The Crypto Market Cycle Theory explores the patterns of cryptocurrency price fluctuations by analyzing historical trends and behavioral models. Its core concept originates from traditional financial market cycle theories. Among these, Bitcoin’s four-year cycle theory is widely regarded as the cornerstone of the crypto market.

The crypto market typically exhibits repetitive cycles oscillating between greed and fear, returning from fear to greed. In the early stages, innovative assets spark optimism, driving prices upward. Subsequently, uncertainties surrounding blockchain value and applications shift the market toward skepticism, leading to price declines. After hitting bottom, greed resurges, initiating a new cycle.

This theory emphasizes long-term price patterns and trading behaviors in the market. Traders can identify cyclical changes and forecast future trends by leveraging historical data and market psychology.

In particular, Bitcoin’s four-year cycle theory, especially its association with Bitcoin halving events, has long been an important tool for predicting Bitcoin prices. While historically, Bitcoin halvings have often coincided with price increases, current market performance and underlying factors suggest that the effectiveness of this theory may be gradually nearing its end.

Six Phases

The cryptocurrency market cycle is typically divided into the following stages, each characterized by distinct market features, investor behavior, and sentiment:

1. Accumulation Phase

Features: During this phase, market prices remain relatively stable and low, while investor sentiment is generally indifferent. Most retail investors are not yet entering the market, and capital inflow is minimal, with the overall market in a wait-and-see state.

Investor Behavior: Long-term or institutional investors quietly accumulate assets at low prices. The shadow of the previous bear market still lingers, keeping sentiment cautious, with selling and buying relatively balanced.

Market Sentiment: Pessimistic and passive, but some investors recognize opportunities at the market bottom and begin holding for the long term.

2. Markup Phase

Features: Following the accumulation phase, the market begins a sustained upward trend, with prices gradually rising. At this stage, the market attracts more attention, and liquidity and trading volumes increase significantly.

Investor Behavior: As prices rise, more investors, particularly retail and short-term investors, enter the market. Optimism grows, and investors enthusiastically chase rising prices, accelerating capital inflow.

Market Sentiment: Positive and optimistic, with widespread speculation and increased risk appetite. Technological innovation and favorable news further drive prices up.

3. Bubble Phase

Features: The market enters a phase of rapid price growth, with prices increasing exponentially. Investor FOMO (Fear of Missing Out) becomes strong, and many rush in, fearing they’ll miss opportunities, leading to rapid price surges.

Investor Behavior: Investor sentiment is overwhelmingly high. Some ignore risks, blindly follow trends, and engage in short-term speculation. A flood of new funds enters the market, pushing prices even higher.

Market Sentiment: Extremely optimistic, with extreme greed dominating. The market widely believes prices will continue to rise.

4. Distribution Phase

Features: As prices near their peak, the market begins to exhibit volatility and pullbacks. The balance between buyers and sellers shifts, with some early investors selling off assets to realize profits, causing short-term price fluctuations.

Investor Behavior: During this phase, long-term and institutional investors gradually exit the market, while newer entrants remain optimistic. Sellers start to offload to secure profits, increasing price volatility.

Market Sentiment: Uncertain and anxious. Some investors believe the market has peaked, while others remain optimistic, expecting further upward movement.

5. Collapse Phase

Features: As market sentiment cools, prices start to decline, entering a bear market phase. Investor confidence plummets, selling pressure increases, and capital outflows accelerate.

Investor Behavior: Investors begin widespread loss-cutting. Selling pressure surges as investors exit the market en masse. New capital inflow almost halts, and prices continue to fall.

Market Sentiment: Pessimistic and fearful. The market feels uncertain about the future, and investors worry about further price declines.

6. Bottom Phase

Features: Prices fall to their lowest point, with market sentiment at its most negative. At this point, prices are often at rock bottom, the market nears its floor, trading volume declines, and the market begins transitioning into the accumulation phase in preparation for the next cycle.

Investor Behavior: Only a few long-term investors and institutions choose to buy at the bottom. Interest in cryptocurrencies wanes, but this phase often marks the starting point for the next uptrend.

