What is the Bitcoin Market Cycle?
The Bitcoin market cycle refers to the recurring pattern of price behavior in the Bitcoin market, characterised by alternating periods of appreciation and depreciation.
Historically, Bitcoin has followed a four-year cycle tied to Bitcoin halving events, which happen approximately every 4 years. A halving event marks a 50% cut in the Bitcoin reward miners receive for mining new blocks and verifying transactions; in effect Bitcoin supply continues to increase, but at a slower rate. The knock-on effect can be a steep increase in price, assuming the demand for Bitcoin remains the same or increases after a halving.
What are the Bitcoin Market Cycle Phases?
Phase 1 – Accumulation
Occurs when prices are low, but small signs of growth appear. During this phase buyers will accumulate cheaper Bitcoin and so it represents the point of maximal financial opportunity.
Typically, there is bearish sentiment in the market so volume is low and prices are fluctuating in a tight range, near the bottom.
Phase 2 – Continuation
The price continues moving towards the all time high. A halving event has historically occurred here, coinciding with shrinking exchange reserves as buyers hoover up supply as they look to capture rising prices in anticipation of new all-time highs.
On the foundation of a sound economic environment, new money is flowing into the market, driving up volume, with a sense of optimism that prices will continue climbing.
Phase 3 – Parabolic
When the price eclipses the previous all-time high, price action typically starts to move exponentially to the upside pushing the price to a new all-time high, which has exceeded the previous landmark by a significant factor. This phase is extremely volatile, with rapid price increases, and is usually followed by large corrections.
At this point, many investors would see the Fear & Greed Index flashing Extreme Greed.
Phase 4 – Correction
Following the euphoria of the Parabolic phase, this is when the market will see a major correction to the downside. Previous bear market periods have resulted in approximately 80% drawdowns from the top and negative price action for approximately a year. The most recent example saw the price tumble from an all-time high of $69,000 (November 2021) to $15,476 (November 2022).
Telling Signs in Historical Bitcoin Cycle Patterns
In anticipation of a new all-time high, the amount of Bitcoin held in exchange wallets is low, indicating that investors might be holding out for higher prices. This HODLing reduces available supply and can result in sharp price increases.
Gauging the Cycle with New Interest in Bitcoin?
Peak interest in Bitcoin, as measured by Google search activity, was reached in December 2017 in tandem with a bull market run up to an all-time high. Since then, Google trends show search volume for 'Bitcoin' hasn’t reached the same levels of the 2017 bull run.
However, interest in crypto at large has surged since. Google search volume for ‘crypto’ topped out during the 2021 bull run; attention is now given to the whole ecosystem, which has evolved dramatically since the days of Bitcoin dominance.
Macro & Bitcoin Correlation
The relationship between Bitcoin and the S&P 500 – referred to as a correlation – is largely positive. In other words, the prices of Bitcoin and the S&P 500 generally rise and fall together. However, they don’t always follow one another and when they do it’s not always to a similar degree or high correlation.
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