Author: Arkham
Compiled by: Felix, PANews
Many market observers have described multi-year "cycles" in price movements that coincide with Bitcoin's halving events. These patterns, collectively referred to as the "four-year cycle," have become a significant psychological phenomenon influencing how crypto watchers and traders think. This article will explore the various phases of the four-year cycle as well as previous Bitcoin cycles. Additionally, it will examine whether the Bitcoin cycle still exists.$Bitcoin (BTC.CC)$The long-term "cycles" of prices coincide with Bitcoin's halving events. These patterns are collectively referred to as the "four-year cycle" and have become significant psychological events that influence the mindset of crypto observers and traders. This article will explore the various stages of the four-year cycle as well as the situations of past Bitcoin cycles. Additionally, it will discuss whether the Bitcoin cycle still exists.
The typical four-year cycle
Market observers believe that the standard Bitcoin cycle begins with what is commonly referred to as the "accumulation" phase. They speculate that this phase starts after the crash following the peak of the previous cycle. During this period, price volatility and on-chain activity are relatively low, and market sentiment tends to be neutral or negative. This phase is called the accumulation phase because long-term Bitcoin holders begin to buy in large quantities. Consequently, the price characteristic of this period is a gradual recovery.
Bitcoin price and long-term holder supply
On-chain analysis shows that some investors are steadily accumulating, but most retail investors remain wary of the previous crash and are not interested in purchasing Bitcoin.
The accumulation phase typically lasts 12 to 15 months, after which the market cycle usually transitions into a new bull market. This often occurs before the halving, as the prices of Bitcoin and other crypto assets start rising in anticipation of the halving. The market begins pricing in the positive impact of future supply reduction, and sentiment shifts from neutral to optimistic. Liquidity starts to rebound, and media attention increases accordingly.
Bitcoin price and new address growth
Once the halving occurs, the bull market often experiences parabolic growth, with prices beginning to climb, sometimes slowly and sometimes explosively. Retail investors flood into the market, and traders start pouring substantial amounts of capital. Historically, new all-time highs are often set at this point as a new wave of investors enters the market. Some investors increase their leverage to chase higher returns, leading to more pronounced price volatility.
Previous bull markets have typically lasted 12-18 months, often ending with a sharp price decline. Leveraged traders are liquidated, altcoins experience even greater declines, sentiment turns negative, and a bear market begins. During this phase of the cycle, many participants sell at a loss and exit the market with whatever funds remain. Eventually, the dust settles, and a market bottom slowly forms. Overall market activity and excitement drop significantly from the peak, but committed builders continue to push forward, quietly advancing the development of new products and innovations.
Halving
To fully understand the four-year Bitcoin cycle theory, one must first thoroughly grasp the concept of halving and its impact on Bitcoin's price.
The Bitcoin halving is a significant event that reduces the mining reward (paid in BTC) for adding new blocks to the Bitcoin blockchain by half. This occurs every 210,000 blocks, approximately every four years. In 2009, the reward for adding a new block was 50 Bitcoins per block. Since then, the reward has been halved four times. The 2024 halving sets the current mining reward for new blocks at 3.125 Bitcoins. Assuming the four-year rhythm continues, the halving will persist until the total supply reaches its upper limit of 21 million Bitcoins, around the year 2140.
Halving is a method employed by Satoshi Nakamoto to ensure Bitcoin's scarcity. Bitcoin was created during the 2008 financial crisis, partly as a response to central bank bailouts and inflation-driven increases in fiat currency issuance. Most governments and their associated fiat currencies continuously adjust monetary policies, making it difficult for holders to establish long-term confidence in the value of their fiat currencies.
Bitcoin’s halving mechanism mimics gold, making it increasingly scarce. As gold deposits deplete, the difficulty of mining gold gradually increases, while Bitcoin achieves this mathematically. With the reduction in Bitcoin’s new supply, its scarcity also increases. Historically, Bitcoin’s price has generally risen with each halving, driven by the dynamics of supply and demand. Therefore, some proponents argue that the transparency and consistency of halving make Bitcoin an asset with strong value storage potential.
Review of Past Cycles
2013
Bitcoin was born in 2008, and 2013 marked its first cycle. This cycle was primarily driven by the tech community at the time, including internet forums and cryptography meetups. This period also saw some early media attention, with reports focusing on topics such as the first real-world Bitcoin transaction (10,000 Bitcoins used to buy two pizzas) and “Is Bitcoin digital gold?”