Market Sentiment: Extremely pessimistic. Investors feel hopeless about the market’s future, widely believing it is nearing the end. Confidence gradually rebuilds only after the bottom is confirmed.

Case Studies of Projects Rising Rapidly by Leveraging Market Cycles

1. Ethereum – Leader of the Public Blockchain Cycle

Key Market Cycle Milestones:
2017 ICO Boom
2021 DeFi and NFT Boom

Strategies:
Open Platform: Ethereum offered smart contracts and ERC standards, attracting developers to build decentralized applications (dApps).
Ecosystem Expansion: During the ICO phase, Ethereum leveraged the explosive demand for tokens, becoming the mainstream fundraising platform.
Upgrades and Adaptations: Introduced Layer 2 scaling solutions (e.g., Arbitrum, Optimism) and Ethereum 2.0 (Proof of Stake) to address network congestion and high gas fees.

Results:
Ethereum transformed from an emerging public blockchain in 2017 into the core infrastructure for DeFi and NFTs. Its market capitalization has consistently ranked second only to Bitcoin.

Other Notable Projects Leveraging Market Cycles:

• BSC (Binance Smart Chain): Capitalized on Binance Exchange’s vast user base to attract a significant number of users from emerging markets;
• With ultra-high throughput and low latency, Solana became the preferred platform for high-frequency applications;
• Avalanche leveraged subnet technology to achieve a balance between decentralization and scalability;
• Polygon focused on Ethereum scaling, providing low-cost and efficient Layer 2 solutions;
• Cosmos and Polkadot enabled cross-chain communication to break the isolation of individual blockchains, fostering collaboration in a multi-chain ecosystem.

2. Uniswap – A Representative of the DeFi Cycle

Key Market Cycle Milestones:

2020 Liquidity Mining Boom
2021 DeFi Maturity and Integration

Strategies:
Innovative Mechanism: Introduced the Automated Market Maker (AMM) model to replace traditional order books, improving trading efficiency.
User Incentives: Launched the UNI token, using an airdrop to reward early users and rapidly expand community influence.
Open Source Driven: Made its code open source, attracting developers to innovate around Uniswap.

Results:
Uniswap became the largest decentralized exchange (DEX) on Ethereum by total value locked (TVL), with trading volumes rivaling those of some centralized exchanges.

Other Projects Rapidly Rising Through Market Cycles:

• Aave and Compound focused on lending markets, leveraging liquidity mining and flexible asset management to attract a large user base;
• Curve gained institutional favor by offering low-slippage stablecoin trading;
• PancakeSwap focused on the Binance Smart Chain (BSC) ecosystem, expanding into emerging markets with efficient and low-cost features;
• SushiSwap enhanced competitiveness through cross-chain expansion and community-driven development;
• As the issuer of the decentralized stablecoin DAI, MakerDAO provides foundational support for the DeFi ecosystem.

These platforms have secured core positions in DeFi through technological innovation, differentiated strategies, and effective community management.

3. OpenSea – Leader of the NFT Boom

Key Market Cycle Milestones:

2021 NFT Market Explosion

Strategies:
Early Positioning: Focused on the NFT trading market since 2017, becoming one of the earliest decentralized platforms for buying and selling NFTs.
User Experience Optimization: Offered a user-friendly interface, supported multi-chain NFT trading, and lowered barriers to entry for participants.
Brand and Community Building: Established itself as the go-to platform for trading top NFT projects (e.g., Bored Ape Yacht Club, CryptoPunks), creating a strong brand effect.

Results:
In 2021, OpenSea achieved over $14 billion in transaction volume, capturing a significant share of the NFT market.

Other Projects Rapidly Rising Through Market Cycles:

• Blur attracted high-frequency traders with zero fees and incentive mechanisms.
• Rarible leveraged decentralized governance and creator incentives to gain community support;
• Magic Eden focused on the Solana ecosystem, offering a low-cost, efficient trading experience;
• Foundation and SuperRare targeted the high-end art market, providing premium platforms for artists and collectors;
• LooksRare and Zora expanded their user base through incentive models and decentralized protocols.

These platforms have secured prominent positions in the highly competitive NFT ecosystem through innovative mechanisms, precise market targeting, and superior user experiences.

