Bitcoin has cycled through booms and busts four times in eight years.
Impressive regularity but by no means is it coincidental.
Any market — cryptocurrency or traditional — is governed by market cycles.
Simply put, one market cycle is where price goes up (i.e. uptrend; bull market) and then price goes down (i.e. downtrend; bear market).
Why is it called a market cycle?
For one, the price cycles up and down.
But more importantly, each cycle is underpinned by human emotion.
That is, it cycles from from fear, uncertainty, and doubt to greed, over-exuberance, and euphoria.
Ever since the greed and euphoria when 1 Bitcoin was worth $20,000, Bitcoin’s market cycle has taken a significant downturn to 1 Bitcoin being worth almost $3,000 where fear and doubt is palpable.
Every so often, the cycle repeats. Bitcoin’s price history has shown that.
Below is a tweet of mine which shows the length of uptrends and downtrends for Bitcoin since 2011.
These statistics shed light on some interesting qualities about Bitcoin’s price history.
Firstly, they show that uptrends (i.e. bull markets) historically tend to be longer in duration compared to the duration of the preceding downtrend (i.e. bear market).
And secondly, it shows the amount of percent that Bitcoin has lost in valuation over the course of its historical downtrends.
These downtrends (i.e. corrections) correct the overoptimistic and over-exuberant thinking market participants had when they were lost in all of the bullish euphoria when Bitcoin reached $20,000 in December 2017.
These downtrends are called bear markets.
The longest Bitcoin bear market was 58 weeks long (i.e. 2013/2014). Bitcoin retraced 86% then.
This current cryptocurrency bear market has just started its 51st week and Bitcoin has retraced 84.5% thus far.
In fact, the overall average correction for Bitcoin is 84.5%.
What this means is that Bitcoin’s decline in market valuation is not out of the ordinary, contrary to what you may hear in the media.
Bitcoin’s Current Market Cycle Is “Average”
For what will soon be a year, Bitcoin has been going through an extended hangover from the exponential rally of December 2017 which saw it make new All Time Highs (ATH) at $20,000.
But as we mentioned earlier, the crypto market is going through a historically average retrace in terms of the previous three corrections Bitcoin has experienced (this current correction being the fourth).
By the same token, the current Bitcoin market cycle also experienced a pretty standard rise comparative to its previous market cycles, despite having made impressive mind-blowing exponential gains.
Below are the % gains Bitcoin made across market cycles, with the most recent uptrend to $20,000 in bold.
2011–2012: 312,000% increase
2012–2013: 13,000% increase
2013: 2,200% increase
2015–2017: 11,000% increase
Though the most recent bull run saw Bitcoin enjoy an 11,000% gain, that was merely the third best exponential increase Bitcoin has experienced in its short but certainly storied history.
There is nothing extreme about Bitcoin’s current market cycle.
In fact — it is quite ordinary in the grander scheme of its overall price history.
Predicting Future Trends Using Data From Previous Market Cycles
People tend to use historical market data to deduce trends and extrapolate that data into potential future trends.
Though historical price action can be useful in predicting future trend reversals, no market cycle will ever be a copy-paste version of itself.
Every market cycle is and will be different. Every uptrend will yield different gains; every correction will vary in its severity.
Based on Bitcoin’s historical retrace data however, one can speculate on how deep Bitcoin’s correction will be during this macro downtrend.
Bitcoin’s history of retraces:
2011–2012: -93% retrace
2012–2013: -80% retrace
2013: -86% retrace
2018: -84.5% retrace so far
If Bitcoin were to retrace 86%…
In its current market cycle, Bitcoin has retraced 84.5%.
A 86% retrace would mean that Bitcoin will have corrected to $2800.
At the time of writing, 1 Bitcoin is priced at $3250.
For Bitcoin to match it’s 2013–2014 retrace of 86%, it would have to drop an additional ~13% from current prices.
This would constitute an additional 1.5% drop measured from ATH ($20,000; i.e. 84.5%+1.5% = 86%)
If Bitcoin were to retrace 93%…
On the other hand, a 93% retrace from ATH would mean that Bitcoin will have retraced to approximately $1400.
For Bitcoin to match its deepest retrace to date (i.e. 93% in 2012), it would have to drop an additional 57% from current prices (i.e. an additional 8.5% from ATH; 84.5%+8.5% = 93%).
Such a retrace would be among one of the “worst” scenarios we could expect for Bitcoin through the lens of its price history. At the same time however, probabilistically speaking a 93% retrace is the least likely price scenario for Bitcoin.
Having said that, just off previous market cycle data, one can deduce a broad range of $1400-$2800 for the Bitcoin bottom in this current market cycle.
Humans are predictably irrational
Bitcoin’s market cycle data can give us some insight into what to expect in terms of where its price could go.
History tends to repeat itself but always with a slight twist.
What never changes are the fundamental shifts in human psychology that underpin market cycles.
Markets cycle in the same way that human emotions cycle.
From fear to greed, greed to fear.
Humans are predictably irrational. The cyclicity of Bitcoin’s price history is a testament to that.
Markets will always be irrational.
Crowd psychology and human emotions will never change.
At some point, the bargain hunters are going to start stepping into the cryptocurrency market by buying Bitcoin and other alternative coins (i.e. alt-coins) on the cheap side.
This will prompt the beginning of yet another cryptocurrency bull run.
People will start to feel greed & FOMO.
And so the new cycle will continue…
Thank you for reading.