Is Bitcoin's 4 year cycle only coincidence? (This could be actually good news.)

[d5000]

this will effectively end the ½ down turn income for miners at this ½ ing or the next one.

which means even if you are not correct (now) you are headed to being perfectly correct in 1 week or 4 years and a week or truly 8 years.

I think I get what you mean: that if transaction fees will also be a more significant part of the coins miners are selling, this will level out changes by halvings, and mempool congestion thus could indicate a turn to bearish conditions. (Or do I interpret the idea with the congested mempool wrong?)

In the case we do not only look at rewards but also at transaction fees, I think we could also look at other related indicator: miners' BTC reserves. It seems they were selling more coins that they are holding for the last 6 months at least. According to the article it's about 20.000 BTC they sold in excess in the last 6 months, preparing for the halving accumulating fiat reserves (probably partly to diversify into other related areas like colocation, cloud, AI etc. if mining income gets too low). That's much less than the rewards (900 per day = 163000) but it's more than transaction fees (on average 4% of miner income, i.e. about 30-50 BTC/day).

As the incentives for the behaviour are quite logical for me, we could assume that this will occur at each halving from now on: in the previous months, miners could sell at least about as much as they get by transaction fees in addition to the amount of rewards and fees they get for found blocks. This would mean selling pressure actually before the halving and perhaps in the days immediately after it, but when difficulty has re-accomodated after halvings, I expect them to reduce these sales.

In the end this could mean that, if we sustain the "miner supply dictates price" theory, the the period before halvings (which were bullish in all "cycles" until now) could even become bearish over time, while the period in the middle of the halving cycle when miners accumulate most, most bullish conditions should be found.

That aside, what birthed my last statement was some kind of changes in the situation where, for instance, the ETF saga (a force) has changed the narrative and Bitcoin is hovering close to the ATH of the former cycle. Don't you think anything unforeseen is still possible due to that? This is my plight. It was just a reflection of a concern that Bitcoin has never achieved what it achieved now in the previous histories of the initial cycles. This means that unplanned external forces could cause a change even if we do not pray for that. So that we can continue to easily predict the Bitcoin cycle as usual.

Ah, okay. I think I agree here.

In general it's not that I'm agreeing to the 4-year-cycle theory (I tend to do not, but am still unsure), but I try to discuss different assumptions - I also don't believe in a "purely event-driven price". My general assumption is that Bitcoin currently behaves like trends/fads in lifestyle, i.e. there are periods with high and others with low interest in it, and that is one of the main influences for the price.

My insightful thought is that FOMO was experienced last year and I believe the huge investors that people expect would pump Bitcoin know the principle of striking an asset at a low price and the risk of buying at high levels. So, why wait till after halving if they are still interested?

This means that a part of the pump people were expecting "after" the halving this time came "before", due to the ETF approval. I can agree to that too.

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[philipma1957]

this will effectively end the ½ down turn income for miners at this ½ ing or the next one.

which means even if you are not correct (now) you are headed to being perfectly correct in 1 week or 4 years and a week or truly 8 years.

I think I get what you mean: that if transaction fees will also be a more significant part of the coins miners are selling, this will level out changes by halvings, and mempool congestion thus could indicate a turn to bearish conditions. (Or do I interpret the idea with the congested mempool wrong?)

In the case we do not only look at rewards but also at transaction fees, I think we could also look at other related indicator: miners' BTC reserves. It seems they were selling more coins that they are holding for the last 6 months at least. According to the article it's about 20.000 BTC they sold in excess in the last 6 months, preparing for the halving accumulating fiat reserves (probably partly to diversify into other related areas like colocation, cloud, AI etc. if mining income gets too low). That's much less than the rewards (900 per day = 163000) but it's more than transaction fees (on average 4% of miner income, i.e. about 30-50 BTC/day).

As the incentives for the behaviour are quite logical for me, we could assume that this will occur at each halving from now on: in the previous months, miners could sell at least about as much as they get by transaction fees in addition to the amount of rewards and fees they get for found blocks. This would mean selling pressure actually before the halving and perhaps in the days immediately after it, but when difficulty has re-accomodated after halvings, I expect them to reduce these sales.

