When Bitcoin (BTC -0.32%) hit the $100,000 mark in December, all lights appeared to be flashing green. Many investors were convinced that Bitcoin was about to go parabolic. Indeed, it eventually hit a new all-time high of $109,000 on Jan. 20.
But ever since then, Bitcoin has been on the decline, and it now trades around the $83,000 mark. This astonishing turn of events has led some investors to rethink everything they know about Bitcoin, including the famous “Bitcoin Cycle” investment thesis that claims to predict the next move of the world’s most popular cryptocurrency.
What is the Bitcoin Cycle investment thesis?
The “Bitcoin Cycle” investment thesis says that Bitcoin tends to follow regular four-year, boom-and-bust cycles. Thus, if you can predict where Bitcoin is in any four-year cycle, you can predict where Bitcoin is headed next. It’s so popular that many investors allude to this Bitcoin Cycle, sometimes without even realizing that they’ve done so.
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There are various versions of this Bitcoin Cycle thesis, but all of them are based on the fact that there is a Bitcoin halving every four years. This is what creates the four-year cycle, during which there are four distinct stages: An Accumulation phase, when Bitcoin is trading at discount prices; a Growth phase, which typically kicks into action as soon as the Bitcoin halving takes place; a Bubble phase, which leads to market euphoria and new all-time highs for Bitcoin; and a Crash phase. This last phase is when Bitcoin loses as much as 80% of its value, and the whole cycle starts anew.
This pattern has remained remarkably consistent throughout Bitcoin’s 15-year history. Just think back to the last crypto bull market rally. It was largely kicked off by the Bitcoin halving that took place in May 2020. That led to stratospheric gains for Bitcoin, which eventually hit a (then) all-time high of $69,000 in November 2021.
That Bubble phase was soon followed by the Crash phase, and Bitcoin quickly tumbled down to $16,000. The long Crypto Winter of 2022 and early 2023 was the Accumulation phase, when Bitcoin was trading at bargain prices.
So where are we now in the Bitcoin Cycle?
The problem right now is that it’s becoming increasingly difficult to tell where we are in the current Bitcoin Cycle. When Bitcoin hit $100,000 last year, for example, it was easy to conclude that we were either in the late Growth or early Bubble phase. Bitcoin was going to skyrocket higher, and go completely parabolic during the Trump administration. People were even predicting that Bitcoin could hit $1 million in this market cycle.
Now, however, a growing number of voices are claiming that we’re in the Crash phase. Bitcoin is down more than 20% from its highs in January, and some are now convinced that Bitcoin has further still yet to fall. If Bitcoin loses 80% of its value, as it has done in previous market cycles, then we could be talking about Bitcoin trading near $20,000. No wonder some people are now moving their money into gold!
Is the Bitcoin Cycle broken?
The problem, quite frankly, is that Bitcoin doesn’t seem to be playing by the same rules anymore. An important clue came in April 2024, when the Bitcoin halving turned out to be a nothing-burger. This event was supposed to unleash the Growth phase of Bitcoin, but nothing really happened to the price of Bitcoin until the U.S. election in November.
In hindsight, the launch of the new spot Bitcoin ETFs in January 2024 may have broken the cycle. Bitcoin experienced massive gains in January, February, and March 2024, thanks to the inflow of investor money into these Bitcoin ETFs. Thus, all the gains expected from the halving in April 2024 were actually experienced months earlier, as a result of the ETFs.
Some investors are now claiming that U.S. President Donald Trump will break the Bitcoin Cycle once and for all. From this perspective, the boom-and-bust behavior of Bitcoin will soon be over, and we’re on the cusp of entering into a perfect Goldilocks period — gains will be not too high and not too low, they will be just right.
Yet others claim that the “Bitcoin Cycle” will soon transform into the “Bitcoin Super Cycle” and that we’re headed for dramatic, head-spinning gains for Bitcoin, without any real risk of a significant downturn, for years to come.
Investor takeaways
Confused yet? It’s easy to be, because nearly everyone is relying on the Bitcoin Cycle investment paradigm to make sense of things. Unfortunately, this paradigm might be broken.
The big takeaway here is that you shouldn’t be trying to time the Bitcoin Cycle. It could be the case that it doesn’t exist anymore, or that the timing has been somehow disrupted.
As a result, you shouldn’t be trying to figure out if we’re in the Accumulation, Growth, Bubble, or Crash phase for Bitcoin. If you believe in the long-term story for Bitcoin, then you should be buying and holding it, confident in its long-term growth prospects going forward.
