Why are there times when Bitcoin rises sharply and Altcoins follow. But why are there times when Bitcoin soars, Altcoins plummet?
At the time of writing, both Altcoins and Bitcoin are going through a crazy period. Bitcoin has increased continuously from $10K to $16K in just the past few weeks. Meanwhile, Altcoins is also recovering, although it’s not significant compared to the red candles witnessed in the previous weeks.
So, why does this happen? Why are there times when Bitcoin rises and Altcoins follow. But why are there times when Bitcoin soars, Altcoins plummet? In this article, we are going to discuss the theory of market cycles to have a better understanding of the causes of the mentioned situation.
The financial market itself is a collection of many investors participating and making decisions. The decisions made by investors, which are mostly influenced by many factors, are based on specific rules. These rules are made up of elements such as time, place, context of the financial market. Looking at these elements, investors can know the common points, which in turn create a cycle for them.
So, What is the Market Cycle?
The market cycle is a mix of trends, one after another. Just like spring, summer, autumn and winter alternately come and go, the market cycle also goes in stages.
For example, a market rally usually begins with a large number of buyers pouring their money into the market. When there are not enough buyers, the number of sellers start to increase, the price will flat and gradually go down, and then repeat. To fully understand this, let’s take a look at the Wallstreet Cheatsheet below!
Stage 1: Hope - the recovery
“Hope” is the first sign of recovery, happening after the “Disbelief” phase. At this time, the market usually shows positive signs for a new bullrun season. However, at the same time, most investors are still relatively cautious. Money flow into the market is quite moderate.
Stage 2: Optimism - optimistic about the market future
This stage begins when the price starts to increase, and the capitalization or “new money” also increases relatively. Optimism phase usually lasts at least 1 month, when the market starts to trend up, and most investors from the “Hope” stage start to make profits.Stage 3: Belief - All in time
When the uptrend lasts for a long time, optimism will turn into belief. At this time, old investors often put more money in, bringing in new investors and causing the price to go up. The difference between the way of using money is that old investors often pour a lot of money in the market at this stage, while new investors will spend money cautiously and carefully.
Stage 4: Thrill - Tell everyone to buy
This is the stage that most early investors will look for other opportunities when their previous investment is making strong returns. This is also the time when the excitement of new investors is at its peak, and they will bring in other new investors. In general, the whole market is happy, optimistic and doesn’t think much about taking profit.