I started writing this blog post some time in 2021, after the bear market had started, but hadn't fully kicked in yet. Many pleb bitcoiners were still under the illusion that we were buying the dip, and didn't see the dip behind the dip (and the dip behind that one). Looking back, it all seems so funny to see how many accounts were predicting that the bull run was still on, and this was your last shot to get on the rocket ship before we took off past six figures towards gold's 10 trillion dollar market cap.
Early on, it seemed to be guaranteed that we'd hit at least $100k bitcoin during this “cycle”, and I definitely bought into the hype (just being honest and accountable here). Lucky for me I wasn't involved in any bitcoin yield products (thanks to my continuing bitcoin education), so although many people got rekt in DeFi, Celcius, BlockFi, and FTX, my bitcoin stack remains in tact. In fact, I own more bitcoin than I did last year, so mission accomplished.
So are we stuck in a bear market until after the next halving, or are bitcoin's cycles lengthening and we're due for another bull run right about… now? Is the pain almost over?
Are Bitcoin Cycles Getting Longer?
4-Year Cycle Theory
One of the core frameworks for “cycle theory” is that medium term price movements are directly related to, and are a result of the halvings. Because every four years the bitcoin being issued by the block subsidy is cut in half, restriction of the supply, coupled with increased demand, should cause the price to go up. This is the so-called number go up technology.
Supply in bitcoin is completely predictable, and one of the core features of bitcoin as a money. Demand is, of course, unpredictable, but game theory would suggest that as more people come to realize that Bitcoin's supply is strictly limited, demand should rise. Therefore limited supply and infinite demand are intertwined.
The supply of bitcoin becomes more and more constrained over time. The amount of new bitcoin being released onto the market by miners becomes smaller and smaller compared to the amount of bitcoin that already exists on the market. More people want bitcoin over time, and fewer new bitcoin are being created, so it increases demand for already-issued bitcoin. Miners have fewer bitcoin to sell, so the bitcoin you're holding becomes more in-demand.
The cycle of demand, euphoria, retraction, disillusion, and rebirth plays out every four years as more people wake up and adopt bitcoin. Then we do it all again.
Unfortunately, in 2022, market dynamics didn't really play out as expected. There was no “blow off top”. We were only 3x from the 2017 all time high, and the subsequent selloff landed us below 2017 highs. The 4-year cycle theory is dead. Or is it?
Why No Blow Off Top In 2021?
“Cycle Theory” should have sent us soaring past $100,000 per bitcoin in 2021, but clearly that didn't happen. We topped out at around $69k, a mere 3x from the 2017 peak. Though there had been plenty of speculation for many years that bitcoin's price movements would get less volatile over time due to more deeply liquid market “smoothing out” the pumps and dumps, the less violent upward trajectory in 2021 meant people were taking a second look at this idea. Could this be the year that something was different?
Would this be the end for blow off tops for bitcoin, or was it a double pump like in 2013? Was it the beginning of a super cycle, or are bitcoin cycles getting longer, and we taking a breather, then resume the pump.
In hindsight, we can see how things played out. $69k was the top, and we were clearly in a bear market throughout all of 2022.
The most plausible explanation I've heard is that due to fraudulent exchanges like FTX operating with fractional reserves, price action to the upside was less extreme. They were essentially creating “paper bitcoin” (more bitcoin than actually exists) by crediting customer accounts with bitcoin even though that bitcoin was being lent out to other investors.
There are a number of other possible reasons, including the sudden China mining bad (bad news) directly during the bull phase of the market, as well as other macro headwinds, but the reality is that we just don't know.
Visualizing Bitcoin's Lengthening Cycles
1. Blocks Since Halving
This tweet was from December 2021, just as people were getting super nervous that we wouldn't hit $100k in 2021 as so many predicted. With just 2 weeks to go, we'd have to double or triple the bitcoin price ASAP to meet expectations.
Of course, that didn't happen, so people started to pivot to whatever would be the next bull case.
Turns out, “blocks since halving” wasn't the magic sauce we needed to pump the price, and though it makes a nice-looking chart, if you bought bitcoin based on expectations that the price would pump between March 7 and April 7 (according to @fairfreedigital on Twitter), let alone at any point in 2022, you'd have got rekt.
2. Days Since Halving
Normally I really hate chart predictions because they are wrong most of the time, but looking back, this one was kind of right. You can see that based on days since the halving, 2012 (487 days, then 2016 (640 days), 700 days from the 2020 halving would put us at a price top around the end of 2021.
Though most people were expecting something way above $100k for 2021 around December, we did hit $65k on Oct 20, 2021, then $69k on Nov 8, 2021. So it wasn't too far off. It wasn't 700 days as he predicted. It was only 527 days to October 20 and 546 days to Nov 8, which was less than the previous cycle, which discounts the lengthening cycle theory, though it does fit into somewhat of a generic cycle theory.
Of course, if you were placing bets based on this model, you would have lost money, like a lot of people did, expecting a blow off top around December. 700 days from May 11, 2020 (halving day) would have been April 11, 2021, so I'm not exactly sure what his 700 day prediction was about in the chart now that I'm calculating this out.
3. Days Since The Bottom
This one has yet to play out, so we'll see how it goes, but this lengthening chart measures “days since the bottom”. I guess it depends on how you measure the bottom, but we were pretty much at the bottom of the 3rd halving in March 2019. We peaked at $20k in 2017, then 2018 was full bear, then 2018 bottomed at just below $4k. We went further below that in March 2020, but I count that as an anomaly due to covid.
