Many crypto market participants profess faith in the cyclical nature of bitcoin (BTC), which is governed by the halving that takes place every four years. However, few have yet settled on the hypothesis that these cycles lengthen over time. It is about time to do so, as the new all-time high for BTC has just validated this hypothesis.
Accepting the thesis of bitcoin’s lengthening cycles has some consequences. The most important – from the perspective of long-term investors – is the lengthening time to reach the peak of the cycle and the diminishing return on investment (ROI).
What are bitcoin’s lengthening cycles?
The hypothesis of lengthening bitcoin cycles assumes that each successive cycle lasts longer, measured from the absolute bottom to the absolute top of the BTC price.
For example, the genesis cycle lasted only 250 days, the second lasted 750 days and the third around 1050 days. The current cycle, which started with a bottom at $3122 on 15 December 2018, is just now approaching the 1050-day mark.
Thus it is close to matching the duration of the previous cycle. We still have to wait for this confirmation of the hypothesis of lengthening cycles.
However, there is yet another way to measure bitcoin’s cycles – not from an absolute low, but from halving. Bitcoin halving is a once every four years event that halves the reward for mining a block. After the last halving, which took place on May 11, 2020, this reward is 6.25 BTC. It is awarded to the first miner who solves a mathematical puzzle and deciphers the hash of the next block.
It is worth adding that the consequence of halving is the systematically decreasing supply of bitcoin, resulting in the deflationary nature of the oldest cryptocurrency.
Cryptocurrency analyst @ByzGeneral posted on Twitter a chart of three bitcoin cycles measured just from halving.
In the tweet, he highlighted that “the 2017 bull market lasted about 35% longer than the 2013 bull market”. He further added:
“If we assume that this one is also going to last about 35% longer than the previous one then by the end of Q1 2021 the bull market should end.”
Confirmation of the hypothesis
It turns out that by taking halving as the start of each cycle, the hypothesis of bitcoin’s lengthening cycles has just been confirmed. Already in the chart above, we can see that the current cycle (green) lasts longer than the previous cycle (blue). The ultimate confirmation of this was when bitcoin reached the new ATH of $67,000 on 20 October 2021.
This event was recently highlighted by another crypto market analyst, Benjamin Cowen. He is known for promoting the idea of bitcoin’s lengthening cycles, which he believes is indicated by historical data. He recently promoted this idea in an exclusive interview for BeInCrypto.
In his latest YouTube video, he analyzed bitcoin’s previous cycles both in relation to halving as the start of the cycle and in relation to the absolute bottom. Interestingly, he published this analysis a few days ago, even before bitcoin’s new ATH. Cowen said:
“Today is the last day. New all-time high is what we need in order to put in a lengthened cycle as measured from the halving.”
Additionally, Cowen shared a chart and his analysis of bitcoin’s cycles as measured from the absolute bottom. He acknowledged that however in this frame of reference BTC’s lengthening cycles have not yet been confirmed, he believes they will be. Finally, he added the observation that:
“More and more people are getting on board with the idea of the cycle lengthening.”
Declining ROI over time
If bitcoin’s lengthening cycles are confirmed, then two implications must be accepted:
- Bitcoin needs more time each cycle to reach its absolute peak.
- The return on investment (ROI) is lower each cycle.
While the former implication is a natural conclusion of the hypothesis of lengthening cycles, the latter may seem surprising. For it turns out that not only did bitcoin give a higher ROI in previous cycles, it also did so faster. Currently, investors must have more patience and additionally expect a lower ROI.
According to data presented by Cowen in his discussion with PlanB, bitcoin’s first cycle delivered an ROI of 700x. In the second, 500x could be achieved, and in the third, 100x.
Measured from the bottom at $3,122 this cycle so far it has been possible to generate an ROI of around 20x. Therefore, the analyst concludes:
“There is a higher chance than not that this cycle will ultimately extend further out than the last cycle. And I would say it would do that whether we want to measure from the bottom or from the halving.”
The main reason for this is the growing market capitalization of bitcoin and the entire cryptocurrency asset class. This signals the maturation of the sector and a reduction in the volatility which is natural to cryptocurrencies.
It is much easier to achieve 100x gains (and correspondingly huge drops) on an asset with a market capitalization measured in the tens of millions of dollars than on bitcoin, worth $1.15 trillion today, according to CoinGecko.
The hypothesis of bitcoin’s lengthening cycles is confirmed if one takes halving as the beginning of the cycle. Confirmation with respect to the absolute bottom is still to be awaited, but in a dozen days or so this will also become clear.
In the next cycles, one can probably expect only further lengthening of cycles. This will probably continue until the four-year halving cycle and the amount of the block reward become ultimately insignificant.