The trend is set, and we are in the midst of a new bull market cycle for BTC.

The trend is established, and we are currently experiencing a fresh bull market cycle for BTC.

Author: Darko Bosnjak, Momir Amidzic from IOSG Ventures

TL;DR

• Research from IOSG indicates that we are currently in the sixth cryptocurrency bull market cycle, which has been going on 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, entering the later stages (accumulation phase -> uptrend phase -> distribution phase -> downtrend phase), and entering an uphill period.
• Recently, the 50-day moving average crossing above the 200-day moving average occurred for the second time in the cryptocurrency cycle, representing a positive signal. This technical indicator has a stable history of backtesting data, with over 80% of cases showing positive returns in the medium term.
• Compared to previous cycles, the current Bitcoin bull market cycle is unusually stable, but if we reference historical patterns, IOSG expects at least 10 pullback corrections (exceeding -5%) before reaching the peak of this cycle.
• In the period before and after Bitcoin halving events, the price of Bitcoin tends to experience significant increases.
• IOSG: Although the Bitcoin halving event coincides with market cycles, it may not be a direct cause of market changes but rather aligned with broader global economic trends.

Research Motivation

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 the various factors that influence these cycles.

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

• Bitcoin Unveiling the Rendezvous of the Digital Age and the Gold Standard
• Bitcoin’s Perfect Imperfection: The Halvening
• The Rise of Bitcoin ETFs: From Gradual to Sudden

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 carry the imprints of these macro cycles, yet are still influenced by their own industry-specific and proprietary factors.

In general, cycles have four distinct stages or periods that describe the behavior of market participants: accumulation phase (attracting chips), markup phase, distribution phase (distributing chips), and markdown phase.

In the initial stages, the accumulation phase marks the end of a downtrend. The prevailing sentiment is one of mistrust and uncertainty, with market participants cautiously navigating an environment of low price fluctuations.

Transitioning into the markup phase, the bull market takes center stage. Investor sentiment is optimistic and active, and the market exhibits upward price movements.

In the distribution phase of the market cycle, the narrative of emotions begins to change, and market sentiment is driven by overconfidence and greed.

Finally, the downturn phase marks the arrival of a bear market. Anxiety and panic dominate market sentiment, with a continuous downward trend in candlestick charts. The shadow cast by unfavorable economic conditions intensifies investors’ unease during this phase.

In this section, we focus on analyzing the inherent cyclicity of the cryptocurrency market, with a particular 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. Bitcoin’s price fluctuations typically affect other cryptocurrencies that are highly correlated with it, and the prices of other cryptographic assets usually adjust accordingly with the rise and fall of Bitcoin.

Since its inception, BTC has averaged more than double in price every year. However, if we take a more macro perspective, we can identify clear cycles.

Source: IOSG Ventures

So far, we have experienced five (if including the current cycle, it would be six) bull cycles (green area) and five bear cycles (blue area).

Currently, the cryptocurrency market is in the mid-term of the sixth bull cycle, experiencing the uptrend phase. The accumulation phase, the initial stage of the cycle, started from the end of 2022 and continued until the summer of 2023, when Bitcoin’s volatility reached historic lows.

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 volume data lack the consistent predictive power required to forecast future stock prices. Their viewpoint suggests that relying on past price trends and trading volumes does not provide inherent advantages in predicting market trends. We tend to agree with this view, especially when evaluating the performance of individual assets in isolation.

However, on the contrary, we also believe that analyzing historical information is valuable for understanding the cyclicity of the market. Although it cannot provide precise predictions of future price trends, analyzing historical data can cultivate intuition and help avoid biases. Through careful examination of market cycles, it can help avoid unnecessary bullish enthusiasm during market uptrends (greed phase) and counterbalance pessimistic bearish arguments during market downturns (panic phase). This cultivates a mindset that is both resilient and insightful, enabling a more rational and cautious response to market fluctuations, without being influenced by temporary market sentiment.

