Bitcoin and digital assets in general are well known for their price volatility. A crypto asset can double in value overnight, or go up even exponentially faster like Ripple (XRP) did upon the judge’s ruling that it was not a security when bought from a crypto exchange.
With volatility being so commonplace, it can be hard to know what to think about the market when an asset seems to be stuck within a certain price range (referred to as range bound). This can especially be true of Bitcoin (BTC), as it’s the number one asset by market cap and dominates nearly 50% of daily trading volume. So what does it mean when its price doesn’t move much? Unfortunately, it’s impossible to say for sure, but we can look at how market cycles work to try and understand where Bitcoin is in its current market cycle.
Flat Asset Price Market Cycle Phases
There are four phases of a market cycle: accumulation, mark-up, distribution, and downtrend. Of those four phases, only two are characterized by flat asset prices: accumulation and distribution. Let’s define those two phases.
Accumulation
A market cycle’s first phase is generally referred to as the accumulation phase. This phase starts after a downtrend phase (the last phase), which is when the market has either crashed, dropped significantly, or stagnated. Many traders have sold off their holdings for profit by this point. Those that didn’t need to decide to sell now, or wait out the cycle.
Some experienced or confident investors assume that the bottom is likely in, and therefore they stand a good chance of making profit on any trade. As they expect that the market will rebound soon, they seize the opportunity to invest at a low entry point. This is referred to as “buying the dip.”
Accumulation phases tend to feature low price volatility for assets, along with low trading volume. The only parties who are buying are institutional investors with the capital to buy the dip. Retail and smaller scale investors may buy in if positive news regarding an asset comes to light. However, if they’ve been waiting to buy in this is their best opportunity to do so.
As you might expect, the accumulation phase is defined by accumulation of an asset over time, with the aforementioned low price volatility.
Distribution
The distribution phase is typically the third phase of a market cycle, following the mark up phase. Asset prices flatten as buyers and sellers in the market battle with each other. You have investors still looking to buy because they believe the bull market isn’t over and sellers who want to take their profits because they think that it is.
Prices tend to be range bound during this phase.A lot of trading still occurs during a distribution phase. It’s called the distribution phase because the investment asset gets distributed to more parties than during the accumulation phase, with early investors selling to newcomers.
A distribution phase can take weeks, months, or even years to end depending on the asset and its market. However, range bound prices tend to create uncertainty in the market, and this uncertainty will slowly tip the scale towards a downtrend. Things like negative sentiment, adverse news stories, and uncertainty can combine to create a dump, ending the distribution phase and starting the downtrend phase.
Is Bitcoin in Accumulation or Distribution?
This is where it gets really tricky, because depending on your own view of the Bitcoin market it could be in an accumulation phase or a distribution phase. The volume hasn’t really dropped enough to call it an accumulation phase, but there are also very few people who would call this a bull market, or the end of one for it to be the distribution phase.
The interesting thing about Bitcoin is it may not have the same market cycles as more traditional investment assets. For one thing, it has only been around for 15 years, making it and the entire cryptocurrency sector a very new thing when it comes to investment vehicles. It’s possible Bitcoin may experience much shorter or longer market cycles than something like a stock does.
As for what it means that Bitcoin’s price doesn’t move for a long period, that’s almost anyone’s guess. Its price has been range bound for almost 6 months now, and there has also not been another dump (there was one in the fall when it fell to $15k), and the price it’s at followed that dump, some accumulation, and a mark-up phase, making it seem possible that it’s again in distribution. But with companies like Tether, MicroStrategy, and others adding Bitcoin to their balance sheets every quarter, it seems hard to see a downtrend coming.
That said, all you can do as an investor is only risk what you can, and perhaps employ investment strategies such as dollar cost averaging to help alleviate any swings in the market.
