Halving Cycle Theory (e.g. Stock-to-flow): How to explain the deep bear markets?

[d5000]

There's that theory that Bitcoin bull/bear cycles and their timing depend largely on halvings.

The theory goes approximately that way: After a halving, the new supply of Bitcoins is reduced. This leads to an imbalance where the demand for BTC is constantly higher, and that leads to the bull market explosion with a new strong ATH top about 1-1.5 years after the halving.

This part of the explanation of Bitcoin cycles looks at least somewhat convincing at a first glance.

But there's a "hole" in that theory: Until now, after all of these parabolic bull markets, there was a series of deep crashes with a 75-85% price decrease, measured from the last previous ATH.

How does it come that the demand for Bitcoins seemingly lowers enough that it far outweighs the lowering supply, so these crashes can happen?

Wouldn't that make the whole "halving cycle" theory crumble?

Or to say it in other words: Why is the price increase after the halving "natural", but the crash afterwards can only be explained by panic and mass profit taking? Isn't the price increase around and after a halving also an effect of herd behaviour (FOMO) and mass psychology induced dynamics?

For the records: I don't say halvings don't have any effect. The gradually (in steps) decreasing new supply indeed probably is one of the main reasons for the long term price growth. It's the influence on the cycle timing that I question here.

[Oshosondy]

Decreasing in supply in the blocks that are mined is not the only reason, sentiment is also part of it. The halving that occurred in 2020 is not only what that led to the increase in bitcoin price. Also the fall in the price of bitcoin in 2022 is also as a result of sentiment of what that has been happening before, that bitcoin will fall in the third year after halving.

The amount of bitcoin remain to add up which would be mined is not that much like before, so we should not focus more on the supply right now but mostly on people's sentiment. I guess that is the reason many people and institutions are saying right now that the cycle is gone, that there will be no bear market. Probably to increase people's confidence not to sell bitcoin because they know many people that are buying bitcoin know about the 4 year cycle already and they may be ready to sell their coins in 2026.

If bitcoin fall in 2026, it is more about people's sentiment, that is the period bitcoin use to fall in the cycle in the past. What I am waiting for now is if people will buy the news that bitcoin cycle is over or they will follow the sentiment that happens the third year after bitcoin halving occurred.

[Jibdeen]

You raise an interesting point about the halving cycle theory and the subsequent price corrections. It is true that while halvings reduce supply and can generate bullish sentiment, the market is also heavily influenced by sentiment, speculation, and bigger economic factors.

After a halving, excitement and expectations typically drive demand, leading to a surge in price. This is often fueled by FOMO and media coverage, creating a perfect storm for a bull market. However, as prices reach new ATH , psychological factors and profit-taking can lead to significant corrections. Traders and investors might overextend their positions or invest based on hype rather than fundamentals.

The resultant crashes can indeed be seen as a correction of that speculative excess. Then, as prices fall, fear and panic can make worse the sell-off. This does not necessarily mean that demand for BTC has fundamentally become less; rather, it reflects a market reaction to rapid changes and the nature of human behavior in financial trading.

So, while the post-halving price increases may often feel "natural" due to supply restrictions, the subsequent crashes are heavily influenced by human emotion and market psychology — a mix of greed during the bull phase and fear during corrections. It is this interplay that keeps the cycles in motion, but it does not invalidate the halving’s role in influencing the overall trend. Instead, it shows the complex dynamics at play in the crypto market.

[BitMaxz]

If we compare the previous block halving every 4 years, this last block halving is different. The bullish cycle is much longer than I expected. There are lots of things that change and are added that influence BTC price.
Based on the historical data, the price movements this cycle are totally different. I was expecting this year that BTC would be bearish and bullish on altcoins, but it seems this year is different. I can't feel the altcoin season, and BTC price action these days is unpredictable.

There might be something that changed BTC; it might be because of the Bitcoin ETF, and most of the major exchanges are licensed?

Honestly, I don't know; this might be the beginning of unpredictable BTC prices in the future after block halving. This isn't normal except after block halving, when price increases due to reduced supply.

[Frankolala]

The lunch of Bitcoin ETFs and government support on bitcoin have built confidence in majority of people investing into bitcoin which makes them not to panic that much whenever there's a negative news globally and offload their coins in an aggressive pattern. Government and big companies have been singing praises of bitcoin and creating a bitcoin reserve, that can also make the market in a bullish season for long due to aggressive buying and majority are hodling. US government is also playing a major role in this.

However, I wouldn't come to conclusions on thay yet, that the bear season might not come because investors might not panic and sell too much bitcoin due to FUD. It's in the last month of 2026 that I will draw my conclusions.

