What is known about cryptocurrency market cycles?

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Andreessen Horowitz's Marc Andreessen's tirade on the shortcomings of the global financial system was greeted with thunderous ...

Andreessen Horowitz's Marc Andreessen's tirade on the shortcomings of the global financial system was greeted with thunderous applause from most crypto enthusiasts. His call to “build,” which unequivocally hints at the promise and innovativeness of blockchain development, raised the question of solving many modern problems using distributed ledger technology. This time the venture capital firm Andreessen Horowitz has  publisheda report on the cycles of the cryptocurrency market, which are closely related to the value of cryptocurrencies and the process of their mass adoption. Let's make a reservation right away that the metrics presented by analysts indicate the stable development of the sector. What cycles has the crypto industry gone through and what to expect in the future? What exactly are the metrics talking about? In the article, we understand the report and forecasts regarding the further development of the crypto industry and the movement of the price of digital assets.

The interconnected cyclical nature of the crypto industry

Crypto enthusiasts who have been following the development of the industry for several years have probably noticed how the information background around cryptocurrencies alternates in cycles, while directly affecting the price. First, we witness tremendous activity and “tuzemuns”, and then we see red graphs during “cryptozymes”, which continue until the beginning of a new cycle. Andreessen Horowitz notes that the crypto industry has gone through three cycles so far:
  • The first one peaked in 2011,
  • The second - in 2013,
  • The third is in 2017.
At first glance, these periods may seem unrelated, but if you look closely, they are all united by five identical scenarios, which are repeated in each cycle:
  • The value of BTC and other digital assets is skyrocketing.
  • This attracts the attention of the media and society, which is beginning to be active in social networks on the topic of cryptocurrencies.
  • The activity leads to a high engagement of talented crypto enthusiasts who come up with new ideas and developments, although during this period the price usually already starts to go down.
  • These ideas soon spill over into the creation of promising projects and the emergence of innovative startups.
  • Startups create products that inspire new audiences. Ultimately, this inspiration translates into a new rise in prices, which leads to the active phase of a new cycle.
The cyclical nature of the crypto industry.  Source .
And so - over and over again. Given the unusual specifics of the cycles, the experts at Andreessen Horowitz called them  "price-innovative" . They emphasize that during conversations with crypto enthusiasts, they in most cases told them something like the following story:
 “I first learned about cryptocurrencies in 2011 (2013/2017), when there was a price hype and everyone was trumpeting about them. Delving deeper into the topic, I realized that the crypto industry is not about money at all. I started studying white papers, reading blogs, and each time I realized the increasing potential of blockchain technology. Ultimately I fell in love with her. "

Research and metrics

It is noteworthy that this vision can be argued not only in words, but also in numbers. A group of analysts led by Eddie Lazzarin studied in detail various data over the past 10 years, which in one way or another relate to distributed ledger technology. This includes comments on Reddit, commits on GitHub, and data on investments in blockchain development from the analytical company Pitchbook.
In general, the company examined three main metrics to analyze and then determine each cycle:
  • Startup activity. All young companies that successfully closed their first round of investments in the cryptocurrency / blockchain direction were taken into account.
  • Developer activity. It was measured by the sum of "stars" on GitHub in all kinds of cryptocurrency repositories.
  • Social media activity.  It was determined by the number of comments in various sections related to cryptocurrencies or blockchain technology.
In this case, only the latest data for a specific month or year were taken into account, without taking into account information for previous periods. The data is not cumulative.

