How The Crypto Market Works

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Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

Diffusion Of Innovation

Crypto market flow works just like any market does. There are newcomers a.k.a early adopters, there are innovators, early adopters, early majority, late majority, and laggards. This categorization is called Diffusion of Innovation.

Many are saying that crypto has experienced mass adoption. That would mean that crypto is bigger than the stock market because the fact is that even the stock market is still evolving and young in a way as there are still plenty of people hugely afraid of the stock market. 

Even Tesla and electric cars, in general, haven’t reached mass adoption. While electric cars are being pushed more and more to the people still haven’t reached the late majority. Gas vehicles still rule the market cap of automobiles. Yes, we are on the brink of mass adoption but we are not there yet.

Adoption Rate

Crypto [12 yrs] 2009 – 2021
Electric Cars [25 years]1996 – 2021
Mobile Phones [38 years]1983 – 2021
Adoption rate of different products or innovations


BTC Addresses vs. People

864M vs. 7.6B

Gas cars vs. electric cars

1B vs. 6.8M

Mobile phones vs. people

4.88B vs. 7.67B

Innovators and early adopters

Innovators and early adopters accept the end product to be rough around the edges. They accept that the product might not work properly on the first go. They are willing to try out new things and want to be at the forefront of cutting-edge technology.

You can spot innovators and early adopters when Apple launches a new iPhone, the mile-long queue of people, wanting to get the next iPhone which might not even be that much different from the last one. 

But that isn’t the point for the early adopters, they don’t care if the product is roughly the same, they want the latest and they want to be the first ones. Crypto is precisely at this stage. Waiting for the mass adoption to happen. It will certainly happen, but it will take years and years before the early and late majority will put their saving, cash, and finance to DeFi and crypto.

That will take a LONG time.

Early majority and late majority

Early and late majority groups are the ones that populate the world the most. These people want a proven concept, they want safety and avoid risks. They want something that has been tested rigorously and is used by many.

These people don’t want to take their money into something unknown and hope for the best. They want their money to be put into safety and security, behind proven protocols and safety measures. They need things to work without a hiccup.

The early and the late majority are the groups that big companies aim their product to. Coca-cola, McDonald’s, etc. all aim to seduce the early and late majority. These groups have the most buying power, and they carry the largest bags of money.

When crypto space reaches these two categories, the exponential growth in crypto space will be a sight to behold. It won’t happen in a long time, but it will happen faster than many things.

The Laggards

Laggards don’t want change, they avoid change and do not need new things. They use that 10-year old mobile phone as it was the only good phone ever made. Laggards are one of the smallest groups in the chart. They aren’t necessarily old people, but more than usual that is the case. The reason for this is that the older you become the more fixated thoughts you have about how things should be.

Laggards like the way things are now, remember that humans crave safety as that is a built-in safety mechanism. Everything familiar, stable, known, and comfortable brings the feeling of safety. Crypto is disruptive, new, complex, and unknown to many. What else can it create than fear, and so for that very reason laggards are the last ones to jump on board with something new.

The Current State Of Play

The facts are that crypto as a financial market is in its infancy. It is still massively evolving and when you compare crypto markets’ total market cap of roughly $2T (trillion dollars), versus the US stock market cap of $47T, you can see that crypto is still far away from the big money. From mass adoption. US dollars market cap of $20T, CNY of 230T. We are far away from mass adoption.

Crypto Adopters

Everyone in the crypto space is an innovator or early adopter. The ones that played with crypto in 2007 were the innovators and the ones playing with crypto in 2021 are early adopters. That is 14 years of progress and we haven’t yet touched the early majority, but we are getting there.

We go through a path. When we are born, we experience things, the world, and others. We create beliefs, ideas, ethics, stories, and resistance.

With these beliefs and stories we have developed to ourselves, we determine which path we walk. Crypto as a path isn’t the safest one, it isn’t for the faint of heart, and for that very reason, the crypto space is still young and attracting only the ones who are ready to take risks and believe in monetary innovation.

Because people avoid risk, the group that wants to be part of a risky innovation becomes smaller. When the crypto space is a small group, the growth and market size are all relative to the size of the crypto group.

When the size of the people involved in crypto grows, so will the market size as more money is poured into the ecosystem.

Crypto Market Cycle Theory

When someone wants to dabble into crypto, when they see that the news is pumping how Bitcoin is having exponential growth, it will evoke curiosity and fear of missing out. Who wants to miss out on those big gains, and exponential growth. When you see around you that everyone is talking about Bitcoin, then it must be something you probably should be a part of.

