Crypto Market Cycles
Identifying Crypto Cycles
Like traditional economic and financial markets, cryptocurrency is subject to cycles. Crypto market cycles last on average ~4 years or about 1,275 days.
While there are different methods for identifying crypto market cycles, we can quantitatively define a cycle when the realized price falls below the market price (current trading price of an asset), using the bitcoin price as a proxy.
Note: The crossing of the Realized Price below the Market Price in March 2021 is due to extreme market volatility in response to the Covid 19 pandemic.
The realized price is the sum of all assets at their purchase price or realized market capitalization market capitalization divided by the market capitalization of the asset, which is a measure of how many positions are in or out of profit.
Realized Price = Realized Market Cap / Current Supply
A realized price below the market price means that most assets are held above the price at which they were purchased. Conversely, a realized price above the market price means that most assets are held below the price at which they were purchased. Determining when most assets are held above the price at which they were purchased helps determine when the market begins to transition out of a bear market into a new cycle (and vice versa).
On June 13, 2022, Bitcoin’s Realized Price undercut the market price, meaning we may have officially entered a bear market. In the natural pattern of market cycles, some believe that these points in the market cycle could provide some of the best opportunities to buy. The chart below shows the average bitcoin price in zones with a realized price < bitcoin market price. Already 21 days into this zone we could see another ~250 days of high quality buying opportunities compared to previous cycles.
Let us know in the comments, what you think about this article inspired by Bear Markets in Perspective written by Grayscale.
Market Cycles by the Numbers
According to the above framework, crypto market cycles have taken longer to peak each time. In 2012, it took the market 603 days to peak, and with each subsequent cycle, that time span lengthened by about 180 days. In 2016, it took 786 days to peak, and in 2020, it took 952 days.
From peak to trough, the 2012 and 2016 cycles took about 4 years, or 1,290 and 1,257 days, respectively, and it took 391 days to fall 73% in 2012 and 364 days to fall 84% in 2016.
In the current 2020 cycle, we are at 1,198 days on July 12, 2022, which means there are about four months left in this cycle before the Realized Price rises back above the market price. Bitcoin is 222 days away from its all-time high, which means we could see another 5–6 months of downward or sideways movement. Historically, market lows also seem to come a month earlier each time.
In the 2012 and 2016 cycles, it took just under three years to reach the all-time high (ATH) again — 1,082 and 1,059 days, respectively. After that, it took another year to reach a new all-time high again.
Unlike the previous two cycles, the 2020 cycle seems to have had a longer run in the ATH range with two longer peaks as opposed to the sharp rises and falls in previous cycles. This could be due to the increasing maturity of the crypto market that did not exist in previous cycles. Not only have cryptocurrencies become easier for retail investors, but the proliferation of exchange-traded crypto products, such as Bitcoin and Ethereum ETFs in Brazil, Canada, and Europe, has also attracted institutional investors who may not have been able to invest in the asset class before. In addition, decentralized applications (dApps) have gained momentum and become marketable in decentralized finance (Defi), gaming, art, and more.
Source: Glassnode, Grayscale Research
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