Author: Arkham
Compiled by: Felix, PANews
Many market observers have described multi-year "cycles" in Bitcoin's price that coincide with Bitcoin's halving events. These patterns, collectively known as the "four-year cycle," have become significant psychological events influencing the mindset of crypto observers and traders. This article will explore the various stages of the four-year cycle and the circumstances of past Bitcoin cycles. Furthermore, it will discuss whether the Bitcoin cycle still exists.
The Typical Four-Year Cycle
Market observers believe the standard Bitcoin cycle begins with what is often called the "accumulation" phase. They speculate that this phase starts with 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. It's called the accumulation phase because long-term Bitcoin holders begin buying in significant quantities. Consequently, the price characteristic of this period is a gradual recovery.
Bitcoin Price vs. Long-Term Holder Supply
On-chain analysis shows that some investors are steadily accumulating, but the majority of retail investors, still wary from the previous crash, remain uninterested in buying Bitcoin.
The accumulation phase typically lasts 12 to 15 months, after which the market cycle usually enters a new bull market. This often occurs before the halving, as the prices of Bitcoin and other crypto assets begin to rise in anticipation of the event. The market starts pricing in the positive impact of reduced future supply, and market sentiment also shifts from neutral to optimistic. Liquidity begins to recover, and media attention increases accordingly.
Bitcoin Price vs. New Addresses
Once the halving occurs, the bull market often experiences parabolic growth, with prices beginning to climb, sometimes slowly, sometimes explosively. Retail investors flood into the market, and traders start deploying large amounts of capital. Historically, this is when new all-time highs are often set, as a new wave of investors enters the market. Some investors increase leverage to chase the highs, leading to even more violent price fluctuations.
Past bull markets have lasted approximately 12-18 months, usually ending with a sharp price decline. Leveraged traders get liquidated, altcoins fall even more sharply, sentiment turns negative, and a bear market begins. In this phase of the cycle, many participants sell at a loss and cash out with their remaining funds. Eventually, the dust settles, and a market bottom slowly forms. Overall market activity and excitement have significantly decreased since the peak, but determined builders continue forward, quietly developing new products and innovations.
The Halving
To fully understand the theory of the four-year Bitcoin cycle, one must first thoroughly understand the concept of the halving and its impact on Bitcoin's price.
The Bitcoin halving is a significant event that halves the mining reward (paid in BTC) for adding new blocks to the Bitcoin blockchain. This occurs every 210,000 blocks, approximately every four years. In 2009, the reward for adding a new block was 50 Bitcoin per block. It has since been halved four times. The 2024 halving set the current new block mining reward at 3.125 Bitcoin. Assuming the four-year rhythm continues, halvings will persist until the total supply reaches its cap of 21 million coins, around the year 2140.
The halving is Satoshi Nakamoto's way of ensuring Bitcoin's scarcity. Bitcoin was born during the 2008 financial crisis, partly in response to central bank bailouts and the inflation caused by fiat money printing. Most governments and their associated fiat currencies constantly adjust monetary policy, making it difficult for holders to build long-term confidence in the value of their currency.
Bitcoin's halving mechanism mimics gold, making it scarcer. As gold deposits are depleted, mining gold becomes progressively harder, and Bitcoin achieves this mathematically. As the new supply of Bitcoin decreases, its scarcity increases. Historically, Bitcoin's price has typically risen following each halving, thanks to supply and demand dynamics. Therefore, some proponents argue that the transparency and consistency of the halving make Bitcoin an asset with strong store-of-value capabilities.
Review of Past Cycles
2013
Bitcoin was born in 2008, and 2013 marked its first cycle. It was primarily driven by the tech community of the time, such as internet forums and cryptography meetups. This cycle also garnered some early media attention, with reports on topics like the first real-world transaction using Bitcoin (buying two pizzas for 10,000 BTC) and "Is Bitcoin digital gold?".
In this cycle, Mt. Gox was the largest Bitcoin exchange. In 2014, Mt. Gox handled over 70% of global Bitcoin transactions. However, in 2014, Mt. Gox suspended trading and shut down its website, later revealing that 850,000 Bitcoin were missing. Since Mt. Gox was the primary source of Bitcoin liquidity, this event led to a significant drop in market trust in Bitcoin, causing an 85% price decline and initiating a bear market.
