From retail investors to institutional dominance, is Bitcoin’s four-year bull market cycle ending?

Original author:Two Prime

Original translation: Tim, PANews

There has been a lot of discussion around Bitcoin’s four-year bull and bear cycle. This pattern of multiple rises, crashes, and then climbs to new highs has been running through most of Bitcoin's history. But it must be pointed out that there are good reasons to show that this four-year cycle law may have come to an end.

One question needs to be asked first: Why does a four-year cycle occur?

It can be attributed to three factors:

Half effect

Whenever the number of blocks increases by 210,000 (about four years), the Bitcoin mining reward is cut in half. This mechanism can usually cause price increases in the following years by manufacturing supply shortages.

Asset scarcity is often measured by the inventory/flow ratio (S2F), that is, the ratio of the existing total supply to the annual new supply. Taking scarce asset gold as an example, its S2F ratio is 60 (it will fluctuate slightly due to the discovery of new gold mines). The current Bitcoin S2F ratio is about 120, which means that its annual new supply is only about half of gold. This number will increase every time it is cut in half.

Global liquidity cycle

The correlation between Bitcoin and global M2 liquidity has been explained many times by us and multiple institutions. It is worth noting that many people believe that liquidity also follows a periodic law of about four years. Although its accuracy is not as high as that of the metronome like Bitcoin halving, this correlation does exist. If this theory holds true, the phenomenon of Bitcoin keeping in sync with it has reasonable logic.

Psychological perspective

Whenever a bull market surges, a new wave of popularity will be created. People's behavior patterns confirm Gandhi's statement: first ignore you, then laugh at you, and then fight against you, and you will eventually win. With this cycle, people will further accept the value of Bitcoin every four years and give it stronger rationality. People always fall into overexcitation, and the subsequent collapse makes the entire cycle cycle cycle again.

What we need to ask now is, are these factors still dominating the price of Bitcoin?

1. Half effect

After each halving, the decreasing proportion of the number of new Bitcoins to the total supply becomes increasingly weak. When the new supply accounted for 25% of the total supply that year, the drop to 12.5% ​​did have a huge impact; but now it has dropped from about 0.8% to 0.4%, its actual influence is no longer comparable.

​​2. Global liquidity cycle

Global liquidity remains a relevant factor for Bitcoin price, although this impact is changing. Bitcoin has shifted from retail-led to institutional-led, and trading behavior has changed. Institutions are making long-term accumulations, and short- and medium-term price declines will not shake them out of the market. Therefore, while global liquidity will still have an impact on Bitcoin prices, its sensitivity to M2 liquidity will continue to weaken. In addition, the purchase of Bitcoin by off-market institutions also reduces price volatility, which is where Bitcoin’s true confidence lies. Out of control financial expenditure will be absorbed by Bitcoin and continue to move towards a bright future.

3. Psychological perspective

The more widely adopted Bitcoin is, the stronger its stability will be on the psychological level of people. The influence of retail investors' selling behavior will be weakened, and the shift of market dominance to institutional buyers will also reduce the volatility of retail investors on prices.

Overall, Bitcoin remains one of the world's most potential assets, and its growth model is undergoing a transformation from cyclical growth to (logarithmic) linear growth. Global liquidity has become the dominant force in the current market. Unlike the top-down transmission path of most assets (from institutions to retail investors), Bitcoin has achieved penetration from the mass base to mainstream institutions from bottom to top. Because of this, we have witnessed that the market has stabilized in its maturity process and its evolutionary model is becoming increasingly standardized and orderly. (Picture source DeathCab)​​