For this topic I will be covering various market cycle theories surrounding the Bitcoin market cycle. Hopefully this will educate the newer crypto investors amongst us with an insight into the different thought processes amongst various investors and traders about how the BTC cycles occur and whether it can help predict future movements and length of cycle time.
As promised u/Alles_Klar & u/MedicalCondition3049 here is the post
If anyone is interested in previous past posts please see:
- Fundamental Research on projects: here
- What is a cryptocurrency wallet: here
- Staking: the concepts of PoS: here
- What is the blockchain: here
- Trading strategies: here
- Fundamental analysis: here
- Sentiment analysis: here
- Mobile device security education for crypto: here
- The smart money market cycle: here
- Lump sum vs Cost averaging: here
- Arbitrage Explained: here
- Dusting attacks explained: here
- Liquidity Pools Explained: here
- ETH London Hardfork Explained: here
- Defi hacks and exploits explained: here
- Smart contracts explained: here
- BTC Halving Explained: here
- Analysis on the $600 million theft: here
- Inflation vs deflation: here
- Cryptographic hashing for the blockchain. What is it?: here
- Longs vs Shorts, leverage, margin and liquidations explained for beginners: here
- Type of orders for beginners: here
- ETH gas explained for beginners: here
BACKGROUND
With BTC still being a relatively young emerging asset many have looked at its lifespan and tried to look for correlation to determine whether BTC has a predictable and time scheduled bull and bear market. Just like anything there will always be different interpretations and theories surrounding a subject. In this case we’ll be talking about the different suggested Bitcoin market cycles. Now a model or theory may not necessarily tell you exactly what will happen, but it can be useful to give you an indication on what could happen.
SUPER CYCLE THEORY
The super cycle theory is most likely the most bullish theory there is out there. The theory suggests that not only is the market different with institutional money flowing into the market but also the actual crypto space is different with increasing adoption around the world. This theory suggests that historical data cannot be taken into consideration for the current state of the market as the market now has grown exponentially.
It suggests that Bitcoin would likely break away from prior market behaviours and will turn into a multi year to a decade long bull run where the trend is in a continuous uptrend without the historical large bear market crashes or prolonged re-accumulation phase.
STOCK TO FLOW MODEL
Stock to flow ratios are used to evaluate the current stock of a commodity (total amount currently available) against the flow of new production (amount mined that specific year). If the ratio is higher it means it is more scarce. Plan B utilised this to formulate a model using BTCs known halving schedules, predictable supply and maximum supply to calculate the likely price movements of BTC within the future. This model is a bit more conservative compared to the S2FX asset model, but the S2F has historically been accurate to a relatively high degree. The model shows the timeline of Bitcoins expected prices as it trends upwards.
Model can be found here: here
STOCK TO FLOW X ASSET MODEL
This is a continuation of the original S2F model but time is removed and replaced with assets like silver and gold which enables valuations across the different assets. It also has a visual way to show BTC heading towards the $10 trillion target for the market cap of gold. This model is a bit more bullish on price compared to the original S2F.
Here is an article written by Plan B discussing the model: here
Model can be found here: here
FOUR YEAR CYCLE MODEL
There’s a many ways this is interpreted but is generally categorised in two ways. This model is either based off the market top or the market bottom. The jist of the market top four year cycle is that BTC will always top out at the end of year of that cycle followed by a 80% correct for BTC and 90-95% correction for Altcoins and that the 2011 run up should be voided because it was before the 1st halving event.
The alternative is the four year cycle is based off the market bottoms after the blow off top and again followed by a 80% correction. The market goes through the psychological stages into the bear market and eventually will bottom out as the accumulation phase sets back in. This is where they would consider the bull market to start in theory despite it being a very slow trend upwards, then the BTC halving occurs and supply shock sets in and eventually the run up to the main bull market begins. This model would suggest the market would top out in the last Q4 of 2021.
FOUR YEAR CYCLE WITH DIMINISHING RETURNS
This model is the same as above but the difference is the theory suggests each cycle will lead to less volatility and less returns of investments. This is suggested due to the fact that over BTCs price history each bull run despite being higher in dollar value, the actual percentage for returns is less than the previous cycle. This model would suggest the market would top out in the last Q4 of 2021.
BITCOIN GOLDEN RATIO
This is similar to the four year market cycle or can just be another interpretation of it but takes into consideration the market tops, bottoms and halving events to be able to identify the bear market, bull market and exact length of the bull market. This is done through a 51%-49% ratio being 51% from the market bottom to the halving date and the 49% from the halving date to the top of the market. This model would suggest the market would top out in the last Q4 of 2021.
Here is a TradingView link to the theory: [here](www.tradingview.com/chart/BTCUSD/QBeNL8jt-BITCOIN-The-Golden-51-49-Ratio-600-days-of-Bull-Market-left/%3famp)
LENGTHENING CYCLE MODEL
This model and theory is that each bull run has been slightly longer than the previous one based off the time from the market bottom to market top, therefore, this trend would likely continue with the current bull run continuing into 2022 or until 2023 and leading to a higher price of BTC than the four year model would suggest but would still likely have diminishing returns when compared to previous cycles or there could be non diminishing returns and the returns will be exponentially higher.
SUMMARY - WHAT DO I THINK
All these models and theories have valid areas to take into consideration and to monitor, or at a minimum be educated and aware of. I believe we are still relatively early to understand whether any of these models are accurate as more data points will need to be collected. We have had only 3 halvings worth of data after all and a limited number of ATHs. No one necessarily knows exactly what will happen in the market, there’s external factors that models just cannot take into consideration for future projections, however, it can give an insight into future possibilities. It’s important to be aware of other theories and opinions though as it challenges our own beliefs. I am open and aware of all these theories and will follow them as more data is collected and they progress through time. It’s certainly notable how the halving does cause a supply shock but my personal way of judging market cycles is through market psychology which I covered in the smart money cycle post, it’s what’s worked best for me and I use this on a regular basis, but that’s just wait I believe in.
As always any topics you want covered just let me know. The following are topics I have on my list:
- Seed phrases: BIP39 explained for beginners
- Lending and borrowing in defi explained for beginners
- Yield farming explained for beginners
- BTC dominance explained for beginners
- Why time in the market beats timing the market: an analysis for beginners
- The technicals behind NFTs explained for beginners
- APR vs APY
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