Bitcoin Halving Less Than One Year Ago: Is The Cycle Theory Still Reliable?

The Bitcoin halving is a topic of concern to many in the crypto world. Historically, it has often been the catalyst for a new bull market. This tweet is about my analysis of Bitcoin cycles.

What is Bitcoin Halving?

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

Halving 2012: 25 BTC per block reward

Halving 2016: 12.5 BTC per block reward

Halving 2020: 6.25 BTC per block reward

Halving 2024: 3.12 BTC reward per block

Purpose of halving

Since Bitcoin was created in 2009 (after the 2008 global economic crisis), its goal was to become an inflation-proof alternative to fiat money. Therefore, halving is essential to create a deflationary monetary agreement.

Some misunderstandings

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

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

Law of supply and demand

Historically, the months following a Bitcoin halving have always been followed by a bull run. This is caused by supply and demand, the scarcer an asset is, the more valuable it will be as demand increases.

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

predict

Everyone is trying to "forecast" cycles, eager to catch Bitcoin tops and bottoms to boost portfolio returns.

But "prediction" is often the most difficult, because many things can undermine our theoretical basis:

Black swans (Covid, war, etc.)

Unexpected events (FTX + LUNA crashes, etc.)

White swan (changes in monetary policy, etc.)

So it's important to have an open mind.

In any case, the cycle is a "compass" that provides us with better navigation. If Bitcoin's price history is compared to more than 200 years of traditional finance, it is relatively new, but it is also the data we need for analysis.

4 year cycle

There are many indicators 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: about 211 bars per week, 1477 days.

From 2015 bottom to 2018 bottom: about 205 bars per week, 1435 days.

2017-2021

From 2017 high to 2021 high: about 204 bars per week, 1428 days.

From 2018 bottom to 2022 bottom: about 205 bars per week, 1435 days.

As you can see:

There are about 200 bars on a weekly chart from one high to the next, or from one bottom to the next. This is an interesting correlation and it shows the cyclical nature of prices.

What about 2021-2025?

Here comes the question everyone is most concerned about:

Will Bitcoin reach a high in 2025?

Correspondingly, will there be a bottom in 2026?

Remember, this is only one aspect of your overall plan to consider, and the best approach is always to evaluate step by step.

But it's charming, isn't it?

Circulation Ratio

Another factor to consider must be the impact that the halving will have.

At the time of the first halving, the circulation of Bitcoin was about 10.5 million, and now, the circulation exceeds 19 million.

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

Diminishing Returns

With the popularization of public awareness and the growth of funds flowing into the market, the rate of return we can obtain will gradually decrease. This may be a natural evolution of new financial assets and industries:

more standardized

more liquid

more adoption

What will happen if the encryption market reaches the size of the securities market one day? We can guess that the volatility is reduced.

If we compare cycle returns, we find that:

Halving from 2012 to peak in 2014: 11,000%

Halving from 2016 to peak in 2017: 3685%

Halving from 2020 to peak in 2022: 685%

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

Summarize

As mentioned earlier, when we decide when to buy/sell, we can't just rely on cycles. Past performance is no guarantee of future performance. But they can aid our decision-making as an aspect of our considerations.

The industry is still small and vulnerable to speculative behavior, which tends to be magnified when most people believe in something. However, Bitcoin halving is not empty talk, it is a technical feature written in the agreement, which is something to always remember.