[Tonimez]

There's that theory that Bitcoin bull/bear cycles and their timing depend largely on halvings.

This bitcoin cycle understanding has been a very big nut to crack for me even though I have read through literatures and publications, how it takes approximately 4 years to complete one bitcoin cycle and also spread through 4 stages or phases.

Phase 1 – Accumulation
Phase 2 – Growth
Phase 3 – Bubble
Phase 4 – Crash
However, the ambiguity lies in the term Halving . I think that understanding bitcoin cycle would not be complete without proper understanding of the term Halving which serves as a focal point in bitcoin cycles.

What Is Bitcoin Halving?

Bitcoin halving refers to an event that takes place about every four years and reduces the block reward by 50%. This lowers the supply of bitcoins entering the market, which increases scarcity and can act to raise its price if market conditions remain the same.
Check  Source for more information.

If we compare the previous block halving every 4 years, this last block halving is different. The bullish cycle is much longer than I expected. There are lots of things that change and are added that influence BTC price.
Based on the historical data, the price movements this cycle are totally different. I was expecting this year that BTC would be bearish and bullish on altcoins, but it seems this year is different. I can't feel the altcoin season, and BTC price action these days is unpredictable.

There might be something that changed BTC; it might be because of the Bitcoin ETF, and most of the major exchanges are licensed?

I would liken this change in cycle to increase acceptance of bitcoin as compared to those previous years when it struggled through government policies and stigmatisation.  The proclamations from most world leaders about bitcoin reserves with higher potential of government subsequent interest in acquiring bitcoin for a national reserve must have added to the change in traditional bitcoin behaviour and has kept the bull run longer. Individual bitcoin investors are also on the rise and bitcoin adoption is really growing which is also affecting the supply chain thereby sustaining the bull run. I envisage this bull run to still take longer at least till the last quarter of the year.

Honestly, I don't know; this might be the beginning of unpredictable BTC prices in the future after block halving. This isn't normal except after block halving, when price increases due to reduced supply.

Bitcoin supply tends to be continuously stretched as more investors are now going into buying to HODL more than Bitcoin trading. This is gradually dispersing available bitcoin into wallets of long-term investment goals. Increase in demand stresses the supply and causes a prolonged price hike as seen in bitcoin recently. Bitcoin has been able to sustain its bull run for months now and still counting. This is a milestone and a hope for the future among all bitcoin investors.

[Ambatman]

How does it come that the demand for Bitcoins seemingly lowers enough that it far outweighs the lowering supply, so these crashes can happen?

This is driven by speculation in my opinion.
The market demand is elastic. FOMO and speculation drives the price more than the effect of the halving
And when there's a supposed crash sellers becomes more than buyers in exchanges hence the market falls lower than its expected to.

The slashed supply can't keep up with the circulating supply
The halving reduces New supply but not circulating supply.

It's the influence on the cycle timing that I question here.

Speculation peak
Investors sentiments
The halving theory doesnt account for demand elasticity


Sometimes like 2021 crash. It is usually caused by external stimuli.

[d5000]

Until now most seem to agree with me that the halving cycle theory itself can't explain the crash. It can only be explained by excessive speculation in an increasing price trend and therefore, profit taking.

Now there's of course a second thing the halving-driven cycle theory can't explain: the price increase before the halvings.

Let's have a closer look:

- Late 2018 low was about $3,000.
- At the May 2020 halving, the price was around $8,500.
- Then after the halving, the price increased to $69,000.

This means the price increased 2,5x in the bull market phase before the halving and 6x after the halving. The strongest bull market phase was of course after the halving, but the bull was already fully roaring with a more than 2x increase. And if the COVID dip hadn't happened it probably would have been higher in May 2020 (in 2019 it was already briefly at $14,000*).

One cycle back:

- Early 2015 low was about $150
- July 2016 halving price was about $650
- ATH in 2017 was just under $20,000

This time both the pre-halving bull (x4,5) and the post-halving bull (x25) were much stronger, but again, the bull started to roar well before the halving.

And finally the present cycle:

- Late 2022 low was about $15,000
- Halving price was about $60,000
- Post-halving top until now was $123,000, but may go higher.

In this cycle the pre-halving bull (x4) was even stronger than the post-halving bull (x2). This may have however influenced by the ETFs.

Phase 1 – Accumulation
Phase 2 – Growth
Phase 3 – Bubble
Phase 4 – Crash

If the above mentioned pre-halving bull wasn't existing then the halving cycle folks could argue that the price increase after the halving drove speculation to a such high level that the crash was a necessary consequence of this halving-induced bubble. But as I wrote above, the price increase begins well before the halvings, and thus it's not clear that the halvings themselves are driving the price increases.