During this cycle, Mt. Gox was the largest Bitcoin exchange, handling over 70% of global Bitcoin transactions in 2014. However, in 2014, Mt. Gox suspended trading and shut down its website, later revealing the loss of 850,000 Bitcoins. Given that Mt. Gox was a primary source of Bitcoin liquidity, this incident led to a substantial decline in market trust in Bitcoin, resulting in an 85% price drop and the onset of a bear market.
2017
2017 marked the cycle of Bitcoin's adoption among retail investors. With the launch of Ethereum in 2015, smart contracts and their revolutionary potential came into public view. During this period, the price of Ethereum surged from $10 to $1,400. This era was also characterized by an ICO frenzy, with thousands of ERC-20 tokens being launched, attracting investment merely on the basis of whitepapers. Bitcoin also experienced a price explosion due to an influx of new investors, skyrocketing from $200 to $20,000 within two and a half years. The industry frequently appeared in mainstream media reports (see chart above).
Ultimately, the ICO boom that had driven up Bitcoin prices became the catalyst for its collapse. In ICOs, investors exchanged their Ethereum or Bitcoin for new project cryptocurrencies. After accumulating substantial amounts of Ethereum, many project teams began selling these tokens to cash out, creating downward pressure. The U.S. SEC also intensified its crackdown on ICOs, labeling them as 'unregistered securities offerings' and filing lawsuits against numerous projects, many of which were Ponzi schemes or scams. In this environment, over-leveraged investors either panicked and sold off or were forced to liquidate when prices started plummeting, resulting in an 84% drop in Bitcoin’s value to $3,200.
2021
The Bitcoin cycle of 2021 coincided with monetary expansion during the COVID-19 pandemic. Governments worldwide sought to revive economies stalled by the pandemic, with fiscal stimulus being their solution. The surge in global liquidity propelled Bitcoin to new highs in 2021. Another characteristic of this cycle was Bitcoin's transformation from an “internet currency” to a more significant “macro asset.” Companies like Strategy and Tesla purchased billions of dollars worth of Bitcoin, while payment applications such as PayPal and CashApp began supporting Bitcoin transactions. The DeFi boom of 2020 and the NFT craze of 2021 attracted large numbers of retail participants to this cycle. Both retail and institutional investors jointly drove up cryptocurrency prices, with Bitcoin peaking at $69,000.
The end of this Bitcoin cycle stemmed from the collapse of several well-known protocols and companies within the industry. First, the depegging of the Luna stablecoin UST led to the evaporation of $60 billion in a short period. Companies and institutions such as Voyager, Celsius, BlockFi, and Three Arrows Capital, which had direct or indirect exposure to Luna, bets on market direction, and interconnections with one another, ultimately went bankrupt. BlockFi subsequently underwent restructuring and secured a credit line from FTX. Ultimately, with the collapse of FTX, BlockFi also declared bankruptcy.
FTX and its affiliated trading platform Alameda were found to have engaged in large-scale fraud, forcing them to liquidate assets to repay users. The U.S. federal government also ended its stimulative monetary policy and began aggressively raising interest rates, draining market liquidity. All these events contributed to a plunge in Bitcoin prices, bottoming out at $15,500 during the bear market.
2025
The current 2025 cycle has witnessed increased institutional adoption, with major traditional financial institutions entering the field. In January 2024, spot Bitcoin ETFs were approved, and companies like Blackrock, Fidelity, and VanEck began offering Bitcoin as a standard investment product. Many firms also adopted Strategy’s Digital Asset Treasury (DAT) model, incorporating cryptocurrencies into their balance sheets. A unique aspect of this cycle is that Bitcoin reached a new high of $73,000 before the April 2024 halving. Additionally, institutions have become the primary drivers of price, with retail participation yet to reach previous cycle levels.
Why do cycles occur?
Stock-to-Flow Ratio
There are various potential reasons for Bitcoin’s four-year cycles. One common explanation relates to the Stock-to-Flow (S2F) ratio, a model often used to measure the scarcity of commodities like gold and silver.
The model compares stock (existing supply) to flow (annual new supply). The higher the ratio, the scarcer the asset. Applying the Stock-to-Flow (S2F) model to Bitcoin is justified by its fixed total supply and mining rewards being distributed at regular intervals. With each halving event, Bitcoin's stock-to-flow ratio doubles as the new supply is cut in half. Currently, Bitcoin’s stock-to-flow ratio is approximately 110, compared to gold’s ratio of around 60, making Bitcoin a scarcer asset under the S2F model.