4. Axie Infinity – GameFi and Play-to-Earn

Key Market Cycle Milestone:
2021 GameFi Boom

Strategies:
Innovative Economic Model: Introduced the Play-to-Earn (P2E) model, allowing players to earn tokens (SLP) through NFT pet battles.
Ecosystem Incentives: Launched the governance token AXS to reward active players and community members.
Expanding the User Base: Tapped into the demand of players in low-income regions like Southeast Asia, combining gaming with real-world income opportunities.

Results:
Axie Infinity achieved monthly revenue exceeding $150 million at its peak, driving a global GameFi craze.

Other Projects Rapidly Rising Through Market Cycles:

• The Sandbox and Decentraland combined virtual worlds with digital assets, offering an integrated experience of creation, trading, and social interaction.
• STEPN pioneered the “Move-to-Earn” model, linking real-world activities with crypto rewards.
• Illuvium attracted a core gamer audience with high-quality visuals and engaging combat mechanics.

These projects have sparked a wave of innovation in blockchain gaming through novel economic models, token incentives, and community-driven approaches, paving the way for broader mainstream adoption of blockchain technology.

5. Bitcoin Ordinals – Combining Bitcoin Inscriptions with NFTs

Key Market Cycle Milestone:
2024 Rise of Bitcoin NFTs

Strategies:
Innovative Use Case: Leveraged Bitcoin’s block space for NFT storage, transforming Bitcoin from a “store of value” into a platform for “NFT applications.”
Community Support: Capitalized on Bitcoin’s strong community effect to channel new NFT market demands into the Bitcoin ecosystem.

Results:
Ordinals quickly attracted significant attention and capital, driving further expansion of the Bitcoin ecosystem.

6. Fetch.ai – Autonomous Economic Systems Combining AI and Blockchain

Key Market Cycle Milestones:
Early 2020: Exploratory phase for AI and blockchain integration.
2021: Gradual realization of autonomous economic systems powered by AI.

Strategies:
Autonomous Agents: Fetch.ai developed a decentralized machine learning platform combining blockchain and AI, enabling autonomous agents to interact and transact without intermediaries.
Data Exchange: Facilitated secure data exchange between individuals and enterprises via a decentralized data marketplace, enhancing data utility with AI.
Compute Sharing: Created a distributed network for AI training and computation where developers can contribute processing power and receive rewards.

Results:
Fetch.ai emerged as a pioneer in combining AI and blockchain, advancing autonomous economies and showcasing the potential of AI-Web3 integration across various industries.

Other Projects Rapidly Rising Through Market Cycles:

• Ocean Protocol enabled decentralized data sharing and AI training through a data marketplace, improving data liquidity with applications in healthcare and finance;
• SingularityNET created a decentralized AI marketplace to promote interoperability among AI systems, driving development and collaboration through DAO governance and setting an industry standard;
• AIN built a decentralized AI computation platform and resource market, improving computational efficiency, lowering development barriers, and fostering the decentralization of AI services.

Influencing Factors

Bitcoin Halving

Bitcoin halving is one of the key factors in the crypto market cycle theory and occurs every four years. With each halving, block rewards are reduced by half, significantly decreasing Bitcoin’s supply and increasing its scarcity, driving price increases.

While halving remains an essential tool for predicting market cycles, its impact on price may diminish as the market matures.

Source: coingecko

Soure: coingecko

Technological Innovation

Technological innovation is closely linked to the crypto market cycle. Each breakthrough can trigger shifts in market cycles, influencing market sentiment, capital flow, and demand growth.

Technological advancements continually drive market growth, foster the rise of new applications, and act as a core driving force behind market volatility.

Regulatory Policies

Government policies and legal frameworks significantly shape crypto market cycles. Regulatory decisions, legal status changes, and tax policies influence market stability, investor confidence, and capital flows. The U.S. SEC’s stance on ICOs transformed fundraising approaches while varying tax policies across countries affect participation and market liquidity. Major policy changes—like China’s cryptocurrency ban or U.S. decisions on Bitcoin futures and ETFs—continue to drive market movements.

