Bitcoin – Comparing Previous Market Cycles With The Bull Run of 2021

Bitcoin is booming. Just recently Elon Musk announced via a SEC filing that he put 10% of Tesla’s balance sheet into Bitcoin. However, every time there is a big drop people are scared that the end is near and that Bitcoin goes again down 80-90% like it did in 2018.. or 2014… or 2013. You see where I am getting there – Bitcoin often does that. Hence, we have market cycles and this article will look over previous market cycles in Bitcoin and where Bitcoin stands today.

Bitcoin’s first market “cycle” (why quotations? Because back then there was not really a market – more like OTC trades and small exchanges) in 2010 brought Bitcoin up over 5000% - going form a cent per Bitcoin to half a
dollar. Right after that we saw a 70% drop.

In the next paragraphs we are going through the previous large cycles, remember though that each cycle includes many 30%/40% dips – historically this was a normal thing in bull markets.

Bitcoin’s first real market cycle 2011

In 2011, Bitcoin started out from a low of 0.17$ and reached a high of 30$ in summer 2011. From the previous All-Time-High it increased by 6500%. Back then the narrative was clear – can Bitcoin break a Dollar?

Of course, it can we would say today but back then things weren’t that certain. The market was driven by a lot of enthusiasts, there was hardly any liquidity compared to today and media coverage was almost only negative if it existed at all.

2011-2013 – Bitcoin gained attention

Bitcoin for the first time was really on the screen of a group of media outlets and some investors. We saw an increase form 30$ to over 1,000$. In that cycle there even was a crash from 250$ to 50$ (which arguably is a cycle itself), however straight after that drop another rally started up to the 1,000$ mark.

2017 Bitcoin bull run vs. Bitcoin today

In 2017 the Bitcoin market increased from about 1,000$ to almost 20,000$ - 2000%. In that cycle there was a lot of public interest in Bitcoin and especially altcoins and ICOs. Below there is a chart of the Google search trends from back then vs. today.

Here we are seeing that as of today, even though Bitcoin trades at 2-3X the 2017 ATH, there is still not so much public awareness. This could be a good indicator that the current cycle isn’t over yet, since the current buyers seem to be more institutional (or better corporate -Tesla, Microstrategy,
etc) buyers than retail investors.

Another indicator is the fact that we haven’t really seen a “craze” like last year – there were “vaporware” ICOs popping up everywhere with some
random stock pictures, no product and often not even a legal entity raising
millions and leaving investors behind with no money.

Another interesting point to look at are dips in the bull market – In 2017 we had two 35% and one 25% dip in the cycle. In the current cycle we got one 30% correction at 42,000$ and one at 58,000$ down to 43,000$.

2017 Bitcoin bull run vs. Bitcoin today

Here we are seeing that as of today, even though Bitcoin trades at 2-3X the 2017 ATH, there is still not so much public awareness. This could be a good indicator that the current cycle isn’t over yet, since the current buyers seem to be more institutional (or better corporate - Tesla, Microstrategy, etc) buyers than retail investors.

Another indicator is the fact that we haven’t really seen a “craze”
like last year – there were “vaporware” ICOs popping up everywhere with some random stock pictures, no product and often not even a legal entity raising millions and leaving investors behind with no money.

Another interesting point to look at are dips in the bull market – In 2017 we had two 35% and one 25% dip in the cycle. In the current cycle we got one 30% correction at 42,000$ and one at 58,000$ down to 43,000$.

Stock to Flow model

PlanB created a model called the Stock to Flow model that models the Bitcoin price with an indicator known from commodity (especially gold) markets.

As history proves the model so far seems to be working – the chart below shows the model.

This would indicate a price of Bitcoin of about 100,000$ or higher at the end of the cycle. What’s interesting to see in the chart that the Bitcoin price shot above the s2f 463 line (light blue line) at the end of each cycle, however from cycle to cycle this “pump” above that line becomes smaller. If this trend continues we would see Bitcoin topping out at about that line.

Conclusion

All in all, no one knows where prices of any asset are going, however above we talked about some models and examples on how to look at the Bitcoin prices and its market cycles. There is always the potential risk of some black swan event like a global financial crisis (e.g. given the decoupling of the stock market and the actual economy and the resulting bubble) or some other event that would cause people to sell their Bitcoin.

What’s important to take away is that each cycle ended up with a “crash”. Each crash has always ended above the previous All-Time-High creating a long-term uptrend for Bitcoin. Both crashes and bubbles get both smaller with the market growing and maturing.

Disclaimer: All content above is for informational purpose only. None of the content shall be considered financial advice. The author is affiliated with Liquidary.com

Sources: PlanB, Digitalik, Liquidary.com, The Technical Trader

Image Source: Unsplash