With the crypto market waiting for the next run up, will history repeat itself?
The cryptocurrency market is widely known to be incredibly volatile and characterized by dramatic blow-off peaks where many crypto assets achieve stratospheric prices, followed by a sustained period of decline — where drawdowns of over 80% is not out of the norm.
As you might expect, the ability to correctly predict how the market will move, or at a more granular level — which projects and platforms will perform the best — can allow traders to achieve returns that are simply unheard of in other sectors.
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The Four-Year Cycle
This cycle can be typically characterized by four smaller phases:
- Accumulation Phase: During this phase, smart money begins to accumulate Bitcoin while its price is low. BTC’s price typically fluctuates within a narrow range while early movers build their positions. Trading volume typically remains low during the accumulation phase.
- Markup Phase: This phase is characterized by a sharp breakout from the accumulation phase as trading volume increases and demand for Bitcoin increases alongside growing adoption. This leads to a significant increase in the price of Bitcoin — with the price typically breaking its previous all-time high during this phase.
- Distribution Phase: This is the period where the early adopters start to take profits as the price continues to rise. This leads to a decrease in the trading volume, and the price starts to plateau. Bitcoin can be described as “trading horizontally” during this phase.
- Panic Phase: This is the final phase where there is a market correction, and the price of Bitcoin drops significantly. This often leads to a sustained bear market which can last months or even years before the accumulation phase begins. During this phase, most people are unable to stomach the drawdown and end up selling at a loss — further crushing the price.
This may at least be true for Bitcoin. According to the ColinTalksCrypto Bitcoin Bull Run Index (CBBI), an indicator that combines nine metrics to see how likely the Bitcoin price is at the top (or bottom), BTC may now be undervalued with its current CBBI value of 16.
To put this into perspective, the last three times Bitcoin's CBBI sat at 16 on an uptrend, it was valued at ~$6,000, $5,000, and $281 respectively (in reverse chronological order).
Check the list of the top P2E projects by market cap.
Like previous bull markets, the next bull cycle will likely be dominated by a handful of pervasive themes that determine which projects are built, adopted and funded.
Though the market is constantly changing and it’s impossible to predict which narratives will dominate the next bull market, a handful of potential examples are currently forming — some of which may go on to become key narratives in the next bull run.
Some of the most prominent narratives and projects helping to define new themes currently include:
Artificial Intelligence (AI)
Owed to the massive success of traditional AI products like GPT-3 and ChatGPT, the world’s eyes have now been opened to the sheer potential of artificial intelligence.
In turn, there has been a major uptick in development activity in the blockchain AI sector, while prominent blockchain AI projects have seen their native assets skyrocket in value amid growing demand.
The Zk-layer 2 narrative has been gaining momentum in 2023 and dozens of projects are now looking to deliver the benefits of layer 2s to the masses.
Meanwhile, the number of active Arbitrum addresses has increased significantly in recent weeks — having more than doubled in the first two months of the year alone. In total, the number of active Arbitrum addresses is now up 1,000% in a year.
This recent growth has led to significant expansion of its DApp ecosystem and projects, and many early movers and lew launches in the Arbitrum ecosystem have clocked in impressive returns in recent weeks.
The Current Situation
As you might be aware, the cryptocurrency market is currently expanding. In the first two months of 2023 alone, the total market capitalization of all cryptocurrencies grew from $795 billion to $1.075 billion — with the average cryptocurrency recording a gain of 35% in this time.
YTD, Bitcoin (BTC) increased its value by 41.1%, outperforming the market average by a significant degree. This is common during the accumulation phase of the market cycle, with Bitcoin typically leading the market while fundamentally strong altcoins clock in impressive returns.
As a result, Bitcoin’s market dominance has slightly increased — up from 40% to around 42% since the start of the year. In a full-fledged bull market, it isn’t unusual for Bitcoin’s dominance to top out at over 70% at its peak or fall to under 40% at times.
Bitcoin dominance usually increases in the early stages of a bear market as money drains from altcoins to BTC. As the market shifts gear and moves into a bull market, money then tends to trickle from large caps to mid-caps, and finally small and micro-cap coins. This results in a gradual reduction in Bitcoin’s dominance.
Because of this, the end of a bull market is often coupled with a dramatic rally for altcoins — which serves as the last hurrah before the market enters a bear trend.
Moreover, the number of BTC withdrawn from exchanges (outflows) typically decreases when major market players enter accumulation mode. Increased withdrawals can indicate the market is turning bullish since holders appear less willing to trade their BTC.
These projects could then directly list their token on the associated exchange platform, simplifying the process for projects and participants. IDO and IEO raises tend to be significantly lower than the average for ICOs in 2017, but the total number of projects raising funds was dramatically higher.
For comparison, there were around 966 ICOs held in 2017, compared to several thousand IDOs in 2020.
During the last cycle, standalone launchpads like DAO Maker and BSCPad rose to prominence, helping users access some of the most profitable projects of the time — including MetaVPad, Blocktopia, and Orion protocol — each of which returned more than 25,000% to investors at their peak.
According to recent data, crypto fundraising has increased month-on-month since December 2022 — but the total amount being raised is still at its lowest point since December 2020. Nonetheless, this is the first time since August 2021 that fundraising has increased for three consecutive months.
This indicates that funds are beginning to cautiously ramp up in investments.