by The hype surrounding Bitcoin’s 4-year cycle has gotten louder in recent years, becoming a widely discussed topic among cryptocurrency enthusiasts and market analysts. The cycle, marked by significant events and trends in the cryptocurrency market, aroused curiosity and intrigue among both experienced participants and novices.
However, the reasons and implications of Bitcoin’s 4-year cycle are often misunderstood or oversimplified. Exploring the factors that shape it, including halving, macroeconomic influences and human behavior, could benefit investors.
Bitcoin Halving: Decisive Catalyst or Self-fulfilling Prophecy?
One of the most intriguing aspects of Bitcoin’s behavior is “halving”. This is a predetermined event where the number of new BTC generated and distributed by the network is halved.
Currently, around 900 Bitcoins are produced daily. In the upcoming halving, scheduled for the end of the first quarter or the beginning of the second quarter of next year, this number will drop to 450. Previous halvings in 2012, 2016 and 2020 were significant turning points in Bitcoin.
Halving affects the price of Bitcoin due to the simple principle of supply and demand.
When there is a halving, even if the demand for Bitcoin remains stable, the reduction in supply can create an imbalance, causing prices to rise. This price momentum could trigger a multi-year Bitcoin bull market.
As the cycle progresses, the initial halving impulse diminishes, but the momentum persists, pushing the market forward.
Ripple effect: liquidity dispersion in the cryptocurrency market
As the bull market matures, liquidity spreads from Bitcoin to other cryptocurrencies such as Ethereum and eventually to riskier long-tailed assets.
This dispersion continues until the influx of new funds into the crypto market is unable to support the growing number of assets driven by correlation with major cryptocurrencies and new projects being created.
Upon reaching this unsustainable point, the market collapses, reversing the dispersion of liquidity. Funds flow from long-tail assets back into Bitcoin and Ethereum, providing a reset point for the liquidity cycle.
This liquidity flow pattern is not unique to the cryptocurrency market, but is characteristic of traditional financial markets.
The human factor: behavioral dynamics and market psychology
In addition to halving and liquidity cycles, another significant factor shaping Bitcoin’s market behavior is the psychological dynamics of market participants. To better understand this, it is necessary to delve into the Bitcoin on-chain data.
The price of Bitcoin and the profitability of active network participants significantly affect the market dynamics. Indeed, market participants who have made significant unrealized profits are more likely to sell during a market downturn for fear of losing those profits.
In addition, those who enter the market after a significant increase in prices tend to be less experienced or less confident about the long-term value of the asset. These factors make the holder base more volatile than the stable base seen during bear market declines.
Profitability and holder base: key drivers
When discussing profitability, he often refers to a series of metrics classified as a cost basis. These include the realized price, the approximate base of aggregate network costs, and the price realized by the short-term and long-term holder.
These indicators help you understand the state of the market – whether it’s unrealized losses or gains.
The change between the market price and the aggregate cost base can be measured using the market value to realized value (MVRV) ratio.
High MVRV readings, indicating large amounts of unrealized gains, have historically marked the peak of Bitcoin’s 4-year cycles.
Impact of Miners: Declining Strength in Bitcoin’s 4-Year Cycle
Historically, bitcoin miners have significantly influenced the market by acting as pro-cyclical forces.
Miners hoard Bitcoin when profitable during a bull market and are forced to sell during a bear market.
However, the term capitalization measure shows that their impact on the market has diminished.
Global macro picture: growing impact
Historically, Bitcoin has maintained some isolation from global macroeconomic factors. However, it becomes more vulnerable to these influences as it integrates more into the traditional financial system and gains more popularity among institutional investors.
For example, swings in the strength of the US dollar, changes in monetary policy, and geopolitical tensions can now directly affect Bitcoin’s market behavior.
People often consider Bitcoin, like gold, a safe haven during economic crises or financial market volatility.
Thus, during periods of increased risk or uncertainty in the global economy, you can see a spike in demand for Bitcoin, which can drive up its price.
Ordinance: Wild card
The role of regulatory factors in shaping Bitcoin market behavior is significant and can often be unpredictable. While some countries have adopted Bitcoin and other cryptocurrencies, others have imposed strict regulations or outright bans.
Positive regulatory news can push the Bitcoin price up, while negative news can trigger steep declines.
For example, when countries such as Japan and South Korea recognized Bitcoin as a legal payment method, its price had a significant positive impact.
Conversely, when China announced a crackdown on bitcoin mining and trading, it led to a sharp downturn in the market.
Preparing for the next Bitcoin 4-year cycle
A complex dependence of factors shapes the market behavior of Bitcoin. These include the built-in halving mechanism, liquidity cycles, the psychology and behavior of market participants, the impact of miners, global macroeconomic factors and regulatory changes.
Understanding these factors can give investors and market participants valuable insight into potential Bitcoin price movements.
Still, these factors should not be taken as ultimate predictors due to the highly volatile and unpredictable nature of the crypto market. Instead, they should be used as probability assessment and risk management tools.
As Bitcoin continues to evolve and mature, factors affecting its market behavior may also change. Therefore, it is crucial to stay up to date with the latest developments in Bitcoin and the wider cryptocurrency market.
Reservation
In line with Trust Project guidelines, this article contains the views and perspectives of industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should self-verify the information and consult a professional before making a decision based on this content.
