The Bitcoin cycle theory, particularly its correlation with Bitcoin halving events, has long been viewed as an important tool for predicting Bitcoin price trends. Historically, Bitcoin halving has typically resulted in price increases; however, the current market performance and the underlying factors suggest that the effectiveness of this theory may be waning. This article will review the four Bitcoin cycles from 2011 to 2024 and explore the market changes in the current cycle in depth.

01. The basis of Bitcoin cycle theory

Bitcoin’s mining reward halves every 210,000 blocks, approximately every four years. This mechanism is designed to control Bitcoin’s supply, thereby increasing its scarcity. Historically, halving events have typically been accompanied by significant price increases for Bitcoin, forming cycles. For example:

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

2016 Halving: Shortly after the halving, Bitcoin’s price rose to nearly $3,000 and reached an all-time high of nearly $20,000 by the end of 2017.

2020 Halving: Following the halving in May 2020, Bitcoin’s price rapidly climbed to historical highs in 2021.

After the halvings in 2012, 2016, and 2020, Bitcoin prices experienced significant increases, forming clear bull market cycles. This historical data has led to widespread recognition and trust in the Bitcoin cycle theory. However, the current cycle will complete its fourth halving on April 20, 2024, and the post-halving performance has not met expectations.

02. Price data after halving

If we align the historical Bitcoin halving dates on a coordinate axis and compare the prices after each halving with the price on the day of the halving, it becomes evident that the current cycle’s performance is the weakest.

Despite the market breaking through a new cyclical historical high ahead of the halving event in April, this has not altered the current cycle’s relatively sluggish performance.

Source: Glassnode

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

• Period 1: +895%
• Period 2: +15%
• Cycle 3: +37%
• Period 4: -11%

The current cycle has shown a weaker price response post-halving compared to previous cycles, resulting in poor performance for Bitcoin’s price. What are the reasons behind this? How does this cycle differ from the previous ones?

03. Bitcoin stabilizing

The Bitcoin cycle from 2023 to 2024 shares some similarities with previous cycles but also exhibits significant differences. After the collapse of FTX at the end of 2022, the market experienced approximately 18 months of price stability and upward movement. With the approval of Bitcoin ETFs, new funds continually flowed in, leading to a high of $73,000 before the market entered a three-month period of range-bound fluctuations.

During this time, from May to July, Bitcoin’s price underwent its deepest cyclical correction, with a decline of over 26%. Despite the significant drop, this decline was notably shallower compared to previous cycles, and volatility was reduced. This reflects a relatively stable market structure for Bitcoin, indicating that it has matured as a financial asset compared to earlier periods.

Source: Glassnode

Let’s take a look at another technical indicator, the MVRV Z-score, which also highlights the differences in Bitcoin market performance across cycles.

First, the MVRV Z-score is a relative indicator calculated using the formula: (market capitalization - realized capitalization) / standard deviation (market capitalization). When this indicator is too high, it suggests that Bitcoin’s market value is overvalued relative to its intrinsic value, which could negatively impact the price. Conversely, a lower MVRV Z-score indicates that Bitcoin’s market value is undervalued.

Source: Coinglass

From the data shown in the chart from 2010 to 2024, we can observe that compared to previous cycles, the MVRV Z-score (green line) exhibits relatively moderate fluctuations, peaks, and returns, without the dramatic swings seen in earlier periods.

Bitcoin appears to be moving towards a stable and gradually ascending trend rather than the sharp price surges of the past. This incremental growth pattern is more attractive in the long run.

04. Reasons for the weakening of volatility

We can use a data indicator to intuitively explain why Bitcoin’s volatility has diminished and is trending towards stability.

The Bitcoin 5+ Years HODL Wave indicator shows the percentage of Bitcoin that has not moved on-chain for at least five years, sometimes referred to as the supply of Bitcoin last active over five years ago. This indicator reflects the behavior of long-term participants in the market to some extent.

Of course, it’s also possible that a portion of these Bitcoins has been lost, meaning users can no longer access the private keys to wallets containing the Bitcoins; however, this proportion is relatively small.

From the chart, it can be observed that currently over 30% of Bitcoin has not been transferred in the past five years, and this percentage may continue to rise.

This phenomenon results in a decrease in the number of Bitcoins circulating in the market, with effects surpassing the supply reduction brought about by halving events. It signifies a significant increase in the trend of long-term Bitcoin holding, allowing the market to better withstand short-term fluctuations, while also potentially weakening Bitcoin’s cyclical volatility. This is one reason for the reduced volatility of Bitcoin.

Other contributing factors include the maturity of the market, as more investors choose to hold Bitcoin long-term, which decreases circulating supply and mitigates drastic price fluctuations. Additionally, the supply and demand dynamics of Bitcoin are changing, with continuous capital inflows providing support for prices.

Moreover, factors such as global economic uncertainty, policy changes, and market sentiment also impact Bitcoin’s price. In this context, Bitcoin’s price may become more correlated with traditional financial market trends, thereby reducing its independent volatility.

These reasons collectively contribute to the relatively moderate volatility of Bitcoin’s price in the current cycle.

05. Summary

Compared to historical cycles, the current cycle has experienced smaller price corrections, and the market structure appears relatively robust, leading to reduced volatility in Bitcoin prices.

As a result, relying solely on market cycle analysis for Bitcoin trading is insufficient. On one hand, historical data cannot predict future trends. On the other hand, the cryptocurrency market is gradually moving towards normalization, resulting in increased liquidity and broader adoption, which is a natural outcome of financial development.

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