Is the Bitcoin cycle theory dead?
This article will review the four cycles of Bitcoin from 2011 to 2024, exploring the market changes in the current cycle.Author: Biteye Core Contributor Viee
The Bitcoin cycle theory, especially its association with Bitcoin halving events, has long been regarded as an important tool for predicting Bitcoin price trends. Historically, Bitcoin halving has usually led to price increases, but current market performance and the factors behind it suggest that the effectiveness of this theory may be waning.
This article will review the four Bitcoin cycles from 2011 to 2024 and delve into the market changes of the current cycle.
0 1. The Basics of Bitcoin Cycle Theory
The mining reward for Bitcoin is halved every 210,000 blocks, occurring approximately every four years. This mechanism is designed to control the supply of Bitcoin, thereby increasing its scarcity. Historically, halving events have typically been accompanied by significant price increases for Bitcoin, forming cycles. For example:
- 2012 Halving: Bitcoin price surged from around $12 to over $1,000 by the end of 2013.
- 2016 Halving: Bitcoin price rose to nearly $3,000 shortly after the halving and reached an all-time high of nearly $20,000 by the end of 2017.
- 2020 Halving: After the halving in May 2020, Bitcoin price quickly rose to an all-time high in 2021.
After the halving events in 2012, 2016, and 2020, Bitcoin prices experienced significant increases, forming clear bull market cycles. This historical data has led to widespread recognition and trust in the Bitcoin cycle theory.
The current cycle will complete its fourth Bitcoin halving on April 20, 2024, but the post-halving performance has not met expectations.
0 2. Price Data After Halving
If we align the dates of historical Bitcoin halvings on the same starting point on a coordinate axis and compare the subsequent prices with the price on the halving day, we can see that the performance of the current cycle is the worst.
Despite the market breaking through a new cyclical historical high before the April halving event, this did not change the relatively sluggish performance of the current cycle.
Source: Glassnode
Here is the price change situation about 144 days after each halving (compared to the price on the halving day):
- Cycle 1: +895%
- Cycle 2: +15%
- Cycle 3: +37%
- Cycle 4: -11%
The current cycle has shown a weaker price reaction post-halving compared to previous cycles, with Bitcoin's price performance being poor. What is the reason for this? How is this cycle different from the previous ones?
0 3. Stabilizing Bitcoin
The Bitcoin cycle from 2023 to 2024 shares similarities with previous cycles in some aspects, but there are also notable differences.
After the FTX collapse at the end of 2022, the market experienced about 18 months of stable price increases. With the approval of Bitcoin ETFs, new funds continuously flowed in, and after reaching a high of $73,000, the market entered a three-month range-bound phase.
During this period, from May to July, Bitcoin's price underwent the deepest cyclical correction, with a pullback of over 26%. Although this decline was significant, it was noticeably shallower compared to previous cycles, and volatility has also decreased, reflecting a relatively stable market structure for Bitcoin, which has matured as a financial asset compared to before.
Source: Glassnode
Let’s take a look at another technical indicator, the MVRV Z-score, which also shows the differences in Bitcoin market performance across cycles.
First, the MVRV-Z score is a relative indicator calculated as: (Market Cap - Realized Cap) / Standard Deviation (Market Cap). When this indicator is too high, it indicates that Bitcoin's market value is overvalued relative to its true value, which could be detrimental to the price. Conversely, if the indicator is low, it means that Bitcoin's market value is undervalued.
Source: Coinglass
From the data in the above chart from 2010 to 2024, we can see that compared to previous cycles, the MVRV-Z score (green line) has shown relatively mild fluctuations, peaks, and returns, not exhibiting the large amplitudes seen in earlier periods.
Bitcoin is beginning to trend towards a stable, gradually rising trajectory, rather than the previous dramatic price surges. This gradual growth model is more attractive in the long run.
0 4. Reasons for Reduced Volatility
We can visually explain why Bitcoin's volatility has decreased and is trending towards stability using a data indicator.
The Bitcoin 5+ Years HODL Wave indicator shows the percentage of Bitcoin that has not moved on-chain for at least 5 years, sometimes referred to as the supply of Bitcoin last active over 5 years ago. This reflects the behavior of long-term participants in the market to some extent.
Of course, it is also possible that a portion of these Bitcoins has been lost, meaning users can no longer access the private keys of wallets containing Bitcoin, but this proportion is relatively small.
From the chart, we can see that currently, over 30% of Bitcoin has not been transferred in the past five years, and this proportion may continue to rise.
This phenomenon leads to a decrease in the number of Bitcoins circulating in the market, and its impact has surpassed the reduction in supply increments brought about by halving events.
This means that the trend of long-term holding of Bitcoin is significantly increasing, allowing the market to better withstand short-term fluctuations, while also potentially weakening Bitcoin's cyclical volatility, which is one of the reasons for the reduction in Bitcoin's volatility.
Other factors can also be summarized: as the market matures, more and more investors choose to hold Bitcoin for the long term, reducing circulating supply and lowering the severity of price fluctuations.
Additionally, the supply and demand relationship of Bitcoin is also changing, with continuous inflows of funds providing support for prices.
Furthermore, global economic uncertainties, policy changes, and market sentiment can all impact Bitcoin's price.
In this context, Bitcoin's price may become more correlated with the trends of traditional financial markets, thereby reducing its independent volatility.
These reasons collectively contribute to the relatively mild characteristics of Bitcoin price volatility in the current cycle.
0 5. Conclusion
Compared to historical cycles, the current cycle has experienced a smaller price pullback, with a relatively robust market structure and reduced Bitcoin price volatility.
Therefore, when trading Bitcoin, relying solely on market cycle analysis is insufficient. On one hand, historical data cannot predict future trends. On the other hand, the crypto market will gradually move towards market normalization, ushering in enhanced liquidity and larger-scale applications, which is a natural result of financial development.
