BTC data shows that we have entered a new bull market cycle.

BTC Data Indicates the Commencement of a New Bull Run Cycle

Author: Darko Bosnjak, Momir Amidzic from IOSG Ventures

TL;DR

• IOSG’s research shows that we are currently in the sixth cryptocurrency bull market cycle, which has been running for over a year.
• Based on historical market cycle patterns, IOSG believes that we are currently in the middle of a medium-length bull market cycle, and are entering the later stages (accumulation phase -> uptrend phase -> distribution phase -> downtrend phase), and entering the climbing phase.
• Recently, the second occurrence of the 50-day moving average crossing the 200-day moving average in the cryptocurrency cycle represents a positive signal. This technical indicator has a stable historical backtest data, with over 80% of cases having positive returns in the medium term.
• Compared to previous cycles, the current Bitcoin bull market cycle is unusually smooth, but according to historical patterns, IOSG expects at least 10 corrective pullbacks (over -5%) before reaching the peak of this cycle.
• In the period before and after the Bitcoin halving event, the price of Bitcoin often experiences significant increases.
• IOSG: Although the Bitcoin halving event coincides with market cycle changes, they may not be the direct cause of market changes, but rather align with broader global economic trends.

Motivation for the research

In order to better understand and respond to the current market conditions, we need to study the formation and development of market cycles in history, as well as various factors that influence these cycles.

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• What does the high level of open positions in CME Bitcoin futures contracts near the 2021 peak indicate?

By referencing lessons learned from past market cycles, we can gain a deeper understanding of market behavior. Additionally, understanding the duration, amplitude, and characteristics of past cycles can help evaluate current market conditions and identify potential market turning points.

About cycles

Market cycles are typically defined as the period between two major lows of a broader market index, such as the S&P 500 index. Global market cycles are influenced by business cycles, economic conditions, and investor sentiment. At a more micro level, individual industries, sectors, and assets bear the imprint of these macro cycles, but are also influenced by their own industry-specific and idiosyncratic factors.

Generally, cycles have four distinct phases or periods that describe market participants’ behavior: accumulation phase (attracting chips), markup uptrend phase, distribution phase (distributing chips), and markdown downtrend phase.

In the initial stage, the accumulation phase marks the end of the downtrend. The prevailing sentiment is one of mistrust and uncertainty, and market participants navigate cautiously in an environment of low price volatility.

Transitioning into the uptrend phase, the bull market takes center stage. Investor sentiment becomes optimistic and positive, and the market charts an upward trend in prices.

In the distribution phase of the market cycle, the narrative of sentiment starts to shift, and market sentiment becomes dominated by overconfidence and greed.

Finally, the mark of the descending period marks the arrival of a bear market. Anxiety and panic dominate market sentiment, and the trend in the K-line chart continues to decline. The shadow cast under unfavorable economic conditions intensifies investors’ anxiety during this stage.

In this section, we focus on analyzing the inherent cyclical nature of the cryptocurrency market, with a special focus on Bitcoin. Bitcoin has the highest market capitalization, a large market value, and high trading volume, occupying an important position in the digital currency market. The price fluctuations of Bitcoin usually have a corresponding adjustment effect on other cryptocurrencies that are usually highly correlated with it.

Since its inception, BTC has increased by more than 2 times on average each year. However, if we take a more macro perspective, we can identify distinct cycles.

Source: IOSG Ventures

So far, we have experienced five (six if we include the current cycle) bull market cycles (green region) and five bear market cycles (blue region).

Currently, the cryptocurrency market is in the mid-term of the sixth bull market cycle, experiencing an upward phase. The accumulation phase, the initial stage of the cycle, extended from the end of 2022 to the summer of 2023, when Bitcoin’s volatility reached a historical low point.

Exploring historical and current parallel performances

There is currently a school of thought that denies the effectiveness of technical analysis, arguing that historical price and trading volume data lack consistent predictive power for future stock prices. Their viewpoint suggests that relying on past price trends and trading volume does not provide inherent advantages in predicting market trends. We relatively agree with this viewpoint, especially when evaluating the performance of individual assets separately.

However, on the contrary, we also believe that analyzing historical information is valuable for understanding the cyclicality of the market. Although it cannot provide precise predictions of future price trends, analyzing historical data can cultivate intuition and help avoid biases. By carefully studying market cycles, it can help avoid unnecessary bullish enthusiasm, such as holding on to supercycle arguments during market upswings (greedy phase), and offsetting bearish arguments during market downturns (panic phase). This can cultivate a resilient and insightful mindset, dealing with market highs and lows in a more rational and prudent manner, unaffected by temporary market sentiments.

Basic data statistics

In the table below, we display the statistical data for each historical bull and bear market cycle.

Source: IOSG Ventures

Analyzing past cycles, the median decline in previous bear market cycles was -77% (with an average decline of approximately -75%). The recent bear market cycle experienced a decline of exactly 77%. On the other hand, the median price increase in bull market cycles was 15 times (with an average increase of approximately 60 times).

As for the duration of the cycles, the median duration of bear market cycles was 354 days, with an average duration of 293 days. The recent bear market cycle lasted for 354 days. For bull market cycles, the median duration was 604 days, with an average duration of 571 days.

Bull Market Countdown

The current bull market cycle has been ongoing for about a year. Below, we will compare the returns of Bitcoin in this cycle with those of previous cycles within a similar time frame.

Source: IOSG Ventures

The bull market cycle of 2018-2019 ended in less than a year, with a return of approximately 3.9 times. The cycles of 2020-2021 and 2015-2017 lasted for over a year, and within the initial 365 days, their respective returns were 11 times and 1.9 times. Essentially, the returns of the 2020-2021 cycle were mainly realized in the first year of the bull market, while the 2015-2017 cycle accelerated performance after the first year.