That is when the cycle begins. The crypto market cycle begins not when Bitcoin is rising, but when Bitcoin makes the headlines and the percentage gains are out of this world. The pump has already started, but the real gains are made by those who were inside the market and when the news was dumping Bitcoin.

The 3 phases of crypto market cycle

Phase 1: Retail money for the Bitcoin

When you enter the crypto world, you are more than likely coming in for the money, for the big gains. New money entering the market is also called retail money. A retail money/investor is also known as a non-professional investor. Someone who wants to be in the market but does not know what the market is and how it works.

This creates the effect of a $BTC price rise, as that is more than likely the first crypto coin they know and so it is also the first one they buy. This scenario makes the Bitcoin rally higher and higher.

Phase 2: Altseason begins

When the new crypto enthusiast has tipped his/her toes in crypto coins, they want more. The next place to spend your money is on ALTcoins. ALT as an alternative to Bitcoin. Every other coin other than Bitcoin is called an altcoin. This is when the altcoin season begins.

The important thing to notice here is that while Bitcoin rises in value so do altcoins, as the money slowly but steadily flows from Bitcoin to altcoins. This can be seen from BTC.D (Bitcoin dominance). When Bitcoin value rises and the dominance goes lower, it means new money is flowing into the crypto space, but also that the money is flowing from Bitcoin to altcoins.

These new users start to look at the next coin to buy and see from that Ethereum is the next in line. This is the next logical move for the new players, so they buy ETH. This creates ETH.D to rise and people start to talk about the flippening.

Flippening as in Ethereum will become the number one crypto asset in the world. This will eventually happen as more and more people start to use the Ethereum blockchain. While Ethereum’s market cap is ⅕ of what is Bitcoins. The flip will happen and that event will give ETH even more speed to the moon.

Phase 3: Market Crash

If Bitcoin is the king then Ethereum is considered the “queen or jack” of cryptocurrency. However, the coins that come after ETH are called large-cap alts. Altcoins that are roughly in the top 10 to 20 in market cap size. Now that people have had the courage to buy ETH and they see that alternative coins can also be bought, the money starts to flow from Ethereum to the rest of the pack, next in line of course are the tokens that are below the ETH market cap.

These coins are Solana, Uniswap, Polkadot, and Cardona for example. The general idea is that all altcoins have gone parabolic (meaning vertical growth). It creates hope, mania, hype, and if anything, reckless investing into anything that moves to the upside.

All coins that have good fundamentals and are seen as something worth owning, will all move to the upside, they all seem to move and this kind of event will create insane crypto movements. It’s a rally to the moon.

And when coins moon, someone will take profit, and when everyone starts to take profit, the market will crash and the cycle is over.

Three Phases To Crypto Market Decline

Altseason always starts with good quality coins like Cardano, Ethereum, Solana, Luna. The ones that have been at the top of the market longer than most. These coins will lead the market and show altseason has begun. The next phase is when good altcoins but not so known will start to pump. Before this phase, they have been in the accumulation stage and now it’s their turn to pump. Before the altseason is done, all the memes and “dead” coins (DOGE, SHIBA) start to pump. When everything is pumping why not buy something that costs next to nothing. You get them for cheap anyway. These “cheap” coins are called low market cap alts and these are the riskiest ones out there.

The last phase is the kiss of death to altseason and it’s also the time when people start to take the profits out of the market. But when you are buying the “dead” coins you are already late to the party and this is when your investment will die.

100X Before The Heard

For you to get ahead of heard (the newcomers, the retail investor) is to start to accumulate Bitcoin when the bear market is active. When doom and gloom are upon Bitcoin and when everything seems to be dead and will never revive. That is the absolute best time to buy BTC as much as you can.

When BTC starts to pump, that is when you buy altcoins with your BTC as the alts are not yet pumping as the money is flowing to Bitcoin. Also, altcoins are in a bargain as BTC’s strength puts altcoins’ value down. You will get altcoins cheap and when the heard starts to buy the altcoins, that is when you will see your profits skyrocket.

After Bitcoin starts to go sideways and starts to consolidate, that is the time to sell your altcoins and move your money either to BTC or completely off the market.
By using metrics from Glassnode and Tradingview, you will get a nice view of who is pumping the price. Is it retail or institutions?

Written By Juha Ekman

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