Cycle Psychology: Recognizing Where We Are

Markets do not move in straight lines. They move in cycles driven by human emotion, credit, and the predictable rhythms of greed and fear. This lesson teaches you how to read the present by studying the past—from tulip mania in 1637 to the Bitcoin cycles of 2012 through 2026.

37 min · intermediate · part of Crypto Psychology & Behavioral Finance

The Oldest Story in Finance

In June 1720, the South Sea Company's shares had risen from £128 in January to £1,050 in less than six months. By December of that same year, those shares were worth £124. Among the ruined was Sir Isaac Newton, who lost approximately £20,000 (roughly £4 million in today's purchasing power). According to a story passed down through his niece Catherine Conduitt, Newton later remarked that he could "calculate the motions of heavenly bodies, but not the madness of people." Three centuries later, in October 2025, Bitcoin reached $126,210.50—an all-time high, four years almost to the day after a previous peak at $69,044.77 (November 10, 2021), which was itself almost four years to the month after a previous peak near $19,665 (December 17, 2017). By February 2026, Bitcoin had fallen to $60,074—a roughly 52% drawdown from the October peak. The pattern Newton struggled to compute three centuries ago is the same one Bitcoin investors are wrestling with right now. The deepest insight of behavioral finance is also the simplest: **markets are not random walks; they are emotional waves**. The same mental hardware that produced tulip mania in 1637, the South Sea Bubble in 1720, the Mississippi Bubble in 1719-1720, the Florida land bubble of the 1920s, the Roaring Twenties stock bubble that crashed in 1929, the dot-com bubble of 2000, the housing bubble of 2007, and the cryptocurrency cycles of 2013, 2017, 2021, 2024, and 2025—that hardware has not changed. The technology around us has. We have not. This lesson teaches you to recognize the cycle you are living through, in real time, by studying the cycles that came before. The goal is not to predict tops and bottoms with precision—nobody does that consistently—but to know roughly where you stand in the emotional terrain so that you can act with discipline rather than panic or euphoria.

Also in this lesson

Charles Mackay and the Madness of Crowds
Hyman Minsky and the Five Stages of a Bubble
The Four-Year Bitcoin Cycle Hypothesis
Cycle Indicators: What Actually Helps
Behavioral Signals: What People Around You Tell You
On Elliott Waves and Other Pattern Theories
Where We Are in May 2026
For Deeper Reading

Key terms

Four-year Bitcoin cycle: The empirical observation that Bitcoin price has tended to peak roughly 12-18 months after each halving (Nov 2012, Jul 2016, May 2020, Apr 2024) and bottom roughly 12-18 months before the next; based on a small sample of four cycles.
Bitcoin halving: The hardcoded event every 210,000 blocks (approximately 4 years) that cuts the per-block mining reward in half. Halvings have occurred on Nov 28, 2012; Jul 9, 2016; May 11, 2020; and Apr 19-20, 2024. Next expected around March 2028.
Financial Instability Hypothesis: Hyman Minsky's thesis that long periods of stability encourage risk-taking which makes the financial system fragile. Articulated in his 1992 Levy Working Paper No. 74. The five stages: displacement, boom, euphoria, profit-taking, panic.
Minsky moment: The inflection point at which seemingly stable conditions tip into crisis as accumulated leverage and risk-taking force a deleveraging cascade. The term was popularized after the 2007-2008 financial crisis.
MVRV Z-Score: A Bitcoin on-chain indicator developed by Murad Mahmudov and David Puell that compares market value to realized value, normalized as a Z-score. Readings above 7 have historically marked cycle tops; readings below 0 have marked cycle bottoms.
Pi Cycle Top Indicator: A Bitcoin cycle indicator that tracks the 111-day moving average crossing above the 350-day moving average doubled. Has historically marked cycle tops within roughly three days in 2013, 2017, and 2021.
NUPL (Net Unrealized Profit/Loss): A Bitcoin on-chain metric measuring aggregate profit or loss across all holders. NUPL above 0.75 has historically signaled euphoria zones near tops; NUPL below 0 (capitulation) has signaled bottom zones.
Fear and Greed Index: A 0-100 sentiment index created by Alternative.me in 2018 that aggregates volatility, momentum, social media activity, surveys, dominance, and search trends. Below 25 is "extreme fear"; above 75 is "extreme greed."
Stock-to-Flow model: A 2019 Bitcoin price model by pseudonymous analyst PlanB based on the ratio of existing supply to new issuance. The model predicted approximately $100,000 by Dec 2021; Bitcoin fell to $17,600 by June 2022, invalidating the model by most statistical standards.
Wyckoff method: A market-cycle framework developed by Richard Wyckoff in the early twentieth century dividing cycles into four phases: accumulation (smart money buys at lows), markup (steady uptrend), distribution (smart money sells to retail near highs), and markdown (downtrend).
Bitcoin dominance: Bitcoin's share of total cryptocurrency market capitalization. Falls during late stages of bull markets as capital rotates to altcoins ("alt season") and rises during bear markets as capital flees back to Bitcoin.
This time is different: The phrase that, per Carmen Reinhart and Kenneth Rogoff's 2009 book of the same name, has preceded essentially every major financial crisis since the medieval period—a strong contrarian signal that fundamentals are being ignored.

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Educational only — not financial advice.