Historically, bitcoin has followed a familiar four-year cycle. Now, two years into the current cycle, investors are closely watching market patterns and indicators for what the next two years may hold. This article delves into the anatomy of bitcoin's four-year cycle, past market behavior, and future possibilities.
The 4 year cycle
bitcoin's four-year cycle is partially influenced by scheduled halving events, which reduce the block reward miners receive by 50% every four years. This halving decreases the supply of new bitcoin entering the market, often creating supply and demand pressures that can drive prices up.
This can be clearly seen by the Stock-to-flow modelwhich compares the existing btc in circulation to its inflation rate and models a “fair value” based on comparable hard assets like gold and silver.
Currently, we are halfway through this cycle, which means we are potentially entering a period of exponential gains as the typical one-year recovery phase after the halving progresses.
A look back to 2022
Two years ago, bitcoin faced a serious crash amid a series of corporate implosions. November 2022 marked the downfall of FTX, as rumors of insolvency sparked massive liquidations. The domino effect was brutal, as other crypto institutions, such as BlockFi, 3AC, Celsius, and Voyager Digital, also went under.
The price of bitcoin fell from around $20,000 to $15,000, reflecting the broader market panic and leaving investors worried about bitcoin's survival. However, true to form, bitcoin rallied again, quintupling from the 2022 lows. Investors who weathered the storm were rewarded, and this rally supports the argument that bitcoin's cyclical nature remains intact.
Similar feeling
In addition to price patterns, investor sentiment also follows a predictable rhythm throughout each cycle. analyzing the Net Unrealized Gains and Losses (NUPL)a metric that shows unrealized gains and losses in the market, suggests that emotions such as euphoria, fear and capitulation recur regularly. bitcoin investors often face intense feelings of fear or pessimism during each bear market, only to return to optimism and euphoria as prices recover and rise. Currently, we are once again entering the “Belief” stage after our beginning of the cycle and its subsequent consolidation.
The global liquidity cycle
The global money supply and cyclical liquidity, measured by bitcoin-macro/global-m2-vs-btc-yoy/”>Global M2 YoY vs. btcIt has also followed a four-year cycle. For example, M2 liquidity bottomed out in 2015 and 2018, just as bitcoin hit lows. In 2022, M2 hit a low again, perfectly lining up with the bottom of the bitcoin bear market. Following these periods of economic contraction, we see fiscal expansion in central banks and governments around the world, leading to more favorable conditions for bitcoin price appreciation.
Family patterns
Historical price analysis suggests that bitcoin's current trajectory is strikingly similar to previous cycles. From its lows, it typically takes bitcoin 24 to 26 months to surpass previous highs. In the last cycle it was 26 months; In this cycle, bitcoin price follows a similar upward trajectory after 24 months. Historically, bitcoin has peaked about 35 months after its lows. If this pattern holds, we may see significant price increases until October 2025, after which another bear market could take hold.
Following the predicted peak, history suggests that bitcoin would enter a bearish phase in 2026, lasting about a year until the next cycle begins again. These patterns are not a guarantee, but they do provide a roadmap that bitcoin has adhered to in previous cycles. They offer a potential framework for investors to anticipate and adapt to the market.
Conclusion
Despite the challenges, bitcoin's four-year cycle has endured, largely due to its supply schedule, global liquidity, and investor psychology. As such, the four-year cycle remains a valuable tool for investors to interpret bitcoin's potential price movements and our base case for the remainder of this cycle. However, relying solely on this cycle could be shortsighted. By incorporating on-chain metrics, liquidity analysis, and real-time investor sentiment, data-driven approaches can help investors respond effectively to changing conditions.
For a more in-depth look at this topic, watch a recent YouTube video here: The 4-year bitcoin cycle: halfway there?
