The performance of Bitcoin after the fourth halving was not as expected. How is this cycle different from the previous one? Bitcoin cycle theory, especially its connection to the Bitcoin halving event, has long been regarded as an important tool for predicting Bitcoin price trends. Historically, Bitcoin halvings have typically resulted in price increases, but current market performance and the factors behind it suggest that the validity of this theory may be waning.
This article will review the four Bitcoin cycles from 2011 to 2024 and deeply explore the market changes in the current cycle.
The basis of Bitcoin cycle theory
Bitcoin’s mining rewards are halved every 210,000 blocks, which occurs approximately every four years. This mechanism is designed to control the supply of Bitcoin, thus increasing its scarcity. Historically, halving events are usually accompanied by significant increases in Bitcoin prices, forming cycles. For example:
- Halving 2012: Bitcoin price surged from about $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 in late 2017.
- 2020 Halving: Bitcoin price quickly rose to an all-time high in 2021 after the May 2020 halving.
After the halving events in 2012, 2016 and 2020, the price of Bitcoin has experienced significant increases, forming an obvious bull market cycle. These historical data have enabled the Bitcoin cycle theory to gain widespread recognition and trust.
This cycle completed the fourth Bitcoin halving on April 20, 2024, and then the performance after the halving was not as expected.
Price information after halving
If we pull the historical Bitcoin halving date to the same starting point on the coordinate axis, and compare the subsequent price with the currency price on the day of the halving, we can find that the performance of the current cycle is the worst.
Although the market broke through new cyclical historical highs for the first time before the April halving event, this did not change the relatively sluggish performance of the current cycle.
The following is the price rise and fall about 144 days after each halving cycle (compared with the price on the day of halving):
- Period 1: +895%
- Period 2: +15%
- Cycle 3: +37%
- Period 4: -11%
The current cycle post-halving has shown a weaker price reaction than in the past, with Bitcoin’s price performance underperforming. Why is this? How is this cycle different from previous ones?
Bitcoin stabilizing
The 2023-2024 Bitcoin cycle will be similar to previous cycles in some ways, but there are also significant differences.
After the collapse of FTX in late 2022, the market experienced about 18 months of steady price increases. With the passage of the Bitcoin ETF, new funds continued to pour in, and after reaching a high of $73,000, the market entered a three-month range-bound period.
During this period, from May to July, Bitcoin price experienced its deepest cyclical correction, with a retracement of more than 26%. Although this decline is significant, it is significantly shallower and less volatile than in previous cycles, reflecting the relatively stable market structure of Bitcoin and its greater maturity as a financial asset than before.
Let's take a look at another technical indicator, MVRV Z-score, and we can also see the differences in Bitcoin market performance in different periods.
First, the MVRV-Z score is a relative metric calculated as: (Float Market Cap – Realized Market Cap) / Standard Deviation (Float Market Cap). When this metric is too high, it means that Bitcoin’s market value is overvalued relative to its true value, which can be detrimental to the price. On the other hand, if the indicator is low, it means that Bitcoin’s market value is undervalued.
From the 2010-2024 data in the above chart, we can see that compared with the previous cycle, the fluctuations, peaks and returns of the MVRV-Z score (green line) are relatively mild and not as large as in the early period.
Bitcoin has begun to trend towards a stable, gradual upward trend rather than the dramatic price surges of the past. This gradual growth model is more attractive in the long term.
Reasons for reduced volatility
We can use a data indicator to intuitively explain why Bitcoin volatility weakens and becomes stable.
The Bitcoin 5+ Years HODL Wave indicator shows the percentage of Bitcoins that have not moved on-chain for at least 5 years, sometimes referred to as the last active Bitcoin supply 5 years ago. To some extent, it reflects the behavior of long-term participants in the market.
Of course, it is also possible that some of these Bitcoins have been lost, i.e. the user no longer has access to the private keys of the wallet containing the Bitcoins, but this is a smaller proportion.
As can be seen from the figure, currently more than 30% of Bitcoins have not changed hands in the past five years, and this proportion is likely to continue to rise.
This phenomenon has led to a reduction in the number of Bitcoins circulating in the market, and its impact has exceeded the reduction in supply increment caused by the halving event.
This means that the trend of long-term holding of Bitcoin is significantly increasing, making the market better able to withstand short-term fluctuations, while also potentially weakening Bitcoin's cyclical fluctuations, which is one of the reasons for the weakening of Bitcoin's volatility.
Other factors can also be attributed to: For example, as the market matures, more and more investors choose to hold Bitcoin for a long time, reducing the circulating supply and reducing the violent price fluctuations.
In addition, Bitcoin's supply and demand relationship is also changing, with continued inflows of funds providing support for the price.
Furthermore, global economic uncertainty, policy changes, market sentiment and other factors will have an impact on the price of Bitcoin.
In this case, Bitcoin's price may become more correlated with movements in traditional financial markets, reducing its stand-alone volatility.
These reasons combine to make Bitcoin price volatility appear to be relatively mild during the current cycle.
Summarize
Compared with historical cycles, the price correction in the current cycle is smaller, the market structure is relatively stable, and Bitcoin price volatility has weakened.
Therefore, when trading Bitcoin, analysis of market cycles alone is not enough. On the one hand, historical data cannot predict future trends. On the other hand, the encryption market will gradually move towards market standardization, ushering in enhanced liquidity and larger-scale applications, which is a natural result of financial development.
Risk warning: The above is only for information sharing, not investment advice. Readers are asked to abide by local laws and regulations.
