How to Respond To the Fourth BTC Halving?

[TL; DR]

- Everything has a cycle. Similarly, BTC has to follow one as well.

- The most direct manifestation of the periodicity of BTC is the BTC halving cycle.

- Halving is a big deal, but it will take years to make a difference.

- In 2023, all dimensions of BTC expansion will usher in new variables.


Introduction

Everything has rules and cycles. Similarly, BTC has to follow one as well. BTC usually goes through - bottoming, run-up, craziness, and collapse, corresponding to the depression, recovery, prosperity, and recession of the traditional economic cycle.


What Is a Cycle?

The cycle generally refers to the business cycle, which indicates that the cycle length includes a period of prosperity and recession. These fluctuations usually include changes between periods of relatively rapid economic growth (expansion or prosperity) and periods of relative stagnation or decline (contraction or recession). Despite the name "cycle", these fluctuations in economic activities do not show unity or predictable periodicity.

According to the length of cyclical fluctuations, there are three main types of economic cycles, namely, long cycles, medium cycles, and short cycles. Long cycles are also called long wave cycles or Kondratieff Waves, and the average length of each cycle is 50-60 years. The medium cycles are also called large cycles or Juglar cycles, and the average length of each cycle is 8 years. The short cycles are also called small cycles or Kitchin cycles, and the average length of each cycle is 3-5 years.

In 1860, French economist Clèment Juglar determined the economic cycle of 7 to 11 years for the first time, but he cautiously claimed that there was no strict regularity. Later, economist Joseph Alois Schumpeter believed that a Juglar cycle has four stages: expansion, crisis, recession, and recovery.

The BTC price also has a cyclical feature. Its most direct manifestation of periodicity is the BTC halving cycle. That is, BTC production is halved every four years. With the BTC halving cycle, we found that the price cycle of BTC also has certain rules.



What Could Be Coming In 2023?

Presently, although the overall macro situation is a global tightening, which is attacking the Federal Reserve's interest rate hike, the Federal Reserve has nothing else to do if it does not raise interest rates. Inflation is not caused because of the United States, but by geopolitical conflicts.

But 2023 will undoubtedly be better than this year, and 2024 promises to be much better than this year. It is a certainty that the Federal Reserve will raise interest rates in December. Earlier, "Eagle King" James Bullard also asked whether the overall interest rate increase in 2023 should be moved to 2022, indicating that the interest rate hike in December this year will be more powerful. If so, 2022 could be the worst year for the market. The total raised Fed’s fund interest rate will end at 5.25. Even if the Fed maintains the terminal interest rate of 5.0 – 5.25 for the whole year of 2023, the market has expected that the Fed will no longer raise interest rates. The most difficult time has passed, and market sentiment will be eased.

In the 2024 mid-term election, the U.S. stock market has risen for five or six consecutive years in the 3 to 12 months after the midterm election. Especially, the harder the fall before the midterm election, the higher the rebound after the midterm election. Meanwhile, the halving cycle of BTC is also quadrennial, which coincides with the midterm election.

"Is it because of the halving or the midterm election that BTC has risen?"

It is difficult for us to have a very accurate answer to that question because as long as the U.S. stock market rises at this time, the stock market is related to capital. As long as the midterm election is held, the entire risk market in the United States is basically positive.


In addition, Pantera Capital, a cryptocurrency hedge fund, said in its internal staff letter “FTX Underscores The Importance Of DeFi” that BTC halving would have a huge impact on prices. According to the Stock-To-Flow model price forecast, if history repeats, BTC will rise to $36,000 before the next halving, and then to $149,000.

Pantera quoted the efficient market theory that if the demand for new BTC (after halving) remains unchanged and the supply of new BTC is halved, it will force the price to rise. Before the BTC halving event, the demand for BTC will also increase due to the expectation of a price rise.

Halving is a big deal, but it will take years to make a difference. On average, the typical bottom appeared 1.3 years before each halving and reached its peak another 1.3 years after the halving. In other words, the whole process took 2.6 years to see the full impact.

Pantera stated that if history repeats, the BTC price will bottom out on December 30, 2022. We will see that the rebound will last until the beginning of 2024, and then there will be a strong rebound after the actual halving.



Conclusion

In 2020, BTC was branded as "digital gold". In 2021, under the inspiring BTC-fiat experiment in El Salvador, combined with the Lightning Network and the "most ambitious upgrade" Taproot upgrade, the payment attributes of BTC "global currency" also ushered in a huge wave.

In 2022, the major crashes will boost the market clearing and deleverage, and more regulatory intervention support will enable the industry to develop more healthily and orderly. With the surge of various financial derivative scenarios, BTC's expansion in all dimensions will usher in new variables in the future.

So, are you looking forward to where BTC will go in 2023?


Disclaimer
Author: Gate.io Researcher Byron B. Translator: Joy Z.
This article represents only the researcher's views and does not constitute any investment advice.
Gate.io reserves all rights to this article. Reposting the article will be permitted provided Gate.io is referenced.