In the current bull market cycle, the price of Bitcoin has increased 2.6 times from the bottom, placing it roughly in the middle of a bull market cycle in terms of duration.

Source: IOSG Ventures

In the past few weeks, for the second time since the start of this cycle, the 50-day moving average (MA) has crossed the 200-day MA. In fact, we rarely see this pattern occurring twice within a short period of time. Historically, such an event only occurred once during the bull market of 2015-2017.

Source: IOSG Ventures

Back then, after the second 50/200-day MA crossover in the bull market cycle of 2015-2017, the results for BTC were as follows:

• 90 days later – a return of 1.27 times

• 180 days later – a return of 1.43 times

• 365 days later – a return of 2.26 times

Throughout the entire history of Bitcoin prices, the 50-day MA has only crossed the 200-day MA in 6 instances. From a probability standpoint, it can be predicted with over 80% likelihood (based on 5 out of 6 historical occurrences) that there will be positive returns one year after the crossover.

Source: IOSG Ventures

On average, following bull market crossover events, the expected return rates for Bitcoin (BTC) are as follows:

• 90 days later: 1.1 times

• 180 days later: 1.33 times

• 365 days later: 2.5 times

Rugged Road Ahead

According to IOSG’s observations, the current bull market cycle has shown a smoother trend than any previous cycle in Bitcoin’s history.

In the process of Bitcoin reaching its peak, the previous cycle experienced nearly 115 daily corrections of 5% or more (here we refer to negative returns as corrections), while this cycle has only experienced 10 such corrections. Even shorter cycles have had more corrections than this cycle.

So far, no bull market cycle has ended with less than 20 daily corrections of 5% or more. Therefore, if this current bull market cycle follows the characteristics of previous cycles, we can expect to see at least 10 more corrections as the market continues to rise before transitioning to a bearish sentiment.

Source: IOSG Ventures

The Impact of Bitcoin Halving

Bitcoin halving is a predetermined event that occurs approximately every four years, especially when 210,000 blocks are mined. During halving, the rate at which new BTC is generated is halved.

This has a significant impact on Bitcoin miners as their mining rewards are also halved. As a result, mining competition becomes more intense, prompting miners to seek more cost-effective energy sources to sustain their operations.

In addition, halving drastically reduces the number of new bitcoins entering the market, leading many market participants to view halving as a bullish catalyst.

To illustrate the impact of halving, let’s take a look at Bitcoin’s supply before and after each halving. Before the first halving, Bitcoin’s supply exceeded 10 million coins. Before the second halving, it was slightly above 5 million coins, and before the third halving, it was around 2.5 million coins.

These statistics highlight the decreasing issuance of new bitcoins over time, emphasizing the scarcity and long-term appreciation potential of cryptocurrency.

Source: IOSG Ventures

While analyzing only three historical halving events may not provide a statistically significant sample to draw definitive conclusions, the importance of halving events within the Bitcoin community and the widespread discussion of their role as bullish catalysts should not be ignored. In light of this, we will delve into further exploration of the data related to historical halving events in the following sections.

Source: IOSG Ventures

The next halving is expected to occur around April 2024 at block 840,000. The mining reward will decrease to 3.125 BTC.

These cycles are clearly visible and seem to be related to the halving events. The following graph shows the price changes of BTC after the halving events:

Source: IOSG Ventures

In terms of percentage, the impact of halving decreases as BTC becomes a more mature asset. After the previous halving event, the price went up more than 6 times in a year.

Source: IOSG Ventures

Analysis of the pre-halving period

In the anticipated halving events, we also observed strong price trends of BTC, although not as intense as after the halving. Similarly, in each new cycle, the increase is relatively moderate, ranging from 400% to 150%, and then up to 25% before reaching the peak.

Source: IOSG Ventures

Macro and cryptocurrency bull market cycle overlap analysis

Before determining the impact of halving events on the cyclical nature of the cryptocurrency market, we should try to separate the influence of the global macro cycles on the cryptocurrencies.

Source: IOSG Ventures

As shown in the above graph, there is a lot of overlap, especially in recent years. Therefore, we cannot say that halving events play a definitive role in the timing of new cycles. While a positive macro environment may be the main factor determining the cyclical nature of cryptocurrencies, the halving cycles and other specific cryptocurrency events may also have a significant impact on the scale of bull markets.

Source: IOSG Ventures

Cryptocurrency traders may closely monitor the macro environment, interest rates, oil prices (energy costs), and the outcome of ongoing geopolitical conflicts, as they will have a significant impact on the entire macro cycle.

Regarding cryptocurrencies, so far, the major bullish triggers have been a series of high-profile bank failures, speculation on cryptocurrency ETF products, and the resolution between Binance and regulatory authorities, which eliminates one of the biggest potential black swan events.

Conclusion

Although we remain optimistic for the next few months, the historical trend of cycles from prosperity to correction reminds us that reaching overvalued levels is not uncommon. We are currently at a critical point of excessive confidence and greed, where overconfidence and greed often dominate, potentially leading to an environment of significant ups and downs and irrational valuations.

Although this analysis suggests that the enthusiasm for cryptocurrency investments is expected to grow further and positive momentum will continue, we also need to be cautious.

After all, compared to earlier cycles, the current state of Bitcoin is a more mature asset. The increasing institutionalization and maturity of this asset class have raised concerns about the efficient market hypothesis. We recognize that as the asset matures, historical pattern analysis may become less applicable. In view of this, it is extremely valuable to approach and analyze the market with a balanced and realistic perspective.

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