Source: treasuries.bitbo.io

Macroeconomic Environment

The Federal Reserve’s monetary policy and interest rate adjustments directly affect crypto market sentiment and liquidity. Low-interest rates and quantitative easing often drive capital inflows and market surges. For example:

• 2013: Low interest rates boosted Bitcoin from $13 to $1,000.
• 2020: Quantitative easing drove Bitcoin close to $69,000.

In contrast, during interest rate hikes in 2018 and 2022, market liquidity tightened, leading to significant downturns. By late 2024, the Federal Reserve’s rate cuts and liquidity injections helped Bitcoin surpass $100,000. Interest rate adjustments have become a core driver of crypto market volatility.

Source: federalreserve.gov

Auxiliary Tools

Bitcoin Halving Countdown

The Bitcoin halving countdown refers to the anticipation of Bitcoin’s block reward halving, which typically occurs every four years. During each halving, miners’ rewards are reduced by half, decreasing Bitcoin’s supply and increasing its scarcity, often driving price increases. Market sentiment shifts usually accompany halving events, and historically, a bull market often follows a halving. These events not only impact supply but also miners’ profitability and behavior. The next halving is expected on April 14, 2028.

Source: coingecko

Bitcoin Dominance Data

Bitcoin dominance measures Bitcoin’s market share as a proportion of the entire cryptocurrency market capitalization.

High dominance typically indicates a preference for Bitcoin, signaling lower market risk. Low dominance suggests funds flow into other cryptocurrencies, indicating higher market risk.

Bitcoin dominance fluctuates based on market sentiment, capital flow, and technological innovations. For example, the rise of DeFi and NFTs may lead to a decline in Bitcoin dominance. Real-time data can be accessed through platforms like CoinMarketCap and CoinGecko.

Source: coinmarketcap

Altcoin Season Index

The Altcoin Season Index measures the performance of altcoins relative to the broader cryptocurrency market and is closely tied to market cycles. During a bull market, funds often flow from Bitcoin to altcoins, signaling the onset of an altcoin season. And, during a bear market, investors tend to favor Bitcoin as a safe haven, leading to a decline in the Altcoin Season Index.

Source: coinmarketcap

Cryptocurrency Fear and Greed Index

The Cryptocurrency Fear and Greed Index is a tool that measures market sentiment, with a range from 0 to 100, reflecting the level of fear or greed in the market. A score of 0-24 represents extreme fear, 50-74 represents greed, and 75-100 indicates extreme greed.

This index is calculated by analyzing market volatility, trading volume, and social media sentiment. It helps investors understand market psychology. Extreme fear may suggest the market is nearing a bottom, while extreme greed could indicate an overheated market with potential risks. It serves as a supplementary tool for gauging market sentiment and potential trends.

Source: coinmarketcap

MVRV Z-Score

The MVRV Z-Score (Market Value to Realized Value Z-Score) is a critical indicator for analyzing cryptocurrency market cycles. It quantifies the deviation of market capitalization from realized capitalization, effectively identifying market tops and bottoms.

When the MVRV Z-Score exceeds +7, it indicates the market is highly overvalued, approaching a cyclical top. When the score falls below -1, it suggests the market is significantly undervalued, likely nearing a cyclical bottom.

Historical Examples:

2017 Bull Market: When Bitcoin reached $20,000, the MVRV Z-Score exceeded +7, signaling extreme overvaluation. A sharp price correction followed.

2018 Bear Market: At a Bitcoin price of around $3,000, the MVRV Z-Score fell below -1, indicating extreme pessimism, after which prices stabilized and recovered.

2021 Bull Market: At Bitcoin’s all-time high of $69,000, the MVRV Z-Score again approached +7, signaling a market top, followed by a correction.

Historical Average: When the score fluctuates between -1 and +3, the market is typically in a consolidation phase with relatively low risk.

The MVRV Z-Score is a reliable tool for capturing market sentiment and price extremes, aiding investors in making informed buy and sell decisions to optimize investments while managing risk.

As the market matures and Bitcoin’s market capitalization grows, volatility is decreasing. This suggests that while Bitcoin still follows cyclical patterns, future cycles may exhibit reduced amplitude, offering a more stable market environment.

