Disassembling the past three Bitcoin cycles: What will drive the next cycle?

Crypto景天 · 2023-07-08T06:54:32.000Z

The driving force behind the Bitcoin cycle The Bitcoin block reward is halved every 210,000 blocks. On a time scale, halvings occur approximately every 4 years. It marks a change in Bitcoin’s monetary policy, with a 50% reduction in block rewards (network inflation) paid to miners. In April next year, Bitcoin block rewards will drop from 6.25 BTC per block to 3.125 BTC. Since new issuance is cut in half, it's reasonable to conclude that lower new supply is the catalyst for every bull market. The theory goes like this: After the halving, miners sell fewer Bitcoins to the market. This consumed a large portion of the selling pressure. Prices are at the edge and new buyers will push prices higher. Then the financial media starts talking about Bitcoin, people start Googling it, Bitcoin goes viral, new buyers enter the market, on-chain activity picks up, and VCs pour money into new businesses that support the ecosystem. Thus, more business = more marketing = more users, which in turn stimulates more buyers, more on-chain activities, and more media coverage.

The driving force behind Bitcoin cycles
The Bitcoin block reward is halved every 210,000 blocks. In terms of time scale, the halving occurs approximately every 4 years. It marks a change in Bitcoin's monetary policy, reducing the block reward paid to miners (network inflation) by 50%.
In April next year, the Bitcoin block reward will drop from 6.25 BTC per block to 3.125 BTC.
Since new issuance is halved, it is reasonable to conclude that the reduction in new supply is the catalyst for each bull run.
The theory goes like this:
After the halving, miners sell less Bitcoin to the market. This consumes a large portion of the selling pressure. The price is at a boundary, and new buyers push the price higher. Then, the financial media starts talking about Bitcoin, people start Googling it, Bitcoin quickly becomes popular, new buyers enter the market, on-chain activity picks up, and venture capital firms put money into new businesses that support the ecosystem. So, more business = more marketing = more users, which in turn stimulates more buyers and more on-chain activity, as well as more media coverage.
This is a great story, let's look at the data and see if it's true.
Net Position Change = The net change in Bitcoin held by wallet addresses that Glassnode has labeled as belonging to miners.
First halving: According to Bitcoin monetary policy, the annual new issuance is reduced by 1,314,000. But in the 12 months after the halving, the Bitcoin held by miners decreased by 4,458,603, which is more than twice the reduction in Bitcoin held by miners in the 12 months before the halving. In 2013, as the price of Bitcoin rose, miners sold a large number of Bitcoins. In the first halving cycle, a total of more than 8 million Bitcoins were lost from miners. As the price of Bitcoin was at a low level, buyers dominated the market.
Second Halving: 12 months after the halving, miners’ holdings of Bitcoin also dropped more than the 12 months before. Once again, price action was driven by buyers in the market. In total, more than 5.4 million Bitcoins were transferred from miners during the second cycle.
Third Halving: Miners sold more Bitcoin after the halving than in the previous 12 months. However, the third cycle was the first accumulation cycle for miners. We see a net position increase of 93k in the last 6 weeks (start of the fourth cycle).
A supply shock caused by reduced miner selling does not necessarily trigger a bull run. In fact, miners sell more Bitcoin in the 12 months after the halving than at any other time in the cycle.
That being said, the halving narrative may attract new buyers and the market can self-regulate. So even if the data contradicts the narrative, if people believe it is true, it probably is. Markets are reflexive like this, especially in crypto.
Price behavior in cycles and predicting the next cycle
Timing the Market: The best time to buy Bitcoin is when everyone thinks it’s dead. We have two chances in 2022. We reminded readers in December that Bitcoin was bottoming. Second, what is the second best time to buy Bitcoin? Historically, it occurs during any decline before the halving. Of course, timing the market is really hard. Dollar-cost averaging works well for an asset like Bitcoin that is in the early stages of global adoption. Even those who bought at the top of past cycles have done well over the long term. Bitcoin is currently down 55% from its all-time high, but its 10-year, 7-year, 5-year, and 3-year CAGRs are 84%, 73%, 36%, and 49%, respectively. The key is to have long-term conviction. Know exactly what you are buying and ignore the noise.
Mid-cycle KPIs
Market Value / Realized Value:
This metric measures the ratio of the market price to the average price per circulating Bitcoin. We moved out of the green zone in early 2023, which has historically been a good entry point. That said, we are still at relatively low levels.