[Hatchy]

The slashed supply can't keep up with the circulating supply
The halving reduces New supply but not circulating supply.

But overall the halving is meant to drive scarcity. When the new supply is halved, the circulating supply becomes scares all put together, contributes to the increase in demand. Price begins to fly high.

Honestly, I don't know; this might be the beginning of unpredictable BTC prices in the future after block halving. This isn't normal except after block halving, when price increases due to reduced supply.

The recent halving was indeed different from the rest.. price rose higher before it took place and price has remained extremely high after. Unlike every other halving where price is expected to become bullish some months after and then drop significantly. I can say that indeed bitcoin is showing a different reaction to the recent halving.. but it's all backed by the inflow of institutional funds in the market.

[justinlamode]

You answered your question in the below text. The price of Bitcoin will continue to respect the halving as long as it exist but gradually there will be some adjustments because there are too many factors playing a part which makes the timing to make significant adjustment. For instance Bitcoin made an ATH before the halving for the first time last year due to the influence of the ETF approval. This has altered the sequence and further suggest that even if we see a bear season from next year, we may not see that 75-85% crash in price but the FOMO will still drag the price to somewhere around 30-40% drop in price from whatever the ATH will be in this market cycle.

Or to say it in other words: Why is the price increase after the halving "natural", but the crash afterwards can only be explained by panic and mass profit taking? Isn't the price increase around and after a halving also an effect of herd behaviour (FOMO) and mass psychology induced dynamics?

For the records: I don't say halvings don't have any effect. The gradually (in steps) decreasing new supply indeed probably is one of the main reasons for the long term price growth. It's the influence on the cycle timing that I question here.

[Tonimez]

The slashed supply can't keep up with the circulating supply
The halving reduces New supply but not circulating supply.

But overall the halving is meant to drive scarcity. When the new supply is halved, the circulating supply becomes scares all put together, contributes to the increase in demand. Price begins to fly high.

This is the knowledge I've long sorted after in this forum. Understanding halving and it's principle is a great step to undertaking bitcoin chances and wise decision making. So in a nutshell, halving causes scarcity which therefore trigger price increase. That is when we all refer to it as the bull run too as it prolongs. Some descriptions are simpler to understand and you've done that.

The recent halving was indeed different from the rest.. price rose higher before it took place and price has remained extremely high after. Unlike every other halving where price is expected to become bullish some months after and then drop significantly. I can say that indeed bitcoin is showing a different reaction to the recent halving.. but it's all backed by the inflow of institutional funds in the market.

This is very correct. The influx of Institutional funds is the force behind the sustained bitcoin price hike. Michael saylor the CEO of Strategy Company recently acquired  $530 million worth of bitcoin in addition to the surplus they already have and this has being a continuous accumulation process with no record of outgoing transactions in his wallet. These investors are playing huge role in holding the price of bitcoin up there and this is also a sign that the future of bitcoin is bright and promising. Hence the Elite investors are distorting the bitcoin cycle, maybe a continuous buys would help a low income investor.

[Rgram]

Until now most seem to agree with me that the halving cycle theory itself can't explain the crash. It can only be explained by excessive speculation in an increasing price trend and therefore, profit taking.

Now there's of course a second thing the halving-driven cycle theory can't explain: the price increase before the halvings.

In a way it does.
Understandably, it takes seasons for a cycle to be complete and in Bitcoin, we recognize basically 2 seasons to occur within a halving cycle which comes around every 4years.
Just as the halving already creates within the subconscious thought of every Bitcoin enthusiast of a possible bullrun, same way it creates in the impression that, we would see a crash, the bearish season after a good price increase.

With these, it comes down to what kind of Bitcoin investors are you as, there are those with the market loosing momentum, they quickly work as herds to sell and take profit. Mostly backed up by breaking news and activities of the ways to promote the FOMO.

This tends to be so as, the halving sends a short wave of information which is transmitted through long distances by the bullrun that follows and gaining several new investors that aren’t well grounded and when the charts goes red, you find them looking for safe grounds or exit.

[d5000]

You answered your question in the below text.

Of course I have my own theories about the Bitcoin cycles, and that's what I wrote in the parts of the post you quoted. But here the question for me is another one: how can the bear markets fit with the halving cycle theory people like Plan B propagate?

An periodically overheating long term trend isn't necessarily related to halvings at all. It can be simply caused by herd behavior alone, for example due to periods where Bitcoin gets more attention. The halvings can play a role here too, because at least in the last couple of years they always get mentioned in the media and thus if Bitcoin is running "under the radar" during that time, it can bring new attention and thus new investors into BTC.

