Since its inception in 2008 as a conceptual currency in the now-famous Bitcoin whitepaper, the digital asset has come a long way. This digital currency has left the realm of techie circles and speculators to become the official currency of several sovereign countries.
However, Bitcoin is a cyclical investment vehicle. At least until now. Unless you have timed the market well, the now-trillion-dollar digital asset would be a red mark on your investment portfolio.
This article is your guide to understanding the cyclic nature of Bitcoin and to some extent the whole crypto and financial markets. I will explain the different factors that impact Bitcoin market cycles and take examples from its past price movements to demonstrate them.
Let’s get started without any further ado.
Early Rise to Popularity
The flagbearer among cryptocurrencies saw its first bull run in December 2017. The digital asset crossed the $15,000 mark and marked a new era in the world of finance.
However, the spike was followed by a sharp correction. In June 2019, Bitcoin rallied for a second time, hitting a $13,000 high. This has elicited speculations that the roof price of the largest cryptocurrency lies somewhere around here.
The Year of Resilience
2021 was the year when Bitcoin prices went through the roof. Twice! In April, when the COVID pandemic was in full swing, Bitcoin redefined its position in the world of finance by starting a bull run reaching a then-all-time-high of $63,000. Only to break it in November of the same year.
Previously, seasoned investors have thought of crypto investment as the millennial equivalent of participating in Ponzi schemes. Owing to the consensus that anything that has happened once may not happen again but something that has happened twice is likely to repeat itself, Bitcoin has finally found its way to large and institutional investors.
Several leading figures have gone on to social media and publicly remarked on their change of opinion about Bitcoin.
How The Market Cycles Affect Your ROI?
To put things in perspective, if you invested in Bitcoin in November of 2021 when the prices were skyrocketing, even after two years of holding the asset in your portfolio, you will be down by about 40 percent.
Similarly, people who put their money into Bitcoin at the peak of the first bull run in mid-2017 were holding loss-making portfolios until three years later. Thus understanding the cycles is a non-negotiable part of investing in Bitcoin.
The Role of Halving Events
It’s crucial to note that Bitcoin’s market cycles have often coincided with its ‘halving’ events. A halving event happens approximately every four years, and this will reduce the mining reward by half, resulting in a decrease in the rate at which new Bitcoins are created.
This will effectively bring the asset into a deflatory phase. These events can create scarcity, potentially leading to increased prices that can propel a bullish market consensus.
The Catalyst Events
Apart from Halving events, other one-time events can play a role in the large price movements of Bitcoin.
| Institutional Adoption | The increasing acceptance of Bitcoin by institutional investors and large corporations will play a significant role in driving bull runs. For example, endorsements and investments in Bitcoin by Elon Musk and Tesla, and corporations like MicroStrategy have used Bitcoin for hedging, and have contributed to the bull run in 2021. |
| Government Policies | The SEC approval and launch of Bitcoin exchange-traded funds (ETFs) by big banks has significantly impacted the cryptocurrency landscape. These traditional instruments provide easier access for traditional investors although introduce volatility and more regulatory monitoring. This has led to increased market legitimacy and investor confidence. |
| Platform Developments | Advances in blockchain technology and the underlying platform can make Bitcoin a more appealing instrument to investors, which can potentially drive up the price. |
| Market Sentiment | Media coverage and the general sentiment of investors can greatly affect the price of Bitcoin. Given the right environment, Fear of missing out (FOMO) can drive rapid price increases, while negative news like the FTX fiasco can lead to price crashes |
Where Are We Now?
While I am writing these lines, the next crypto bull run is unfolding. Though the prices are yet to hit an all-time high, the talk in the town is that Bitcoin is going to hit the $100,000 milestone toward the end of 2024. Because now we are close to the next halving event somewhere around April 2024 and the introduction of Bitcoin ETFs, Bitcoin price should hit a new high. The existing market sentiment is also bullish.
Conclusion
Bitcoin, despite or due to its high volatility, becomes a predictable financial asset if its cyclical nature is understood. Several factors can impact the cycles, the most prominent of which is the halving event that happens once every four years. Returns from Bitcoin are highly dependent on the timing of investments.
At the same time, it is more crucial than ever to understand that cryptocurrencies are susceptible to abrupt price fluctuations, and investing in them carries significant financial risks.
The reader is to take the content of this article only for information and not as investment advice. It is also recommended that anyone should do their research before putting their money into crypto investments.
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