who enter the market during this phase may incur losses if they do not exit in time.
The impact of cycles and investment psychology
The cryptocurrency market with high volatility often causes slow reactions from investors. Emotions can easily sway decisions, leading many to incur losses or miss out on ideal exit opportunities. Such periods of strong market volatility require investors to have good risk management strategies and clearly identify the stages of the cycle to avoid hasty emotional decisions.
Key point: Understanding each stage of the market cycle can help investors not only manage their emotions better but also identify the optimal time to enter trades and, more importantly, when to exit in order to maximize profits. Instead of chasing excitement or fear, understanding cycles will help investors patiently wait for opportunities and mitigate risks during unfavorable times.