But that's not what the halving cycle folks are saying, they think that the decreasing miner supply is crucial for the price (supply/demand) evolution. And for me, that may have been true in 2012 and 2016 because miners were the biggest sellers back then, but now probably other factors (hodlers selling & demand evolution) are stronger.

[Wind_FURY]

There's that theory that Bitcoin bull/bear cycles and their timing depend largely on halvings.

The theory goes approximately that way: After a halving, the new supply of Bitcoins is reduced. This leads to an imbalance where the demand for BTC is constantly higher, and that leads to the bull market explosion with a new strong ATH top about 1-1.5 years after the halving.

This part of the explanation of Bitcoin cycles looks at least somewhat convincing at a first glance.

But there's a "hole" in that theory: Until now, after all of these parabolic bull markets, there was a series of deep crashes with a 75-85% price decrease, measured from the last previous ATH.

How does it come that the demand for Bitcoins seemingly lowers enough that it far outweighs the lowering supply, so these crashes can happen?

But what you're describing is NOT actually REAL demand, no? It's merely irrational behavior from market participants, in that, they become euphoric, then fearful, which makes the price surge then crash. But it always goes back to mean reversion. The market is "always" efficient, with some inefficiencies in between.

Wouldn't that make the whole "halving cycle" theory crumble?

No, as long as the Federal Reserve and the world's Central Banks continue to print money in the long term, the demand for Store Of Value assets such as Bitcoin will be sustained in the long term. There will be Boom/Bust Cycles though.

Or to say it in other words: Why is the price increase after the halving "natural", but the crash afterwards can only be explained by panic and mass profit taking? Isn't the price increase around and after a halving also an effect of herd behaviour (FOMO) and mass psychology induced dynamics?

For the records: I don't say halvings don't have any effect. The gradually (in steps) decreasing new supply indeed probably is one of the main reasons for the long term price growth. It's the influence on the cycle timing that I question here.

  

That's merely emotional bias from some people.

[d5000]

But what you're describing is NOT actually REAL demand, no? It's merely irrational behavior from market participants, in that, they become euphoric, then fearful, which makes the price surge then crash. But it always goes back to mean reversion. The market is "always" efficient, with some inefficiencies in between.

The problem is where to draw the limit between "real" demand and demand driven by "irrational behavior"?

There are also lots of speculative users who try to ride bullish and bearish waves, either being long or short, but with a plan. There are even those who try to capitalize from the FOMO and fear of others, showing similar buying/selling behavior at a first glance. Are they regular users of an "efficient market" or not?

Anyway the point of this thread is not to question that there is a long time trend driven by scarcity. If Bitcoin is perceived as a "scarce" asset, and demand is rising faster than the supply increases, then a long term price growth is a logical consequence.

The question here is about the timing the "Halving Cycle theory" supporters alude to. That the "cycle" in the popular opinion always lasts 4 years (even if we had only two complete 4-year cycles, the previous one was shorter), just like the distance between halvings. That the peak bull market euphoria with new ATHs starts several months after the halving (which, to note, seemingly wasn't the case in the 2024/25 cycle, as we had an ATH previous to the halving in April).

And these theories, imo, are really bad at explaining the crashes after the demand.

In other words, what I question is:

- that the post-halving FOMO is a "natural consequence" of the halving cycle,
- but the crash after the maximum FOMO is "irrational behaviour".

IMO both FOMO and crashes are either irrational or have to be explained by the halving cycle theory

[Wind_FURY]

But what you're describing is NOT actually REAL demand, no? It's merely irrational behavior from market participants, in that, they become euphoric, then fearful, which makes the price surge then crash. But it always goes back to mean reversion. The market is "always" efficient, with some inefficiencies in between.

The problem is where to draw the limit between "real" demand and demand driven by "irrational behavior"?

I believe that emphasizes the importance of mean reversion. Personally, I like using the 200-Week Simple Moving Average as my guide.

There are also lots of speculative users who try to ride bullish and bearish waves, either being long or short, but with a plan. There are even those who try to capitalize from the FOMO and fear of others, showing similar buying/selling behavior at a first glance. Are they regular users of an "efficient market" or not?

NO, obviously. They're gambing.
 
 ¯\_(ツ)_/¯

Anyway the point of this thread is not to question that there is a long time trend driven by scarcity. If Bitcoin is perceived as a "scarce" asset, and demand is rising faster than the supply increases, then a long term price growth is a logical consequence.

