Don't be superstitious about the cycle theory, it can only serve as a reference for your investment decisions.

Written by: Zero Ika

Compiled by: Luffy, Foresight News

 

The Bitcoin halving is a topic of interest to many in the crypto world. Historically, it is often the catalyst for a new bull run. This post is about my analysis of Bitcoin cycles.

 

 

What is Bitcoin Halving?

 

The Bitcoin halving is a plan to reduce the block rewards miners receive. When Bitcoin launched in 2019, miners were rewarded 50 BTC per block. After that, every four years or so, this reward will be reduced to half of the previous amount.

 

  • 2012 halving: 25 BTC reward per block

  • 2016 halving: 12.5 BTC reward per block

  • 2020 halving: 6.25 BTC reward per block

  • Halving in 2024: 3.12 BTC reward per block

 

Purpose of halving

 

Since Bitcoin was created in 2009 (after the 2008 global economic crisis) with the goal of being an inflation-proof alternative to fiat currencies, the halving is essential to creating a deflationary monetary protocol.

 

Some misunderstandings

 

It is generally believed that Bitcoin has a bull run every 4 years and a halving every 4 years.

 

This is not entirely true. The exact time is not exactly 4 years, but depends on the block time, and the halving occurs every 210,000 blocks.

 

The law of supply and demand

 

Historically, Bitcoin halvings have always been followed by a bull run in the months following the event. This is a function of supply and demand, the more scarce an asset is, the more valuable it becomes as demand increases.

 

 

Therefore, the relationship between price and halving is determined by demand, which does not mean that prices will necessarily rise. Since the block reward is halved, even if the number of buyers remains the same, it will help to increase prices. This is how the law of supply and demand works.

 

predict

 

Everyone is trying to “predict” the cycles, eager to catch the tops and bottoms of Bitcoin to boost portfolio returns.

 

But predictions are often the most difficult, because many things can undermine our theoretical foundations:

 

  • Black swans (Covid, war, etc.)

  • Unexpected events (FTX + LUNA crash, etc.)

  • White swans (changes in monetary policy, etc.)

 

So, it's important to have an open mind.

 

In any case, cycles are a compass that provides us with better navigation. If we compare Bitcoin’s price history to more than 200 years of traditional finance, it is relatively new, but it is also the analytical data we need.

 

4-year cycle

 

There are many indicators that are applied to Bitcoin charts, but the one that fascinates me the most is the 4-year cycle, where we can find some interesting correlations.

2014 - 2017

 

  • From 2014 High to 2017 High: approximately 211 weekly bars, 1477 days.

  • From 2015 bottom to 2018 bottom: about 205 weekly bars, 1435 days.

 

 

2017-2021

 

  • From 2017 High to 2021 High: approximately 204 weekly bars, 1428 days.

  • From 2018 bottom to 2022 bottom: approximately 205 weekly bars, 1435 days.

As you can see:

 

From one high to the next high, or from one bottom to the next bottom, there are about 200 bars on the weekly chart. This is an interesting correlation that shows the cyclical nature of prices.

What about 2021-2025?

 

Here comes the question that everyone is most concerned about:

 

  • Will Bitcoin reach a high point in 2025?

  • Accordingly, will there be a bottom in 2026?

 

Remember, this is just one aspect to consider in your overall plan and the best approach is always to evaluate level by level.

 

But it's fascinating, isn't it?

 

 

 

Circulation ratio

 

Another factor to consider is necessarily the impact that the halving will have.

 

At the time of the first halving, there were approximately 10.5 million Bitcoins in circulation, and now, there are over 19 million.

 

Therefore, the impact of the next halving may be reduced as 90% of the total Bitcoin supply is already in circulation.

Diminishing Returns

 

As public awareness grows and the amount of money flowing into the market grows, the returns we can earn will gradually decrease. This may be the natural evolution of new financial assets and industries:

 

• More standardized

• Greater liquidity

• More adoption

 

What would happen if the crypto market one day reached the size of the securities market? We can guess that volatility would decrease.

 

 

If we compare the period returns, we find that:

 

• From 2012 halving to 2014 peak: 11,000%

• From 2016 halving to 2017 peak: 3685%

• From 2020 halving to 2022 peak: 685%

 

As you can see, there is a clear downward trend in returns, but they are still very impressive.

 

Summarize

 

As mentioned before, we cannot rely solely on cycles when deciding when to buy/sell. Past performance is no guarantee of future performance. But they can be an aid as part of our considerations.

 

The industry is still small and susceptible to speculative behavior, which tends to be amplified when the majority believes in something. However, the Bitcoin halving is not just talk, it is a technical feature written into the protocol, and this is something to always keep in mind.