Charting Crypto Cycles

A Change of Seasons

In crypto, nothing is older than our habit of calling everything new. — Mark Twain

Despite what the textbooks say, markets aren’t always efficient. Perhaps on Bene Gesserit time scales, things trend towards efficiency. But not in the trenches of crypto. In our world, inefficiency reigns supreme because humans still dominate the market. And unlike machines, humans make decisions based on emotion, not logic. Don’t believe me? Try explaining to anyone over 50 how dogwifhat’s $2.3 billion valuation is ~rational and efficient~.

DALL-E

The cool thing about emotion-driven markets is they have an underlying rhythm.

While technology constantly evolves, human emotion does not. When things are good, people are happy. And when things are bad, people are mad. In markets, these animal spirits tend to be cyclical.

The above chart is canonical but somewhat overcomplicates the psychology at play. So, for the rest of this section, we’ll keep it simple and break crypto cycles into four recognizable seasons: spring, summer, fall, and winter.

DALL-E

Spring follows winter — ushering in rebirth and renewal. The weather warms, seasonal depression fades, and quiet optimism takes root. In crypto markets, spring only comes after markets have bottomed and tourists capitulated.

In spring, Bitcoin usually asserts itself and begins a slow grind off the winter lows. As BTC moves higher, Bitcoin dominance often rises alongside it as money flows into the strongest, most Lindy crypto asset.

Last cycle, Bitcoin led the market off December 2018 lows and Bitcoin dominance (BTC.D) rose until the very end of the cycle, which marked a change in season. In the current cycle, we see a similar dynamic taking shape. BTC is moving higher off November 2022 lows, and BTC.D continues to ascend. When BTC.D breaks down, that’s a signal spring is ending.

Another marker of spring is the lack of retail. Last cycle, Ethereum’s DeFi *Spring* really only included the hardcore devs and users who had survived the winter. This led to highly concentrated wealth creation — minting many millionaires and future patrons of the chain.

This cycle, Solana is experiencing its very own DeFi *Spring* moment. The Jito airdrop initially lit the fuse, and ecosystem activity has hockey-sticked up ever since. From a cycle timing perspective, the important thing to note is less than 10,000 wallets got the Jito airdrop. That’s really not a lot… There are currently over 10k holders of the Jeo Boden memecoin. A lot has changed since Jito. But despite the ongoing memecoin meta, the Solana ecosystem remains firmly in Spring.

Next up is summer. In the summertime, emotions run hot and risk management sometimes short-circuits. The season typically brings vicious capital rotations and blow-off tops. Bitcoin dominance almost always declines as capital rotates down the risk curve into ETH, alt L1s and the app layer.

@secretsofcrypto

Many alts that started to run in the spring tend to experience exponential moves in summer as everyone reaches for the 100x catch-up trade. Towards the end of s