Is Bitcoin Cycle Theory Dead?

This article will review the four cycles of Bitcoin from 2011 to 2024 and deeply explore the market changes in the current cycle.

The mining reward of Bitcoin is halved every 210,000 blocks, which occurs approximately every four years. This mechanism is designed to control the supply of Bitcoin, thereby increasing its scarcity. Historically, halving events are usually accompanied by significant increases in Bitcoin prices, forming cycles. For example:

2012 Halving: Bitcoin price surged from around $12 to over $1,000 by the end of 2013.

2016 Halving: Bitcoin prices 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 a new all-time high in 2021 after the May 2020 halving.

After the halving events in 2012, 2016, and 2020, Bitcoin prices experienced significant increases, forming a clear bull market cycle. These historical data have made the Bitcoin cycle theory widely recognized and trusted.

This cycle completed the fourth Bitcoin halving on April 20, 2024, but the performance after the halving was not as expected.

If we move the dates of Bitcoin halvings in history to the same starting point on the coordinate axis and compare the subsequent prices with the price on the day of halving, we can find that the performance of the current cycle is the worst.

Although the market broke out to a new cyclical all-time high for the first time ahead of the April halving event, this has not changed the relatively sluggish performance of the current cycle.

Source: Glassnode

The following is the price fluctuation about 144 days after each halving cycle (compared with the price on the day of halving):

• Cycle 1: +895%

• Cycle 2: +15%

• Cycle 3: +37%

• Cycle 4: -11%

The current cycle has seen a weaker price reaction than previous halvings, and Bitcoin’s price performance has been poor. Why is this happening? How is this cycle different from previous ones?

The 2023-2024 Bitcoin cycle is similar to previous cycles in some ways, but there are also significant differences.

After the FTX crash at the end of 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 shock.

During this period, from May to July, Bitcoin prices experienced the deepest cyclical correction, with a pullback of more than 26%. Although this decline is significant, it is significantly shallower and less volatile than in previous cycles, reflecting that Bitcoin's market structure is relatively stable and more mature as a financial asset than before.

Source: Glassnode

Let's take a look at another technical indicator, MVRV Z-score, which also shows the difference in Bitcoin market performance in different cycles.

First, the MVRV-Z score is a relative indicator, calculated as: (circulating market value - realized market value) / standard deviation (circulating market value). When this indicator is too high, it means that the market value of Bitcoin is overestimated relative to its true value, which may be unfavorable for the price. Conversely, if the indicator is low, it means that the market value of Bitcoin is underestimated.

Source: Coinglass

From the data from 2010 to 2024 in the above figure, we can see that compared with previous cycles, the fluctuations, peaks and returns of the MVRV-Z score (green line) are relatively mild, and not as large as in the early days.

Bitcoin is beginning to trend towards a steady, gradual rise, rather than the dramatic price surges of the past, and this gradual growth pattern is more attractive in the long run.

We can use a data indicator to intuitively explain why Bitcoin volatility has weakened and tended to stabilize.

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 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, that is, the user no longer has access to the private keys of the wallets containing the bitcoins, but this proportion is smaller.

As can be seen from the chart, currently more than 30% of Bitcoin has not been changed hands in the past five years, and this proportion may continue to rise.

This phenomenon has led to a decrease in the number of bitcoins circulating in the market, and its impact has exceeded the reduction in supply increments brought about by the halving event.

This means that the trend of long-term holding of Bitcoin is increasing significantly, making the market better able to resist short-term fluctuations, while also potentially weakening Bitcoin's cyclical fluctuations, which is one of the reasons contributing to the reduction in 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 the long term, reducing the circulating supply and reducing the sharp fluctuations in prices.

In addition, the supply and demand relationship of Bitcoin is also changing, and the continued inflow of funds provides support for prices.

Furthermore, factors such as global economic uncertainty, policy changes and market sentiment will have an impact on the price of Bitcoin.

In this scenario, Bitcoin’s price could become more correlated with movements in traditional financial markets, reducing its independent volatility.

These reasons work together to make Bitcoin price volatility relatively mild in the current cycle.

Compared with historical cycles, the current cycle’s price correction is smaller, the market structure is relatively stable, and Bitcoin price volatility has decreased.

Therefore, when trading Bitcoin, it is not enough to rely solely on market cycle analysis. On the one hand, historical data cannot predict future trends. On the other hand, the crypto market will gradually move towards market standardization, ushering in increased liquidity and larger-scale applications, which is a natural result of financial development.