In a word, No. I do not believe we should be relying on the crypto four year cycle to save us any longer. I admit this metric has worked in the past, and has up until now been the cornerstone of the crypto influencer and crypto trader playbook however times are changing.
1. Bitcoin has never seen a trad-fi bear market. The last US bear market started in Oct. 2007 — November 2008. BTC was but a shiver in its daddies loins at this time only mining the genesis block on January 3 2009. One can argue that the US economy was in fact in a bear market from Feb 2020-March 2020 (33 days) and Bitcoin was alive and well during this time. I personally do not consider this short bear market as a factor to consider due to the Covid-19 crisis, however if we do consider that then Bitcoin’s showing during this time was horrendous to say the least.
2. Bitcoin has never experienced a double cycle top. This little tidbit alone has analysts (including myself) scrambling to explain and understand, and this alone shows us that something is different, something has changed from previous cycles and what’s true on the upswing remains true on the downside.
3. The Crypto markets have never experienced a 40 billion dollar loss of capital all at once in market history. I am of course referring to the Terra Luna collapse which we are and will be seeing the reverberating effect of this as other Defi protocols fail. Even Mt. Gox only lost 473 million. Currently Celsius has halted withdrawals, USDN has de-pegged causing Waves Protocol to liquidate USDN whales and 3AC is reported to be illiquid. I’m sure there is more to come on this front as those invested in Terra/UST and those building protocols for the network cut losses, pack up, move on or are liquidated. Not to mention the stifling regulation that the US and other countries will inevitably hit the industry with once the dust settles.
4. The stock to flow model worked up until this cycle and is no longer considered valid by most experts. Throughout the 2018–2020 bear market Plan B’s stock to flow model was the cornerstone of the crypto space. Every other day some influencer was posting about it, talking about it, singing its praises and talking about the “100k BTC of the next bull market” (trust me… I was there) however this is no longer the case because most analysts including myself no longer view this model as relevant. This is a smaller point but it does show that something has changed… the markets are somehow different than they were in past cycles.
5. “There is more institutional money in play now than ever before”. This argument has been used time and time again throughout the history of crypto bear markets but I’m going to go ahead and say it because it’s now more true than ever before… but not how you think! In the past this has been used as an argument for shorter, less painful bear markets and a statement that we use to pacify ourselves and moreover a statement used by our favorite crypto influencers to maintain an audience, push up the likes, retweets, subscriptions and shares while injecting us with that much needed hopium to get through the grueling bear market.
The argument has always been that large institutional players would “prop-up” the markets and never let the price go below their buy-ins using huge war chests to protect their investment. While this sounds reasonable on the surface it is in fact completely untrue. This is not and never has been how institutional players trade the markets. During market upswings institutional players will make large purchases, generate hype and push the markets up to a profitable position in order to make some profit sure…. But we also need to understand that during market downturns institutional investors flip this script and use these very large positions to push the markets down as far as possible for as long as possible while generating as much FUD as possible in order to push out as many retail investors as they can at a loss. This allows them to increase holdings without increasing capital and these massive war chests allow them to outlast most retail investors.
On to the Technicals:
BTC has stayed above the legacy trendline since it was established in March’13 and the legacy trendline has marked the bottom of each cycle ever since it was established.
If we apply past cycles logic to the present cycle we are looking at about an 85% BTC drawdown from the top of the market and roughly 700 days of downside action from top to bottom before once again breaking the 200d moving average to the upside.
However this logic does not coincide with the legacy trendline and both arguments cannot hold true while in past cycles both of these arguments did in fact hold true.
I know I know…. I can hear the argument now: “Why am I using the tried and true method of gauging bullish and bearish cycles on the 200d moving average”. I should be using the bottom of the cycle to the halving like every other 4 year cycle preaching analyst. Coupled with “What are you just using the BTC chart for when you should be using the total crypto market cap?” Ok, yeah…. I did that too and while some things do hold true there are some very stark differences from this cycle and past cycles that are not being considered because they don’t fit the narrative. For one the average time from the bottom of the cycle to the halving in past cycles is on average 535.5 days. This would have been on Feb 25th 2022. Yeah, the total crypto market has lost 44% of its value from Feb 25 to today (6.15.22) leaving less than 428 days to the next halving. Different than in the past? Yes I think so too!
Ok, I hear you! Why am I using the bottom of the cycle when I should be using the top of the cycle to halve? You’re in luck, I took the liberty of making that calculation as well. On average, from the top of the previous cycles to the halving it took 812 days. The current cycle’s top to the next halving is the shortest on record at 644 days unless of course Bitcoin produces another all time high before Aug 14, 2023 which is the next estimated halving date.
In past cycles the markets have anticipated the halving and its effects, causing prices to start moving in an uptrend well before the halving takes place. This generally happens roughly 1 year before the halving, giving BTC 63 days to perform this feat from the time of writing. I may be premature in calling this undoable but unless this is the shortest bear market in the history of BTC (which would in itself make it very different from past cycles) then this is highly unlikely this will happen. If we go with the previous argument that we will see roughly 700 days of downside action then the trend will not change until after the halving (also very different from past cycles).
The bottom line is simply what we already know. Bitcoin did not go high enough for a long enough period of time in the cycle and in not doing so has broken the trend and the market. It stands to reason that if the trend to the upside is broken then the trend to the downside is as well. All of this coupled with the contrasting market landscape and I believe that we are looking at something completely new going forward.
It is very possible that the crypto markets are forever changed. While I do believe the BTC halving will have a profound effect on the crypto markets I do not believe we should be looking to past cycles for downside targets or time frames.
I understand this is an unpopular opinion and that every cycle there is someone saying “It’s different this time” and in the past they have been Dead. Wrong. You hear it preached all the time in the crypto echo chamber “THE TREND IS YOUR FRIEND” and this statement is very true but it’s only part of the story. The trend is in fact your friend “UNTIL THE END OF THE TREND”. I am a professional trader and market analyst and part of being a professional trader is to recognize when the trend is changing and when the trend is an unreliable metric.