Source: coinank

Average Trading Volume Data

Cryptocurrency trading volume is closely linked to market cycles. Rising trading volume typically reflects heightened market sentiment and may signal the onset of significant price movements, whether rapid price increases during bull markets or steep declines during bear markets. Conversely, when trading volume decreases, and price fluctuations narrow, it often indicates a market in consolidation or indecision, with cautious investor sentiment and unclear trends. Overall, trading volume serves as an essential indicator of market activity and sentiment changes, providing critical insights for identifying market cycles.

Source: ycharts

Inflation Data

Halving events significantly reduce miners’ BTC earnings and have historically driven price increases. However, as block rewards continue to decrease, the impact of halving on the market may be diminishing. For example, the reduction from 6.25 BTC to 3.125 BTC represents a notable change, but future halvings will involve smaller reductions, potentially lessening their market impact.

In May 2020, Bitcoin’s halving reduced block rewards from 12.5 BTC to 6.25 BTC, decreasing the annual inflation rate from approximately 1.82%. During the 2024 halving, block rewards will again be halved to 3.125 BTC, with the annual inflation rate dropping to about 0.85%. While Bitcoin’s declining inflation rate reflects the foresight of its design, its actual impact on the market is becoming less pronounced.

Currently, approximately 19.7 million BTC have been mined, accounting for 94% of the total supply. The remaining 1.3 million BTC will be gradually released over the next 120 years. Daily miner block reward revenue (orange line) shows a clear trend toward near-zero rewards as reductions continue.

Source: bitcoinmagazinepro

Miner Revenue / Transaction Fee Data

As Bitcoin block rewards gradually diminish, transaction fees increasingly become a critical source of miner revenue. On April 20, 2024, the day of the halving, miners earned a total of 1,257.72 BTC from transaction fees, more than triple the block rewards for that day (409.38 BTC). This historic moment marked a significant shift in the miner revenue structure, as it was the first time that fee income exceeded block rewards. It highlights the transition of Bitcoin’s economic model toward a fee-based mining system.

Source: bitcoinmagazinepro

Data and Its Association with Market Cycles

1. Bull Market Phase: During a bull market, trading volume and on-chain activity surge, increasing transaction fee income. This provides miners with additional revenue stability. For example, during the 2021 bull market peak, miners’ income from transaction fees rose significantly, creating a positive feedback loop with the sharp rise in market prices.
2. Bear Market Phase: In a bear market, on-chain transaction activity decreases, reducing the proportion of income derived from transaction fees. As a result, miners rely more heavily on block rewards, making them more sensitive to market price fluctuations.
3. Halving and Adjustments: After each halving event, the reduction in block rewards typically triggers a market price readjustment. During this period, the volatility of transaction fees becomes an important indicator for assessing market sentiment and miners’ profitability.

Source: bitcoinmagazinepro

Investment Strategy Reference

Cryptocurrency cycle investment strategies typically adapt to different market phases and cyclical fluctuations. Here are some common strategies designed based on crypto market cycles:

1. Bull Market Phase (Growth Phase)

Strategy: Actively increase holdings of high-potential assets, particularly Bitcoin and altcoins supported by innovative technologies.

Focus: Investors should focus on strong-performing assets (e.g., Bitcoin) and gradually invest in emerging sectors such as AI and Layer 2 solutions. For instance, keeping an eye on the latest fundraising trends and technological innovations to seize market opportunities.

Risk Management: Set profit-taking points to prevent losses from market pullbacks caused by excessive greed.

Source: rootdata

2. Bear Market Phase (Correction Phase)

Strategy: Prioritize risk aversion and allocate heavily to Bitcoin or stablecoins.

Focus: During a bear market, funds often flow to safer assets like Bitcoin. Investors can increase their Bitcoin holdings or use stablecoins to hedge against market volatility.

Risk Management: Reduce investments in high-risk altcoins and avoid emotional decision-making.

3. Altcoin Season (Phase of Capital Flowing to Other Crypto Assets)

Strategy: Invest in promising altcoins during altcoin seasons.

Focus: When Bitcoin stabilizes, funds often flow into the altcoin market, particularly projects with strong community support and technological innovation (e.g., AI, ordinals).

Risk Management: Strictly control position sizes to mitigate the high volatility risks of altcoins.