2017
2017 was the cycle where Bitcoin gained popularity among retail investors. With the launch of Ethereum in 2015, smart contracts and their revolutionary potential entered the public consciousness. Ethereum's price skyrocketed from $10 to $1400 during this cycle. This period was also notorious for the ICO frenzy, with thousands of ERC-20 tokens launched, and investors pouring money into projects based solely on whitepapers. Bitcoin's price also exploded due to the influx of new investors, surging from $200 to $20,000 in two and a half years. The industry was frequently covered by mainstream media (see image above).
Ultimately, the ICO boom that drove Bitcoin's price up dramatically also became the catalyst for the crash. In ICOs, investors exchanged their Ethereum or Bitcoin for a new project's cryptocurrency. After accumulating large amounts of Ethereum, many projects began selling these tokens for cash, creating selling pressure. The U.S. SEC also began cracking down heavily on ICOs, labeling them "unregistered securities offerings" and filing lawsuits against numerous projects, many of which were Ponzi schemes and scams. In this environment, over-leveraged investors either panic-sold or were forced to sell as prices began to plummet, causing Bitcoin's price to crash by 84% to $3,200.
2021
The 2021 Bitcoin cycle coincided with the money printing during the COVID-19 pandemic. Governments worldwide sought to restart economies stalled by the pandemic, and fiscal stimulus was their solution. The surge in global liquidity pushed Bitcoin to new all-time 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 apps like PayPal and CashApp began supporting Bitcoin transactions. The 2020 DeFi summer and the 2021 NFT craze attracted massive retail participation in this cycle. Both retail and institutional investors jointly drove up cryptocurrency prices, with Bitcoin reaching a high of $69,000.
The end of this Bitcoin cycle stemmed from the collapse of several prominent protocols and companies within the industry. First, the depegging of the Luna stablecoin UST wiped out $60 billion in a short period. Companies and institutions like Voyager, Celsius, BlockFi, and Three Arrows Capital, with direct or indirect exposure to Luna, bets on market direction, and interconnections, ultimately declared bankruptcy. BlockFi subsequently restructured and received a line of credit from FTX. Finally, with the collapse of FTX, BlockFi also declared bankruptcy.
FTX and its affiliated trading firm Alameda were found to have engaged in massive fraud, forcing asset liquidation to repay users. The U.S. federal government also ended its stimulative monetary policy and began raising interest rates significantly, draining market liquidity. All these events contributed to a sharp drop in Bitcoin's price, which fell to $15,500 at the bear market bottom.
2025
The current 2025 cycle has witnessed increased institutional adoption, with major traditional financial institutions entering the space. The approval of spot Bitcoin ETFs in January 2024 allowed companies like BlackRock, Fidelity, and VanEck to offer Bitcoin as a standard investment product. Many companies have also adopted Strategy's Digital Asset Treasury (DAT) model, incorporating cryptocurrencies into their balance sheets. This cycle is unique in that Bitcoin reached a new high of $73,000 before the halving in April 2024. Additionally, institutions have become the primary drivers of price, with retail participation not yet reaching the levels of previous cycles.
Why Do Cycles Occur?
Stock-to-Flow Ratio
There are several potential reasons for the occurrence of the four-year Bitcoin cycle. A common explanation relates to the Stock-to-Flow ratio (S2F), a model often used to measure the scarcity of commodities like gold and silver.
This model compares stock (existing supply) and flow (new annual supply). The higher the ratio, the scarcer the commodity. The S2F is applied to Bitcoin because of its fixed total supply and the fixed schedule of mining rewards. With each halving, Bitcoin's stock-to-flow ratio doubles, as the new supply is halved. Currently, Bitcoin's stock-to-flow ratio is approximately 110, while gold's is about 60, making Bitcoin the scarcer asset under the stock-to-flow model.
