Does Bitcoin really “only go up”? ──Looking back at past halving cycles | CoinDesk JAPAN

It’s that time of year again when you get emails from friends and family who know you’re into Bitcoin (BTC) and ask, “Is now the time to buy?”

This is a period that symbolizes that the Bitcoin price has reached its peak again.

But the truth is, if you’re looking to buy Bitcoin now, it might not be the best time to buy in large quantities. A physical Bitcoin exchange-traded fund (ETF) could soon be approved (as early as January). why?

First, let’s take a look at Bitcoin’s price movements up to the past two Bitcoin halvings. The next halving will be when block 840,000 will be mined. It is expected to be in late April.

Historical Bitcoin Halving Cycle Trends

Bitcoin’s halving cycle lasts approximately four years. At the beginning of each cycle, the block reward received by Bitcoin miners is halved, creating a Bitcoin supply shock.

Historically, Bitcoin prices have risen dramatically in the 18 months following a halving. Prices then crash and trade in a range for the remaining two and a half years of the cycle.

From late 2013 until the second halving in mid-2016, the price of Bitcoin fell from $1,166 to $156. It then rebounded to $780, 67% of its previous all-time high, and fell 40% to $472 in August 2016.

The $472 price was a local low just one month after the second halving.

From late 2017 to late 2018, the price of Bitcoin fell from $19,666 to $3,150 before rebounding to $13,882 (70% of its previous all-time high). By March 2020, the price had fallen 72% to $3,867.

$3,867 was the local low two months before the third Bitcoin halving, which occurred in May 2020.

Once again, the two-and-a-half year period preceding Bitcoin’s halving is coming to an end. This period begins in late 2021 and ends in April 2024, when the fourth halving is scheduled.

So far, Bitcoin price has fallen from $69,000 to $15,522 before rebounding to $44,759 (65% of its previous all-time high).

This 65% rally is very similar to the 67% and 70% rebounds seen in the past two cycles.

This raises the following big questions: Will the Bitcoin price drop significantly heading into the next halving, like the past two halvings?

If the price of Bitcoin were to fall 40% from current levels, as it did from 2015 to 2016, the price of Bitcoin would be $26,855 (closer to $44,000 at the time of writing). .

If Bitcoin drops 72%, like it did from 2019 to 2020, it would be $12,532.

Few would mention such numbers in the face of the euphoria Bitcoin investors are experiencing right now. So will it be different this time? Will billions of dollars flow into Bitcoin immediately after Bitcoin spot ETF is approved?

Might be so.

Bitcoin spot ETF

No one knows yet whether the approval of a Bitcoin spot ETF is already factored into the Bitcoin price.

Those who believe this is the case believe that the approval of a Bitcoin spot ETF is a “buy the rumor, sell the news” event, meaning that the Bitcoin price will rise in anticipation of the Bitcoin spot ETF approval, as it has in the past. , we believe that there will be a sell-off once ETF approval is announced.

Others refer to a “buy the rumor, buy the news” event, where the price of Bitcoin rises in anticipation of the announcement of a Bitcoin spot ETF and rises again when the ETF is announced.

In reality, no one knows what will happen.

Bloomberg analysts predict a 90% chance of a Bitcoin ETF being approved by January 10, 2024, but few seem to be asking the following questions:

What will happen to the price of Bitcoin if the Bitcoin Spot ETF is not approved?

This scenario could be the reason for a significant drop in Bitcoin price. The decline may not be as severe as the previous two, but it will probably be noticeable.

Also, what will happen to the Bitcoin price if the economy worsens?

What if I can’t make a soft landing?

Politicians and big financial institutions want us to believe that the U.S. economy is headed for a soft landing, or at worst a mild recession, but I remember hearing the exact same rhetoric back in 2008. We’re not so sure.

A number of reputable news outlets have said that we may be in the midst of a “melt-up” (a situation in which asset prices rise parabolically and then collapse catastrophically).

In an environment where investors can earn a risk-free yield of 5% or more by investing in MMFs, the Dow Jones Industrial Average is set to reach a new all-time high, and the S&P 500 and NASDAQ are also set to reach all-time highs. This is not hard to believe, given that

If a meltup is currently occurring, and Bitcoin prices are following suit, there are two additional questions to ask.

How much will the Bitcoin price rise before it crashes? In that case, what investment strategy is best?

The first question is difficult to answer, but the second question is not so difficult.

Investment strategy at this point in the Bitcoin cycle

I would like you to continue holding Bitcoin for the long term (HODL) and DCA (Dollar Cost Averaging). These investment strategies have proven fruitful for those who have held Bitcoin for more than four years.

What you want to avoid in this euphoria is taking large positions, especially with leverage, at current levels. In the words of Caitlin Long, founder and CEO of Custodia Bank, “Fools and leveraged Bitcoin are quickly separated.”

If Bitcoin were to drop significantly, you would want to make sure you had the funds to buy Bitcoin instead of acting like an avid gambler and losing Bitcoin and losing your funds. .

Of course, no one knows what the price of Bitcoin will be. Perhaps it will enter a half-life period and continue to rise even after the half-life period ends.

However, if history repeats itself and Bitcoin continues to behave as it did just before past halvings, then Bitcoin prices could fall significantly as the April 2024 halving approaches.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original text: Is it Really ‘Up Only’ for Bitcoin?