Source: blockchaincenter

4. Avoid Trying to Identify All-Time Highs and Lows

Predicting short-term price movements is extremely challenging, and few can sell at historical highs or buy at ultimate lows, even seasoned investors.

For example, between August 2018 and August 2020, Ethereum’s price fluctuated between $334 and $84. Over that period, there were 14 months (across three separate periods) when Ethereum’s price was below $200, including a 12-day stretch below $100 (from December 6 to December 18, 2018). Low-price phases tend to last longer than periods of price surges, meaning investors can buy at lower prices compared to selling during market booms.

Source: coinmarketcap

5. Do Not Sell All at Once

During market booms, it is wiser to exit in phases rather than selling everything at once. This approach avoids the risk of exiting the market too early and ensures you don’t miss out on potential further gains.

You can continue benefiting from market uptrends by selling a portion of your holdings instead of all at once. Retaining a certain percentage of your cryptocurrency allows you to participate in future price increases and earn more during potential surges. This strategy ensures that you lock in some profits while also leveraging the market’s upward momentum for better investment returns.

Potential Directions for Future Market Cycles

As the direct impact of Bitcoin’s four-year halving events on crypto market cycles gradually diminishes, future market cycles are likely to be driven by multiple factors:

AI and Automation:
With the rapid development of AI technology, its application across industries is expected to expand significantly in the coming years. From smart contracts and decentralized finance (DeFi) to automated blockchain protocols, AI is poised to be key in optimizing system efficiency, enhancing user experiences, and enabling intelligent decision-making.

Metaverse and Virtual Reality:
Advances in technology will make virtual reality (VR) and augmented reality (AR) more widespread, leading to the maturation of the Metaverse concept in the coming years. The Metaverse is set to become a critical component of the digital economy, with NFTs and digital assets serving as core elements, driving the formation of new business models and social paradigms.

Quantum Computing and Blockchain:
Progress in quantum computing poses challenges to current cryptographic algorithms, making quantum-safe encryption technologies a critical focus for blockchain development. As quantum computing matures, the blockchain ecosystem may require technological upgrades to maintain system security.

Integration with Traditional Finance:
DeFi will continue to expand, especially through its integration with traditional financial institutions and its linkage with real-world assets (such as real estate, commodities, and securities). In the future, NFTs and digital currencies may go beyond collectibles and investments to permeate areas such as asset securitization, lending, and insurance.

Integration with Daily Lifestyles:
As technology evolves, the convergence of digital health, biotechnology, 5G, and blockchain will emerge as a significant trend. Blockchain will enable secure storage and sharing of health data, while AI and personalized treatments will foster innovation in the healthcare industry. Smart contracts and automated legal services will enhance efficiency and reduce costs. The 5G and blockchain combination will accelerate the adoption of decentralized applications, particularly in smart cities and the Internet of Things (IoT). Blockchain will also improve transparency in supply chain management, reducing fraud and costs. Additionally, digital art and copyright protection will benefit from NFTs and blockchain, ushering in a new era for art creation and collection.

Conclusion

The crypto market cycle theory offers a crucial framework for understanding market movements. Analysis of factors like market sentiment, technological innovation, macroeconomic conditions, and regulatory policies reveals the intricate forces driving the market. Each cycle—from Bitcoin halving events to technological breakthroughs—has marked the industry’s evolution, presenting opportunities and risks. While precise cycle prediction remains challenging, historical patterns provide valuable guidance for future trends. Understanding these cycles helps investors make rational decisions during volatile periods and supports the industry’s long-term development.

While the impact of Bitcoin’s four-year halving events on the market is gradually weakening, they remain significant milestones that influence investor behavior and market sentiment. Regardless of market changes, the power of cycles will continue to shape the future of the crypto industry.

Technologies like AI, automation, the Metaverse, and quantum computing will drive market development. AI will enhance efficiency in smart contracts and DeFi, the Metaverse will expand the application of NFTs and digital assets, and quantum computing will drive innovations in cryptographic technologies. Integrating DeFi with traditional finance will extend into more domains, while blockchain will lead transformative advancements in digital health, smart city development, supply chain management, and copyright protection.