First cycle: 2009 - 2012

The very first cycle began with the inception of the Bitcoin network. Metaphorically, it can be compared to the genesis block, because unlike other cycles, it has no past behind it. Everything started from scratch here, and the first activity came from Satoshi Nakamoto himself and the developer community. For two years, the activity of the pioneers grew and gradually aroused the interest of the first startups.
In the end, BTC began trading on the exchange at penny prices, and in the summer of 2011 its price increased several times and reached its first significant peak - and that's when the media and social media users started talking about it. Until that moment, even the most zealous crypto enthusiasts considered Bitcoin only an interesting experiment and did not even allow themselves to think that the technology underlying it had real potential to change not only the financial system, but the whole world. But after the first price peak, everything changed. People realized that Bitcoin is capable of a lot.
The rise in prices and interest from the media have become an impetus for ambitious entrepreneurs who realized that they can do a crypto business and make great money on it. As a result, the hype on social networks decreased, the bulls began to take profits, and the price of BTC went down. But most importantly, the activity among startups was maintained at the same high level even after the price decline.
This is how the first crypto wallets, crypto exchanges, mining pools were born and the first altcoins appeared: Litecoin and Namecoin. This is the time when Vitalik Buterin first became interested in blockchain technology and, inspired by Bitcoin, co-founded Bitcoin Magazine. The trend led to the end of the first cycle and the beginning of a new one, which, as it turned out, developing exactly the same scenario, continued to promote the crypto industry to the masses.
Crypto Industry First Cycle Chart. 2009 - 2012.  Source .
The activity of start-up companies and blockchain developers, which grew after the first price peak, led to the emergence of new interesting solutions. This contributed to the positive price swings, which resulted in a full-fledged bullish trend that peaked in late 2013 when Bitcoin first broke above $ 1000.
The price rally has led to tremendous activity on social media. Probably, these were the first cases when not geeks, programmers or financiers began to get acquainted with bitcoin, but ordinary citizens who are not versed in DLT technologies.
After the boom in social networks, about ten times more developers and entrepreneurs became interested in the peculiarities of distributed ledgers than in the previous cycle. At the same time, the decline in prices did not bother anyone. During this period, the most important projects were funded, which today are an integral part of the cryptocurrency ecosystem. This cycle gave us Ripple, DASH, Monero and Ethereum, which immediately after its launch became the leading platform for smart contracts and continues to be considered so to this day, even in China.
Crypto Industry Second Cycle Chart. 2012 - 2016.  Source .

Third cycle: 2016 - 2019

Following Ethereum & Co, a host of other promising projects appeared, bringing with them many innovations that began to fuel the crypto market once again. We have witnessed a huge number of forks and the largest ICO boom in history. And despite the fact that many projects turned out to be fraudulent, the fact of their appearance still contributed to an increase in interest in the sector and an increase in the value of digital assets.
Observing positive price movements, users of social networks around the world asked the question "what is cryptocurrency and how can I make money on it?" Bitcoins were not just interested in, but people who did not understand anything about cryptocurrencies in general - simple "hard workers" in the hope of a better life, were actively buying.
The price boom of the third cycle peaked on December 17, 2017, when Bitcoin for the first (and so far only) time in history rose to $ 20,000, exceeding the peak of the previous cycle by 20 times. Social networks were filled with posts about digital money from newly minted bloggers, and the activity of developers and startups has grown about 10 times compared to the previous cycle.
Despite the onset of "crypto winter" in 2018, the crypto industry has managed to establish itself as a conscientious startup sector. Institutional investors began to take an active interest in the sphere, and the world's leading companies began to seriously think about integrating blockchain technology into business.
Crypto Industry Third Cycle Chart. 2016 - 2019.  Source .

What's next?

Moving on to the fun part. If we plot all three cycles together, we see erratic but consistent growth across all key metrics. We remind you that the experts from Andreessen Horowitz used exclusively new data, so there is no cumulative effect in the statistics. It reflects the real state of affairs at each time interval.
Analysts have calculated that, on average, each indicator is growing at an impressive pace over the year:
  • BTC price increases by 196.4%;
  • Social media activity increased by 207.5%;
  • Developers' activity grows by 74.4%;
  • Startup activity - by 53.9%.
The average growth in activity over the year indicates a fast and stable development.  Source .
The key feature of cryptocurrency cycles is the invariable fact that during each of them "seeds" are sown, the fruits of which germinate later and set in motion the next cycle. They generate a steady growth of new ideas, code, projects and startups - the fundamental drivers of software innovation.
The cycle that ended last year has spawned hundreds of exciting projects in a wide variety of fields, including payment systems, decentralized finance, games, infrastructure, and web applications. We have also witnessed active interest from leading companies on the planet (Facebook, Visa, Microsoft and IBM among others), central banks and entire countries that go from words to deeds, creating their own coins or introducing blockchain technology, offering the world a completely new experience. According to Andreessen Horowitz's theory, we will soon be reaping the benefits of these decisions, and the crypto industry will continue to grow rapidly. It is equally important that all these developments will result in another price peak in the new cycle of the crypto market, which has already begun. Welcome to the future.

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