Psychological Factors
Another straightforward explanation involves psychology and self-fulfilling prophecies. The price of Bitcoin is heavily influenced by narratives, herd behavior, and expectations about the future. Unlike traditional financial assets, Bitcoin does not have intrinsic value; its value primarily depends on people’s expectations of its future worth. Consequently, Bitcoin’s price exhibits strong reflexivity and is more sensitive to expectations surrounding halving events, rumors, and narratives. As the four-year Bitcoin cycle has repeated multiple times, investors increasingly trade Bitcoin based on patterns from previous cycles, creating a self-fulfilling prophecy.
Liquidity
Others argue that Bitcoin’s cycles are primarily driven by global liquidity. In his article “Long Live The King,” BitMEX founder Arthur Hayes pointed out that Bitcoin’s four-year cycle is directly linked to global liquidity, emphasizing the influence of the US dollar and the Chinese yuan. Hayes explained that the peak in 2013 was caused by monetary expansion following the 2008 financial crisis, the peak in 2017 resulted from the depreciation of the Japanese yen against the US dollar, and the peak in 2021 was triggered by monetary expansion after the COVID-19 pandemic.
Recently, discussions around the end of Quantitative Tightening (QT, where the Federal Reserve reduces the amount of assets on its balance sheet, thereby decreasing liquidity), the resumption of Quantitative Easing (QE), and declining interest rates have led some to claim that Bitcoin’s 2025 cycle will not follow historical patterns.
Retail vs. Institutional Investors
The positions held by retail and institutional investors also play a significant role in driving Bitcoin’s cycles. Institutional investors tend to be more disciplined, with longer investment horizons, often buying during periods of panic and forming market bottoms. Retail investors, on the other hand, are more emotional and prone to buying due to FOMO (fear of missing out). Therefore, retail traders are more likely to chase price momentum and use leverage. Retail activity tends to cause greater volatility, especially in the later stages of the cycle.
Why Do Some Say the Cycle Has Ended?
There are several reasons why people claim that Bitcoin’s cycles are outdated. One major factor is the increasing participation of institutions through ETFs, corporate treasuries, and hedge funds. These financial entities behave differently from retail investors, purchasing on fixed schedules, using reasonable leverage, and managing risks carefully. Such behavior dampens volatility, slowing down cyclical fluctuations.
Another potential reason is the significant growth of the cryptocurrency market compared to its early cycles. Bitcoin has become increasingly correlated with macroeconomic factors such as interest rates and Federal Reserve policies, diminishing the impact of halving events on its price. Halving occurs every four years, while Federal Reserve policies do not follow a similar fixed schedule. Additionally, as the effect of halving on block rewards diminishes over time, the importance of halving itself decreases. The first halving reduced the reward from 50 BTC to 25 BTC, whereas the most recent halving only decreased the reward from 6.25 BTC to 3.125 BTC.
How to determine whether a cycle has ended?
Closely monitoring the development of the current cycle can help better assess whether the four-year cycle has become a thing of the past. Some key signs that might indicate this:
In previous cycles, prices typically surged after halving, generally within 12 to 18 months post-halving.
Previous cycles ultimately ended with large-scale deleveraging and chain liquidations, resulting in declines exceeding 70%.
If the price of Bitcoin begins to align perfectly with changes in global liquidity, then Bitcoin would have transformed into a macro asset rather than one tied to the halving cycle.
In the later stages of previous cycles, there was usually a surge in retail participation and parabolic rises in altcoins. A lack of retail involvement suggests that the cycle is primarily driven by institutional buying, which could lead to reduced volatility and a flattening of the cycle.
Conclusion
For a long time, Bitcoin has followed a four-year cycle pattern. Bitcoin slowly recovers from bear markets, enters the halving phase, experiences a sustained price surge, and then rapidly retraces as leveraged traders incur losses. Historically, various factors have contributed to this phenomenon, forming the now-familiar four-year cycle. Nonetheless, Bitcoin has steadily grown, eventually becoming the behemoth it is today, with a market capitalization of $1.8 trillion. The emergence of institutional investors, ETFs, and sovereign wealth funds signifies a significant shift in market participants compared to the first cycle. Bitcoin appears to be increasingly sensitive to macroeconomic factors, though its price movement remains influenced by traditional elements such as psychological factors and mining economics.
It remains unclear whether Bitcoin's cycle has fully ended, but each cycle is unique, and future cycles could potentially differ significantly from the past. Understanding the historical evolution of this asset and its participants is key to comprehending future cycles, but ultimately, only time will tell whether this pattern will continue or become a relic of history.
Editor/Rocky
