Economic crises always seem to come unexpectedly, but in fact they follow the same set of rules — this is the economic cycle. Danish writer and entrepreneur Røstvedt used an analogy to explain: the economic cycle is like human breathing; there is inhalation, and there must be exhalation. This is not a coincidence but an inherent characteristic of the capitalist system.

Looking back at history makes it clear. In the 17th century, the father of French paper money, John Law, conducted a paper currency experiment, and the South Sea Bubble of 1720 in Britain — that crisis even spared Newton, who lost 20,000 pounds. The essence of bubbles is actually simple: a promise that there are minerals in South America. The stories that follow keep repeating — 19th-century American railroad mania, the Great Depression in the early 20th century, the Internet bubble of 2000, the 2008 subprime mortgage crisis — each follows the same script.

What is the key pattern? Overinvestment. When confidence is high and credit is easy, the market begins to overinvest, and prosperity gradually turns into excess. Asset prices soar, returns may decline but are still profitable, so money continues to flow in. Until a critical point is reached, the bubble bursts, credit contracts, and the economy enters recession. This cycle repeats as long as credit, investment, and human greed and fear exist in the market.

Because this cyclical pattern exists, economists devote great effort to studying it. American economist Michel provided a standard definition: the economic cycle is not an isolated crisis event but a complete cycle of expansion → recession → contraction → recovery. In industrialized countries, most industries enter expansion simultaneously, then decline together, and gradually recover. This process has no fixed period — it could be one year or ten years, depending entirely on how excessive the investment in the market is.

Looking at today’s crypto market, this logic also applies. Every bull market is accompanied by a new narrative — from the Bitcoin revolution to DeFi, NFTs, and AI concept coins. Capital floods in, small coins see hundredfold or thousandfold increases, attracting more followers, and the bubble keeps growing. When incremental funds dry up, latecomers at high prices start to lose, market sentiment reverses, and a sharp decline follows. Therefore, understanding the economic cycle is essentially understanding the collective behavior patterns of market participants.