In the end this could mean that, if we sustain the "miner supply dictates price" theory, the the period before halvings (which were bullish in all "cycles" until now) could even become bearish over time, while the period in the middle of the halving cycle when miners accumulate most, most bullish conditions should be found.

< big snip>


Yeah that is close.

BTC could get price slotted for periods of time that reach out and beyond four year cycles.

gold from 1992 to 2003 stayed in a 200-400 dollar slot.

I could see some big players try to do this with BTC.

I do agree we don’t really do 4 year cycles 🔄

I don’t count 2009-2013.

I count 2013 to 2017
and 2017 to 2021

but 2021 on does not fit it is more like 2009 to 2013  with a few peaks and valleys

[virginorange]

TL;DR I guess we will have weaker and irregular cycles in the future

Cycles will remain
Everything moves in cycles: You have the business cycle, the long term and short term debt cycle, even my kid's emotions have cycles. The usage of leverage supports volatility. Leverage is not only financial (CFDs or futures) but you also have operational leverage. Multiple companies have more volatile fee revenue than salary expenses, therefore some companies in the crypto space tend to break (become insolvent) during a downturn.

Cycle duration of 4 years unlikely
The Bitcoin ecosystem supply comes not only from miners (sell block reward, buy electricity), but also exchanges (sell trading fees, pay salaries) and ETFs (Fees). Additionally the police gets their hands on Bitcoin from time to time and sells. Then we have the Bitcoin owners, who will sell for major purchases especially after accumulating high unrealized gains. Thanks to saving in Bitcoin some people may marry, buy a house and start a family. They will then sell some of their Bitcoin for their wedding, their down payment or their kids education.
I think the halving may already be overrated, but going forward I expect the halving to have almost no impact on the price. I expect the main impact will be central bank liquidity, regulation and time.
Since I still believe in a cyclical nature of markets / humans, how long can a cycle be? We still need some time to go from overvaluation to undervaluation, so I would guess a cycle will be still between 3 and 6 years or at least between 2 and 8 years.

Cycles will become weaker

We can observe:
- lower realized daily price volatility
- lower realized daily price volatility relative to stocks
- lower option implied volatility
- less extreme cycles above trend



We can't observe less extreme cycles below trend, which might be due to extraordinary events like FTX or Luna.

Lower volatility around in combination with a unchanged Bitcoin price trend would be definitely good news for most. Not only would this stabilize your assets, but also lead to more inflows into Bitcoin. Less volatility means higher allocation for most investors, which in return increases the price of Bitcoin.

Weaker cycles endangers timing the cycle.
During the last cycles we saw 1000+ days overvaluation and trend close to e^⁻0.9.





I suggested Bitcoin to be expensive at Trendprice+750 days, Bitcoin to be cheap at Trend*e^-0.5. This gives some reasonable stability for lower Bitcoin cycle volatility during the next cycle.

The yield from timing the cycle (blue arrow) is already declining:

What do we learn?
1.) We can see that the red lines have a declining slope. You get better 1-year forward returns by buying bitcoin cheaply. This makes sense as the mean of the cycle reverses around the trend. It is still interesting to see this result on a time horizon of only 12 months, not 2 or 4 years. 1st orange arrow
2.) We can see that the red line (2010-2013) is the highest, the red line (2014-2017) is lower, the red line (2018-2021) is even slightly lower and the last line (2022-March 2023) is even lower. As time goes on, you can expect less return on your bitcoin investment for the same level of overvaluation relative to the trend. This makes sense as the price trend of bitcoin flattens out. 2nd orange arrow
3.) We can see the red lines crossing the x-axis at lower and lower values. 2nd orange arrow 2010-2013 we cross at 1.5, 2014-2021 at 0.6 and recently at 0. Buying relatively expensive bitcoin (trend +0 to trend +1.5) in 2010-2013 still gave you positive returns, recently buying only slightly expensive bitcoin gave you negative returns. 3rd blue arrow
4.) In our four charts we see 2 grey lines. We can see 2 different trend lines for each 4y cycle. One trend is on the way to the top. The second trend is on the way from the top to the bottom. Obviously you can get a better return the way up vs. on the way down. Unfortunately, it is only partly tradable:



Falling from the green peaks, we could assume that we are on the way down. Excessive overvaluation can be traded. At the yellow tops, however, we could have assume in real time that we were still climbing to a green top. Only in hindsight we would have realized we missed the yellow top. Since we can't tell the yellow tops in real time moderate overvaluation is not tradable.