The question here is about the timing the "Halving Cycle theory" supporters alude to. That the "cycle" in the popular opinion always lasts 4 years (even if we had only two complete 4-year cycles, the previous one was shorter), just like the distance between halvings. That the peak bull market euphoria with new ATHs starts several months after the halving (which, to note, seemingly wasn't the case in the 2024/25 cycle, as we had an ATH previous to the halving in April).

That's the problem with "the theory" that merely considers supply. Because there's an emission reduction every four years doesn't actually mean that the value of Bitcoin will always go up - DEMAND matters. But where to base that demand? I believe it could based from M2 Money Supply. If it goes up, risk assets such as Bitcoin also go up weeks/months later. The same when it's going down.

And these theories, imo, are really bad at explaining the crashes after the demand.

In other words, what I question is:

- that the post-halving FOMO is a "natural consequence" of the halving cycle,

If we remove the gamblers/traders out of the market, and if M2 Money Supply is going up post-halving surge would be a natural consequence.

- but the crash after the maximum FOMO is "irrational behaviour".

IMO both FOMO and crashes are either irrational or have to be explained by the halving cycle theory

The same viewpoint if we remove the gamblers/traders out, post-halving corrections are also natural.

It will simply be a market with less volatility.

[Webetcoins]

If my memory serves perfectly from what I read that miners do not sell their coins for the current price because they already have a stock of cash that they made during the bull period, so they sold at bull period and made money, and they stop selling as well.

Sure they mine less, which is one of the reasons, but also they do not even sell that small amount neither, so that makes it go up, because suddenly, from miners, selling all they mine plus what they have on their stocks, and go from that to suddenly nothing being sold at all. That is the toughest thing and we need to just realize that things won't be that much profitable to any of us if we are not careful. We need to improve our understanding of what's going to see what we can make at the time.

[d5000]

If my memory serves perfectly from what I read that miners do not sell their coins for the current price because they already have a stock of cash that they made during the bull period, so they sold at bull period and made money, and they stop selling as well.

I guess what you're referring to here is that miners in some periods of the bull market sell much less than what they earn, creating more shortage. And when they start to sell (way after the halvings?), then they could trigger a crash.

There are charts with estimations of miner holdings, like this one from TradingView:



We see that there may be some cyclic behavior but on a quite low level. In late 2019 there was a major increase of miner holdings (of several hundreds of thousands of coins) but that coincided with a decrease in Bitcoin price (in mid-2019, there was a small bubble up to $14,000, and later that year BTC fell again below 10,000$). It looks like miners could indeed have accelerated that dump, as after September their holdings decrease "back to normal". In most years after 2019 we don't see any major changes. A small "dip" in miner holdings occurred in mid-2021, but that was probably Chinese miners selling after quitting due to the mining ban.

Thus, I'm not convinced there's a pattern which drives miners to sell more than normal in the periods when Bitcoin crashes after the bubble and ATH. One could argument that the reward decrease due to the halving may force them to sell more after some time, but I don't think that timeframe makes up more than a year.

But where to base that demand? I believe it could based from M2 Money Supply. If it goes up, risk assets such as Bitcoin also go up weeks/months later. The same when it's going down.

Yes, that's another discussion, in another thread I found out that while there is some correlation, if we take into account GDP (and look at the variable M2 divided by GDP) this correlation becomes very weak.

[OgNasty]

The halving cycle is basically a religion at this point. I believe in it and I don’t think it will be different this time. I think everything is lining up for a perfect top in September. It is likely Strategy will be included in the S&P500 and that will be announced on September 5th. Interest rates will be lowered on September 17th. Strategy will be included in the S&P500 on September 20th. When Strategy was included in the NASDAQ the market peaked between announcement and inclusion. For this reason I believe the interest rate reduction will be a sell the news event that marks the cycle top. I also think that between now and September 16th we see a monster rally that brings us to $150K. We will see… The time for fireworks is now.

[davis196]

Or to say it in other words: Why is the price increase after the halving "natural", but the crash afterwards can only be explained by panic and mass profit taking? Isn't the price increase around and after a halving also an effect of herd behaviour (FOMO) and mass psychology induced dynamics?

The "halving cycle theory" only proves that Bitcoin is a financial bubble, which keeps growing and bursting every once in a while.
I don't see anything weird with the "halving cycle theory". Bitcoin acts the same way as every scarce financial asset in the history of finance(maybe gold is the only exception). The BTC price crashes/bear markets in the past can be explained with a lack of market liquidity, combined with panic selling and FUD. The same thing happens every time a financial bubble bursts. Everyone panics and starts selling, nobody wants to buy. The good thing is Bitcoin's ability to recover after a price crash/bear market and to start pumping again.