Bull and Bear Tops and Bottoms from the Perspective of Market Cycle Theory

According to the classical Market Cycle Theory, the cryptocurrency market, like traditional financial assets, follows an emotionally driven four-phase cycle: Accumulation → Markup → Distribution → Markdown. This framework originates from behavioral finance and supply-demand dynamics, accurately explaining the causes of bull and bear market tops and bottoms.

Bull Market Top: Buying Pressure Exhausted, Not Selling Crash

Theoretical Basis: In the Distribution Phase, the collective FOMO (Fear of Missing Out) drives prices to peak. At this point, smart money has quietly distributed, but retail investors continue to chase higher prices. The top is not caused by active selling, but by marginal buying pressure exhausting - the demand curve stops shifting right, and prices lose upward momentum.

Bear market bottom: clearing has been completed, not bottom fishing.

Theoretical basis: During the markdown phase, panic selling, leveraged liquidation, and project failures trigger a chain liquidation. The bottom is formed after the selling pressure is completely released, and supply and demand are rebalanced. At this point, fear reaches an extreme (Capitulation), and the remaining holders are mostly long-term believers or are forced to lock their positions.

Empirical considerations of psychology and risk-reward ratio

Behavioral finance validation: Historical data shows that >90% of investors violate their 'hold' declaration at cycle extremes (referencing BitMEX liquidation data and OKX behavior reports). The disposition effect dominates: eager to take profits while reluctant to cut losses.

Quantitative perspective: Assuming holding from the top of a bull market to the bottom, the average drawdown is 80%-95% (2018, 2022 cycles), with a significantly negative Sharpe Ratio. In contrast, timing the exit and re-entering during the accumulation phase can increase annualized returns by 2-5 times (based on backtesting).

Personal strategy and market philosophy

I have fully withdrawn at the end of the distribution phase and am currently in a cash/stablecoin reservoir state, waiting for the next low-risk entry window in the accumulation phase. The crypto market is always subject to cyclical fluctuations; patience and rationality are the only moats to cross the cycle.

Cycle aphorism: The market will not perish, only cycle. Respect the laws and reject emotions; we will ultimately capture alpha.