It is now clear to most investors, especially those who have survived one or more crypto winters, that Bitcoin moves in cycles of about four years. Many argued until 2022 that Bitcoin would always remain above its previous highs.
This happened in 2011, in 2014 and in 2018. In 2022, however, the price of Bitcoin fell, due to the collapse of FTX, to $15,000, below the fateful threshold of $20,000, which was briefly reached, albeit for a few days in December 2017.
While everyone is trying to predict what the maximum value of Bitcoin will be in this cycle, which is likely to end in late October 2025, the research department at Diaman Partners has attempted to understand how to estimate what the minimum value of Bitcoin will be in 2026, should the crypto winter materialize in the coming months. Many experts speculate that Bitcoin's cyclical phase is over and that we are now entering a new, more ‘mature’ phase of more steady growth.
There are many reasons to support this thesis. ETFs in America are raising a lot of money, institutional demand, increasing treasury companies, and pension funds that can now buy Bitcoin (at least in the United States).
Maintaining a skeptical engineering perspective, however, one tends to believe that Bitcoin cycles will continue, albeit with less intensity, for years. At the very least, from a risk management point of view, the possibility that a crypto winter could happen can no longer be ignored.
It should be noted that the idea of using the robust 200-week average model is a concept from Adam Back that is well-trusted.
Bitcoin expected drawdown. Source: Diaman Partners
The chart shows that, except in 2022, where, as mentioned above, prices fell more than expected due to the FTX effect, the 200-week moving average provided excellent support for the price decline. In the same chart, the red line represents the percentage difference between the price of Bitcoin and the average itself, following the idea that the 200-week average represents a resistance, a sort of maximum drawdown to be expected in the event of a crypto winter.
An attentive observer might suggest that going from the high to the low takes some time. During this time, the average continues to grow, so this ratio overestimates the possible loss, and this is true; if we look at today’s values, where the average is above $51,000, perhaps a 60% loss is overestimated, and this is absolutely true.
To estimate where the 200-week average will be toward the end of 2026, the estimated end of the crypto winter (if there is one) and if it follows the amplitude of previous cycles, Diaman Partners carried out a Monte Carlo simulation to estimate both the probability that a historical series could be at a certain price, but also to estimate a range of values in which the 200-week average should be at the moment when there is the highest possibility, according to previous Bitcoin cycles, that the price will find support using it as resistance.
Bitcoin Montecarlo Simulation. Source: Diaman Partners
For fans of a Monte Carlo simulation, there is a model with decreasing returns and volatility (rather than the classic static mean and variance models) following power law functions on annualized returns on 200-week rolling windows for consistency, as shown in the chart below.
This precaution is necessary due to the technical structure of Bitcoin's returns and volatility, which has decreased significantly over the years (which is why we are convinced that Bitcoin can no longer experience exponential growth, at least based on average past returns).
200-week annualized returns and volatility. Source: Diaman Partners
This graph shows that Bitcoin returns are not exponential, so as Bitcoin grows in capitalization, we can expect. Indeed, it is reasonable to expect a decrease in average annual returns and volatility over time. The larger an asset becomes in capitalization, the more energy is needed to move it.
However, assuming that there will be no more drawdowns of -50% or more with the current volatility is too unrealistic, so we believe assessing the possible drawdown of this fourth cycle of Bitcoin's life is necessary.
From this simulation, which was carried out by creating 1,000 random historical series, it appears that Bitcoin has only a 5% probability of having a value below $41,000 in December 2026, which would mean that the price would have exceeded the moving average, which would be around $60,000 despite the price decline. If we take the 5°nd percentile (red line in the chart), the target price for the end of the crypto winter cycle, indicated by the 200-week moving average, would be around $60,000.
If, on the other hand, the price of Bitcoin were to continue to rise and then fall only in 2026, or in any case remain in line with the Monte Carlo simulations, then the support value for the cycle low at the end of 2026 would be over $80,000.
Bitcoin potential 2026 bottom. Source: Diaman Partners
To hypothesize such a case, out of all 1,000 simulations, we took the one representing strong growth for Bitcoin in the coming months, followed by a significant decline until almost the end of 2026.
Bitcoin price projected downside. Source: Diaman Partners
If we reverse engineer, starting from the possible bottom of 2026 at $80,000, the table shows what the maximum loss could be in the next crypto winter based on the maximum that Bitcoin will reach in the coming months. Considering that drawdowns in the various cycles have always been declining (-91%, -82%, -81%, -75%), expecting -69% could be plausible, and therefore, the price target of $260,000 may not be so impossible to achieve by 2025.
Bitcoin price tops and bottoms. Source: Diaman Partners
On the other hand, if we look at the logarithmic chart, a trend such as the one hypothesized is far from out of step with previous cycles. Obviously, this study does not constitute investment advice, but simply an intellectual effort to predict an absolutely uncertain and far from certain future, and the maximum and minimum values are simply based on models that may not necessarily come true.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
