Market cycles explained

The seasons come and go every few months, animals migrate or hibernate at different times of the year and particles move through the water cycle, changing depending on their environment. These trends, cycles and patterns we see in the natural world around us also occur in our free markets. In different economic environments, markets (whether they’re currency-, stock- or commodity-based) behave differently but in general, they are cyclical.

Certain behaviours and indicators tend to lead to the development of the opposite trend or behaviour. Think about how temperature increases cause water to evaporate into gas saturating the air, which then transforms back into water as rain. It’s a cycle and no matter how long it takes for the water to evaporate or condensate, eventually it comes back and the process repeats itself again.

Market or currency cycles work in a similar way. Sometimes they’re valued highly (due to supply and demand) and other times there’s a dip in valuation as the market slows down. All of this depends on which market and where it is. This is no different for cryptocurrencies like Bitcoin. It’s also subject to natural market cycles and changes in price.

Since it’s a relatively new technology, the volatility in price is more noticeable but not too far removed from what we’ve seen before as innovations move through the hype cycle. See what we mean? There are cycles everywhere. EVERYWHERE!

Now, a concept that gets tossed around a lot, particularly when it comes to disruptive technologies or fast-growing markets, are bubbles (and not the fun soapy kind). When it comes to cryptocurrencies, particularly Bitcoin, tensions rise as prices do. That’s because there are still many naysayers and those reluctant to embrace change. Their anxieties about the financial system for our digital future get translated into predictions of the end of Bitcoin (375 times and counting).

These members of the old guard, clinging to their horses as cars take over the streets, declare that the price increases are unrealistic and unsustainable. They say that at any moment traders, investors and the like will lose their gains when the “Bitcoin bubble” bursts.

We hear these claims at almost every market turn. But as you and I both know, markets move in cycles. Sometimes they’re up and sometimes they’re down. The important thing to focus on is the long run and overall upward trend.

Since its inception, Bitcoin and other cryptocurrencies have realised great returns over longer periods of time – regardless of short term fluctuations. Just look at the graph above and you’ll see what we mean. There will always be the fearful watchers on the sidelines shouting out warnings of disaster. If you do your own research and start with education first, you’ll be better equipped to invest wisely.

Markets will go through their cycles – sometimes called bull and bear markets. The important thing to remember is that no one controls Bitcoin and these changes occur naturally. We see them in stock and commodity markets as well, although those rely heavily on the current, outdated financial system.

Focusing on the long-term use cases and possibilities rather than trying to make a quick buck in the short term is the way to ride out these cyclical waves. If you’re still curious about the ‘crypto bubble’ we’ve got more material on our Learning Portal and blog. Our CEO, Marcus Swanepoel, also addressed this back in February with CNBC Africa.

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