Understanding Market Cycles: The Psychology of Booms and Busts

Markets Are Driven by Emotion

From Dutch tulip mania to 2021 crypto, the pattern repeats because human psychology doesn't change.

The Four Phases

1. Accumulation (Disbelief): Market bottomed but nobody believes it. "Crypto is dead." Smart money buying quietly. Extreme fear.

2. Markup (Hope to Optimism): Price climbs. Skepticism gradually fades. Volume increases. Media returns.

3. Distribution (Euphoria): Everyone bullish. Your Uber driver talks crypto. Extreme leverage. Smart money selling to late arrivals.

4. Markdown (Panic): Bubble bursts. Cascading liquidations. Projects fail. "Crypto is a scam" narrative returns.

On-Chain Cycle Indicators

• MVRV Ratio: Above 3.5 = sell zone. Below 1.0 = buy zone
• NUPL: Above 0.75 = euphoria. Below 0 = capitulation
• Fear & Greed: Above 80 = caution. Below 20 = opportunity
• LTH Supply: Decreasing sharply = distribution phase

How to Use It

1. Accumulation: DCA aggressively. Best risk/reward, worst feeling
2. Markup: Hold. Plan profit levels. Add altcoin exposure
3. Distribution: Take profits systematically. Zero leverage. Increase stablecoins
4. Markdown: Preserve capital. Wait for capitulation signals

You don't need exact tops/bottoms. Buying in accumulation and selling in distribution wins over multiple cycles.