Psychological Factors
Another simple explanation involves psychology and self-fulfilling prophecies. Bitcoin's price is heavily influenced by narratives, herd behavior, and expectations about the future. Because Bitcoin lacks intrinsic value like traditional financial assets, its value depends primarily on people's expectations of its future worth. Consequently, Bitcoin's price is highly reflexive and more sensitive to halving expectations, rumors, and narratives. Because the four-year Bitcoin cycle has played out consecutively several times, investors are more inclined to trade Bitcoin based on the movements of past cycles, creating a self-fulfilling prophecy.
Liquidity
Others argue that Bitcoin's cycles are primarily determined by global liquidity. BitMEX founder Arthur Hayes, in his article "Long Live The King," pointed out that Bitcoin's four-year cycle is directly related to global liquidity and highlighted the influence of the US dollar and the Chinese yuan. Hayes explained that the 2013 peak was caused by money printing following the 2008 financial crisis, the 2017 peak was caused by the depreciation of the Japanese yen against the US dollar, and the 2021 peak was caused by post-COVID money printing.
Recently, surrounding topics like the end of Quantitative Tightening (QT, where the Fed reduces the number of assets on its balance sheet, thus reducing liquidity), the restart of Quantitative Easing policies, and falling interest rates, some claim that the 2025 Bitcoin cycle will not follow the previous pattern.
Retail vs. Institutions
The holdings of retail and institutional investors also play a significant role in driving Bitcoin cycles. Institutional investors are typically more disciplined, have longer investment horizons, and therefore buy during periods of fear, 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 investors are more likely to chase price momentum and use leverage. Retail investors often create greater volatility within the cycle, especially in the later stages.
Why Some Say the Cycle is Over
There are several reasons why people claim the Bitcoin cycle is obsolete. A major reason is increased institutional participation through ETFs, corporate treasuries, hedge funds, etc. These financial entities behave differently from retail investors, buying on fixed schedules, using reasonable leverage, and managing risk prudently. This behavior dampens volatility, thereby smoothing out cyclical fluctuations.
Another potential reason is that the cryptocurrency market has grown significantly compared to earlier cycles. Bitcoin is increasingly correlated with macroeconomic factors like interest rates and Fed policy, weakening the impact of the halving on Bitcoin's price. The halving occurs every four years, whereas Fed policy has no similar fixed schedule. Furthermore, the importance of the halving itself is diminishing as its effect on the block reward decreases. The first halving reduced the reward from 50 BTC to 25 BTC, while the most recent halving only reduced it from 6.25 BTC to 3.125 BTC.
How to Tell if the Cycle is Over
Paying close attention to the development of the current cycle can help better determine whether the four-year cycle has become a thing of the past. Some key signs that might indicate this:
- Past cycles typically experienced a price surge after the halving, generally within 12-18 months post-halving.
- Past cycles ultimately ended with massive leverage wipeouts and cascading liquidations, leading to drops exceeding 70%.
- If Bitcoin's price begins to perfectly align with changes in global liquidity, then Bitcoin has become a macro asset, not one based on a halving cycle.
- Past cycles saw a surge in retail participation in the later stages, with altcoins experiencing parabolic rises. A lack of retail participation suggests the cycle is primarily driven by institutional buying, which could lead to reduced volatility and a flattened cycle.
Conclusion
Bitcoin has long followed the pattern of a four-year cycle. It slowly recovers from a bear market, enters the halving phase, followed by a sustained price surge, which then rapidly declines as leveraged traders suffer losses. Historically, various factors have contributed to this phenomenon, ultimately forming the familiar four-year cycle we know today. Nonetheless, Bitcoin has steadily evolved, finally becoming the behemoth it is today with a market capitalization of $1.8 trillion. The emergence of institutional investors, ETFs, and sovereign wealth funds means market participants have changed significantly since the first cycle. Bitcoin appears to be increasingly sensitive to macroeconomic factors, but its price movements are still influenced by some traditional factors, such as psychology and mining economics.
It is still unclear whether Bitcoin's cycle has completely ended, but each cycle is unique, and future cycles could very well be drastically different from the past. Understanding the historical evolution of this asset and its participants is key to understanding future cycles, but ultimately, only time will tell whether this pattern continues to exist or becomes a relic of history.
Related reading: Has the Bitcoin Four-Year Cycle Failed?