I'm just eyeballing things here since there isn't a link to the chart data, but it looks like the days increase by about 500 days each time, going from 200 days to the peak for the first cycle, then 700 by the second cycle, and 1100 the third cycle, which would be 1600 days for the fourth cycle.
1600 days from March 2019 would be around July 2023, which means the cycle top for this time around wasn't actually $69k, and we are still due for a blow off top summer of this year.
Well, the great thing about blogs is that I can publish this and we can come back to revisit this prediction later. Of course, all tweets on this page are screenshotted in case they get deleted 🙂 We'll see. Just 6 months to go!
Why Would Bitcoin Cycles Be Getting Longer?
Major reasons why cycles would be getting longer basically boil down to maturation of the market. With more market participants and more liquidity in the system, it's harder and harder to “shock” the price higher like in previous years. To pump from $100 to $1000 requires a lot less money than from $100,000 to $1,000,000.
Beyond the math of money inflows into bitcoin markets, there's also a media saturation around bitcoin, where more people these days have heard of bitcoin, so they are less likely to get suddenly fanatical about it. Rather than new bitcoin buyers attempting to get rich quick, they are more likely to take a long term approach, stacking sats over time.
However, this idea discounts other factors, and we never escape the cyclical nature of bitcoins rallies and crashes.
For example, the as derivative markets grow, for better or worse, more people will jump into speculating on bitcoin's price price movements. More people piling into these derivative markets across the world means more chances of folks getting liquidated and causing cascading price movements.
As bitcoin continually refuses go “go to zero” more, and larger investors will have the confidence to invest more money into bitcoin. While it would have been wild to buy just $10,000 worth of bitcoin in 2011, it's not really a big deal to buy $100,000 in 2021. Plus, retail investors will feel more comfortable buying bitcoin with well-known companies like Fidelity, who are slowly but surely starting to offer bitcoin services to their current customers. Just imagine how many people will be casually buying bitcoin in 2030 and beyond.
Don't Get Rekt Investing In Cycle Theory
Whether it's 4-year cycles or lengthening cycles, you simply cannot make a serious investment into bitcoin based on short term price predictions. Any “patterns” that look like they may play out based on historical price movements are simply retrofitting formulas and cannot be used to predict the future.
With bitcoin, we always know what the supply will be. The trouble is, we don't know what the demand will be. We also don't know what else is going to be happening in the world.
We could be in a recession, or heading towards a global depression lasting for many years that could suppress the price of bitcoin as people struggle to pay for basic necessities.
OR
The Federal Reserve and other central banks may have hit peak interest rates for this cycle and start another phase of easy monetary policy as they aim for a “soft landing”. What about the start of hot war with Russia? Or an end to the war in Ukraine?
These are “unknown knowns”, meaning they are things that people are unsure about, but aware of the risks. What about the “unknown unknowns”, i.e. the things nobody is predicting?
Here's a great example of how all price models are bullshit. Cory Klippsten from Swan Bitcoin was one of the earliest critics of the now infamous “Stock To Flow” model, which predicted Bitcoin over $100,000 USD by December 2021. He made his own prediction back January of 2022 that bitcoin would hit at least $200k in 2023 based on some very basic math and assuming extending cycle length over time.
Using bottom to top in 2-year increments, a 6 year cycle and 45% reduction in the magnitude of the blow off top, Bitcoin's third halving should result in a price of $200k by 2023.
Of course, he published this just to illustrate how you can create all kinds of nutty models when you retrofit math to fit your own biases.
Patter Recognition Is Just Too Attractive To Resist
2020 and 2021 predictions pretty much all failed, and now that we've forgotten all of that in the 2022 bear market, new narratives are starting to form. It seems the next bull market is just about to start soon (until it isn't). I too would love some mathematical confirmation that the pain is almost over.
One way to consider thinking about bitcoin's price growth cycles is to look at it through the lens of a technology, rather than a stock. Gartner Hype Cycles predicts that with any new technology there will be a period of euphoria, followed by disillusionment, and finally settling somewhere near reality, then continuing to grow at a reasonable, steady pace, until the next innovation brings the next hype cycle.
3D Printing is a great recent example, where people imagined printing their own food, homes, and cars ten years ago, then everyone realized how shitty the technology was, and it's only now that people are starting to print little toys and decorations to sell online.
This is why it's important to have a solid reason for owning bitcoin. If you simply buy for short term price appreciation, it's easy to get rekt in short term cycles. When you're down 80% because you tried to flip a couple a quick dollars trading bitcoin, you have no foundation. When you're down 80% but you understand the fundamentals of bitcoin haven't changed despite the price tanking, it's much easier to stay steadfast.
I remember reading an interview with Jeff Bezos about his time at Amazon during the tech bubble crash in the late 90's, and he recalled thinking how strange it was looking inside his company and seeing growth metrics all around, while the price of the stock was in the dumps. When you know what you own, short terms price movements don't affect you as much. They still suck, but they don't suck enough to force you to sell.
Is The Four Year Cycle Dead?
There is a compelling argument that four-year cycles are dead now that bitcoin has grown large enough to escape it's own bubble of influence. The idea is that as bitcoin becomes a highly liquid, global asset it sort of escapes the circle of influence of bitcoin-only mechanics. Instead of being solely affected by bitcoiners buying bitcoin, suddenly it's also affected by things like interest rates and other broad market activity.
Only time will tell. We only have about 10 years of data to go off of, and 3 cycles, so it makes it hard to draw too many conclusions about what's going on. What I do know, is that regardless of which direction the market goes from here, people will continue to find patterns in bitcoin's price movement.
Is Bitcoin Going To Crash?
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