Basic Data Statistics

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

Source: IOSG Ventures

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

Regarding 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 354 days. As 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 lasted around one year. Now, let’s compare the returns of Bitcoin in this cycle with previous cycles within a similar time frame.

Source: IOSG Ventures

The 2018-2019 bull market cycle ended in less than a year with a return of approximately 3.9x. The 2020-2021 and 2015-2017 cycles lasted over a year, with returns of 11x and 1.9x, respectively, within the initial 365 days. Essentially, the 2020-2021 cycle saw most of its return in the first year of the bull market, while the 2015-2017 cycle accelerated after the first year.

For the current bull market cycle, Bitcoin’s price has grown by 2.6x from the bottom, approximately in the middle of a moderately long-lasting bull market cycle.

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 formation occur twice in a short period of time. Historically, such an event only happened once during the 2015-2017 bull market period.

Source: IOSG Ventures

At that time, after the second 50/200-day MA crossover in the bull market cycle from 2015 to 2017, the results for BTC were as follows:

• 90 days later – return rate of 1.27x
• 180 days later – return rate of 1.43x
• 365 days later – return rate of 2.26x

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

Source: IOSG Ventures

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

• 90 days later: 1.1x
• 180 days later: 1.33x
• 365 days later: 2.5x

Rough Road Ahead

According to IOSG’s observations, the smoothness exhibited by this bull market cycle surpasses any previous cycles in Bitcoin 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), whereas this cycle has only experienced 10 such corrections. Even shorter cycles had more corrections than this current cycle.

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

Source: IOSG Ventures

Impact of BTC Halving

The Bitcoin halving is a predetermined event within the network that occurs approximately every four years, specifically when 210,000 blocks have been mined. During the 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. Therefore, mining becomes more competitive, prompting miners to seek more cost-effective energy sources to sustain their operations.

In addition, halving significantly reduces the number of new bitcoins entering the market, which has led many market participants to view halving as a catalyst for a bull market.

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

These statistics highlight that over time, the issuance of new bitcoins continues to decrease, emphasizing the scarcity and long-term appreciation potential of cryptocurrencies.

Source: IOSG Ventures

Although analyzing only three historic halving events may not provide a statistically significant sample size to draw definitive conclusions, the importance of halving events in the Bitcoin community and the widespread discussion of their role as catalysts for a bull market cannot be ignored. Therefore, we will delve into the relevant data of historic 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 be reduced to 3.125 BTC.

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

Source: IOSG Ventures

In terms of percentages, the impact of halving gradually diminishes as BTC becomes a more mature asset. After the last halving event, the price increased by more than 6 times one year later.

Source: IOSG Ventures

Analysis of the pre-halving period

In the anticipated halving event, we have also observed a strong BTC price trend, although not as intense as post-halving. Similarly, in each new cycle, the increase is relatively moderate, ranging from 400% to 150%, and then 25% before reaching its peak.

Source: IOSG Ventures

Analysis of Macro and Cryptocurrency Bull Market Cycles

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

Source: IOSG Ventures

As shown in the above graph, there are many overlaps, especially in recent years. Therefore, we cannot say that the halving event plays a decisive role in determining the start time of a new cycle. Although a positive macro environment may be the primary factor determining the cyclical nature of cryptocurrencies, halving cycles and other specific cryptocurrency events may also have a significant impact on the scale of a bull market.

Source: IOSG Ventures

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

Regarding cryptocurrencies, so far, the main bullish triggers are a series of high-profile bank bankruptcies, speculation on cryptocurrency ETF products, and the resolution between Binance and regulatory authorities, which removes one of the biggest potential black swan events.

Conclusion

Although we remain optimistic for the next few months, the historical trend from a prosperous period to a correction period reminds us that reaching excessive valuations is not uncommon. We are at a critical point of overconfidence and greed, where overconfidence and greed often dominate, leading to a volatile environment and irrational valuations.

While this analysis suggests that enthusiasm for cryptocurrency investments is expected to grow further and positive momentum will continue, we still need to exercise caution.

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

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