Where are we in the digital assets market cycle?

How does the cycle unfold?

The digital assets market cycle consists of four stages: Accumulation, Markup, Distribution, and Markdown. 

Accumulation phase

In the first phase of the cycle, the accumulation phase, the digital assets market has experienced a long downward trend and various corrections. This phase is known for lacking interest among most investors as retail investors have left the market. This period is characterized by low trading volume and negative or skeptical sentiment. As a result, the price of Bitcoin and other digital assets moves in a stable or sideways manner. This is the perfect time to position in the market as most assets are undervalued due to the capitulation.

Markup phase

The second phase is the markup phase, this market moves into this phase as the Bitcoin Halving closes in or occurs. As the halving decreases the issuance of BTC, investors will have a sense of scarcity and due to the laws of supply and demand, the price of Bitcoin is expected to increase. The latest halving occurred in May 2024.  This phase is characterized by the market transitioning from moving sideways to a consistent upward trajectory. Initially characterized by skepticism and negativity, market sentiment gradually evolves into optimism, marking the beginning of what is commonly referred to as the "bull run.

During this exciting phase, the increasing returns associated with Bitcoin begin to capture the attention of new investors. These newcomers are often retail investors eager to take advantage of the potential gains. Consequently, this influx of fresh capital leads to a noticeable uptick in trading volume, which, in turn, propels Bitcoin's prices even higher. This upward momentum frequently results in new all-time highs (ATH).

Where are we now?

With the Bitcoin Halving occurring recently and Bitcoin continuously claiming new ATH, we are still in the markup phase. Due to Bitcoin’s significant price action, Bitcoin is “the” dominant narrative and this is also currently occurring. We expect this trend to continue in the short-term especially since Trump won the US election during which he became a staunch supporter of Bitcoin and the industry. Therefore, we consider a price of $100,000 to be a feasible target by the end of 2024. Additionally, we expect Bitcoin to rise further in 2025, reaching between $115,000 and ~$165,000. Read more about our expectations for 2025 in our latest article.

Read our expectations for 2025

However, we are on the brink of the third phase, the distribution phase better known as altcoin season.

Distribution phase imminent

As Bitcoin sets new all-time highs, the market observes a liquidity shift. Profits made in Bitcoin shift towards altcoins allowing them to enjoy a stronger upward momentum due to their lower market capitalizations. This, in turn, attracts new investors and capital further fueling the price action of altcoins. This phase is characterized by strong positive sentiment with altcoins performing significantly stronger than Bitcoin in terms of performance, therefore known as altcoin season. 

We expect altcoins to take the lead in early 2025, as aforementioned, Bitcoin is the dominant narrative and will for now continue to attract new liquidity to itself. But this liquidity will then shift towards the broader digital assets market.

Markdown phase; Don't become euphoric

On an important note, it’s crucial to remember that after the altcoin season, historically, the market capitulates, based on historical data this would be at the end of 2025 or the beginning of 2026. Prices continue to rise until they don’t, then skepticism slowly enters the market. Bitcoin and altcoins slowly depreciate but these declining prices create a snowball effect of selling, causing prices to drop. As prices rapidly fall, investors observing from the sidelines lose interest and the chances of new investors and capital entering the market are extremely low. 

Prices will continue to decline until most remaining investors think the worst part is over, in digital assets, a bear market typically lasts a year with Bitcoin dropping between 70% to 80% while some altcoins drop by 90% in value. At this point, investor sentiment gradually shifts, leading to a cautious accumulation of assets, and the market cycle restarts. 

Most investors lose significant capital during market contractions because they expect continuous growth. While the market does trend upward in the long term, it inevitably goes through periods of contraction. Setting clear goals and taking profits before this decline begins is essential. Though it may be difficult to exit when prices are still rising, remember: "Comparison is the thief of joy." Decide on a target profit level or goal and stick to it—don’t let greed take over.

How does Hodl leverage the cycle?

At Hodl, we offer investors various investment strategies, allowing them to switch between strategies themselves. In this way, they can take full advantage of the full cycle. For investors who do not want to manage this themselves, Hodl offers the Hodl Genesis fund. This fund employs a multi-strategy, where Hodl itself handles switching between strategies. But what are Hodl's investment strategies?

Actively Managed strategy

Our team of analysts has developed a stablecoin exit strategy based on a set of metrics. When these metrics are triggered, the analysts will gradually exit fund positions and convert them into a diversified portfolio of stablecoins. A variety of stablecoins are selected to ensure that, if one were to depeg, not all funds would be exposed to this risk. This approach helps us maintain assets under management and allows us to repurchase assets at lower prices during a bear market, effectively increasing our purchasing power rather than being exposed to rapidly declining prices.

Algorithmic Trading strategy

Our Algorithmic trading strategy follows a similiar approach. This strategy employs various trading strategies according to market conditions such as liquidity provision and arbitrage trading. However, with these strategies, the funds are still exposed to market directions, so if the market experiences a bear market, the fund will depreciate. 

To maintain the fund’s assets, the strategy will exist its posistions and convert these to Bitcoin and Ether and switch its trading strategy to  Delta Neutral & Market Neutral as well. We will explain how this benefits the strategy in the paragraph below.

Delta Neutral & Market Neutral strategy

In the coming months, we will launch our Delta Neutral & Market Neutral strategy. The strategy is designed to reduce or eliminate exposure to market direction, aiming to generate profits regardless of whether the overall market rises or falls. This is achieved through a combination of futures and options positions in Bitcoin and Ether. This allows the fund to perform well during bear markets while preserving its buying power, thereby increasing its potential for gains when the market moves upward.

Hodl's takeaways

For the moment we are still in a predominantly Bitcoin-dominant phase, so investors can expect Bitcoin to lead the way in terms of performance and attention. However, we believe that the market is about to shift to the latter stages of the bull market, the altcoin phase. As we move towards this phase, liquidity from Bitcoin and new investors will flow towards the altcoin market, allowing them to be the predominant theme in the market. 

Nevertheless, investors need to be more wary than previous cycles. The market has transformed due to the influx of professional investors and not every altcoin will experience the same upward momentum that they enjoyed previously. Therefore, investors need to conduct thorough research on which sectors or narratives look promising. 

A crucial point to remember is that you must remain calm when prices start to increase rapidly, remember, in the short-term, prices can’t only go up at a certain moment the market will capitulate. Set clear goals and frequently take profits from your investments, it will be a shame to gain ten times on your investment and then run it back to your entry-level as you believe the price will go up again.  Don’t let greed get the best of you. 

If you wish to hand over the challenges of digital assets investing, explore what our investment funds can offer your portfolio or book a call with one of our specialists.

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