Looking at our most recent dot plot, we can see that the red line crosses 0/0. Does only the cycle matter now? Bitcoin price trend growth is declining. Maybe it is declining much quicker than the cycle? Is trading the Bitcoin cycle more important than holding Bitcoin? The answer is no.



It is true that the yield from owning Bitcoin (red arrow) declines faster (from 1200% to 300%) than the yield from trading the cycle (blue arrow, 350% to 200% to 100%) and therefore the cycle matters relatively more. However the return from just holding Bitcoin is still much higher than the yield from timing the Bitcoin cycle. The main take away is: trading the cycle can juice your returns, but the most imposant decision is buying Bitcoin at all.

The red line crosses 0/0, not because the cycle dominates the returns, but because it represents a bear market. Therefore the line is naturally lower than a bull market line (see: what can we learn #4, the two grey lines).

Benefiting from cycles is difficult
Benefiting from cycles looks good on paper. However during a economic downturn you might become unemployed, or have difficulties rolling over your debt, due having lower net worth or more restrictive loan decisions. Imagine a recession with lower house prices, lowering the amount you can refinance. In this case you would be forced to liquidate other assets.

[d5000]

Thank you for your detailed answer, @virginorange!

Cycles will remain

The big question is: what could be the "trigger" of the cyclic behaviour in Bitcoin if it's not the halving anymore? You already gave a partial answer:

I expect the main impact will be central bank liquidity, regulation and time.
Since I still believe in a cyclical nature of markets / humans, how long can a cycle be? We still need some time to go from overvaluation to undervaluation, so I would guess a cycle will be still between 3 and 6 years or at least between 2 and 8 years.

I've already mentioned somewhere else that it could be possible that this behaviour is similar like fads work in the consumer goods market, which would be probably what you call "time". So basically it could be based on the collective attention Bitcoin gets at a specific point in time. Fads can't be constant, they need to "sleep" eventually, but they can always come back again.

The halving could have been in this case not only a psychological trigger (and, in the first occurrances, a trigger due to the decreased new supply provided by miners), but also the media attention could have triggered part of the increased attention, and thus the increase of new users and investors, leading to the post-halving rallies we've seen in the past.

Then, like you wrote, it's possible that above all downward movements are amplified due to service provider (e.g. exchange) insolvencies. Terra/Luna for example also probably collapsed due to a chain effect in the bear market, even it was a questionable product from the start.

It is possible that at least these "volatility amplifications" could reduce if the markets for these services mature further. It could be interesting to generate a timeline how many exchanges collapsed per year, multiplying the number with the market share they had. Also stricter regulations for exchange reserves could contribute on that, but FTX (and cases like Wirecard in Germany) showed how even regulated companies can collapse due to bad intentions of the company owners and/or managers. So we shouldn't rely on regulation alone. The "learning effect" of customers to not put that many funds in exchanges and centralized wallet providers is in my opinion more important. The declining BTC exchange balances are perhaps an indicator for that, however measured in USD they're still growing.

There could be also an influence on "real economy" cycles on Bitcoin's cycles. While I was aware of the likely influence in 2021, I wasn't that aware about the 2018 bear being influenced by a real economy factor. Central bank decisions (interest rate) are for sure important.

In general, however, these points you've mentioned are mostly influencing "investor" sentiment, i.e. of people wanting to profit from Bitcoin. If Bitcoin wants to establish itself for the long term, however, eventually people must realize that Bitcoin also provides value if its price does not grow anymore. Thus I'm so focused on the "currency usage" aspect in this thread (and several others), i.e. in usage for payments and low-risk/low-reward saving. We probably have some time for that to occur still.