Stanford MBA predicts larger Bitcoin cycle.

Stanford MBA predicts larger Bitcoin cycle.

The Unique Characteristics of the Current Bitcoin Cycle

A Bitcoin cycle refers to the period between two consecutive halvings, which are significant events in the cryptocurrency world. Halvings occur approximately every four years and involve the slashing of rewards miners receive for solving blocks on the network in half. This reduction in rewards leads to a decrease in the production rate of new Bitcoins, thereby increasing the scarcity and valuation of the asset. It is no coincidence that the bull markets have historically followed these halving events.

However, the most recent Bitcoin cycle has displayed certain unique characteristics that set it apart from previous cycles. Jesse Myers, a Stanford MBA, takes a closer look at the current cycle and provides insights into why it behaved differently.

Factors Influencing the Current Cycle

One notable difference in this bull market is the structure of the price movement. Instead of the parabolic advance followed by a blow-off top seen in previous cycles, the current cycle had a bimodal rounded top spread out over six months. This atypical pattern captured the attention of experts in the field.

Several factors contributed to the distinct behavior of Bitcoin during this cycle. The COVID-19 pandemic and the response of the US government to it played a significant role. The cycle began amidst the onset of the virus and the subsequent black swan crash, creating anomalous conditions. The injection of stimulus checks by the Federal Reserve, known as Quantitative Easing (QE), played a crucial role in fueling the 2021 Bitcoin bull market.

However, the change in the Federal Reserve’s policy from QE to Quantitative Tightening (QT) marked a turning point for Bitcoin in November 2021. This policy shift impacted the market and contributed to the top formation of the bull rally. Additionally, the ban on Bitcoin mining in China in May 2021, a major mining hub, created further selling pressure and interrupted the bull market temporarily.

While these factors were influential in shaping the current cycle, it is unlikely that they will repeat in the next cycle. There are other factors, however, that are expected to carry over into the next cycle. Leveraged futures trading, which was widely adopted by investors during this cycle, is likely to come into play again in the future. Furthermore, the issue of “paper Bitcoin” by platforms like FTX, where ownership of BTC exists on paper but not in reality, is expected to be present in the upcoming cycle as well.

Promising Developments for the Next Cycle

Despite the changes and challenges faced during the current cycle, there are positive developments that could favor the next cycle. One such development is the movement of Bitcoin supply off exchanges and its accumulation by smaller entities, holding less than 100 BTC. These smaller investors have increased their holdings by 275% of all newly minted Bitcoin. This trend suggests a changing dynamic in the market, with smaller investors competing with larger whales for ownership.

As the next halving approaches, the supply shock is expected to become even tighter. The smaller investors may be positioning themselves before this event. It is worth noting that this shift in ownership is not limited to individual investors; asset managers, such as Blackrock, are also expressing interest in Bitcoin and seeking to enter the industry.

Another potential positive development is the possibility of a shift back to Quantitative Easing by the Federal Reserve. This policy change, coupled with the upcoming halving, could have a positive impact on the market.

Price Range Predictions

Based on these factors, Jesse Myers assigns probabilities to different price range predictions for the next cycle. Here are the probabilities he has assigned:

Price Range Likelihood
Up to 2x the current cycle’s high Low
2x to 8x the current cycle’s high Medium
More than 8x the current cycle’s high High

Myers believes that a growth of more than 8x, which would surpass the current cycle’s performance, is the second most probable scenario. If this were to occur, it would be unprecedented in Bitcoin’s history.

BTC Price Analysis

At the time of writing, Bitcoin is trading around $29,300, experiencing a 2% decrease in the last week. The price movement has been relatively sideways recently.

BTCUSD on TradingView

In conclusion, the current Bitcoin cycle has faced unique challenges and exhibited distinctive characteristics. While external factors such as COVID-19 and government policies have influenced the cycle, they are unlikely to repeat in the future. Nevertheless, positive developments, such as the accumulation by smaller investors and potential shifts in policies, suggest promising prospects for the next cycle. As the halving approaches, the supply shock could tighten, paving the way for potential growth that surpasses the previous cycle’s performance.