Is the traditional fouryear cycle of Bitcoin coming to an end

CoinWorld reports:
Investors and cryptocurrency enthusiasts have long been interested in Bitcoin’s four-year cycle, carefully tracking these recurring price patterns to predict upcoming market trends. However, considering the continuous changes in the Bitcoin market dynamics and economic environment, we must acknowledge that the traditional four-year capital flow cycle may be nearing its end. Here, we will explore whether the possibility of the end of the Bitcoin four-year cycle should be considered, and whether there is sufficient evidence to support this theory or if it is just speculation.
1. Interpretation of Bitcoin’s four-year cycle
Bitcoin’s four-year cycle is mainly driven by Bitcoin halving events, which occur approximately every four years. During halving events, the mining rewards for Bitcoin transactions are halved, reducing the circulation speed of new Bitcoins. In the past, these halving events triggered bull/bear market cycles in the Bitcoin price:
Halving event: The new Bitcoin supply is halved.
Post-halving bull market: Usually accompanied by a price increase for 12-18 months.
Bear market: A period of price decline after reaching a peak.
Transition period: Slow recovery until the next halving.
These cycles have been extensively documented, and multiple models such as the Stock-to-Flow model demonstrate these patterns. Therefore, our current price trends indicate that the four-year cycle is still in operation. However, the magnitude of price increases has gradually decreased historically, and the peaks are not as pronounced as in previous cycles.
2. Stable MVRV Z Score
The MVRV Z score compares Bitcoin’s market value to its realized value, providing insights into market valuation. The downward trend in Z score peaks suggests that market volatility is decreasing over time. This indicates that while Bitcoin still follows cyclical patterns, the magnitude of these cycles may decrease as the market matures and the market value grows. The graph below shows the MVRV Z score (orange line) and its decreasing peaks in the previous two cycles (red line).


3. Focus on the Stock-to-Flow Model
The Stock-to-Flow model is a popular framework for predicting Bitcoin prices based on scarcity, considering the gradually decreasing inflation. The model compares Bitcoin’s existing stock (existing supply) with its flow (newly minted Bitcoins). Due to halving events and constant block increases, Bitcoin’s flow decreases, the stock-to-flow ratio increases, indicating an increase in scarcity, and theoretically, value will also increase.
It is evident that the price trend of Bitcoin after the 2024 halving is similar to previous cycles. The model shown in the graph below suggests that the decrease in supply may push the price up to around $440,000 within a year after the halving (red line). Such a high peak would break the trend shown in the graph below, where the deviation from the S2F “fair value” continues to decrease, while the peak volatility in the oscillator below also decreases.
Until clear evidence that this model is no longer effective is seen, we must still consider it as a possibility. Remember, if this model continues indefinitely, it will eventually predict that the value of Bitcoin exceeds the total value of global currencies; while technically not impossible, is hyperbitcoinization inevitable?


4. Impact of Reduced Inflation
Halving events significantly reduce miners’ BTC income and historically drive price increases. However, as block rewards decrease over time, the impact of halving on Bitcoin prices may weaken. For example, the change from 6.25 BTC per block to 3.125 BTC is quite significant, but future halvings will see smaller reductions that may weaken their impact on the market.
When the last Bitcoin halving occurred in May 2020, the circulating supply was around 18.37 million BTC. The block reward at that time was 6.25 BTC, with an annual inflation rate of about 1.82%. Over the next four years, as the supply increased, this ratio gradually decreased. By the time of the recent 2024 halving, the inflation rate had dropped by about 6% to about 1.71%. After the 2024 halving, the block reward decreased to 3.125 BTC. With the continued increase in total supply, the annual inflation rate has dropped to less than 1% (currently around 0.85%). This continuous decrease highlights the foresight in Bitcoin’s design, but its impact is becoming less significant.
Currently, there are approximately 19.70 million Bitcoins in circulation, with block rewards of 3.125 BTC generated every ten minutes. This means that we have mined 94% of the total supply, with the remaining 1.30 million BTC to be mined over the next 120 years. The graph below shows the daily BTC income that miners receive solely from block rewards (orange line), and the trend towards approaching zero.


5. Changes in Miner Income and Incentives Based on Fee Mechanism
As block rewards decrease, transaction fees make up for the shortfall in miner income. On the day of the halving on April 20, 2024, the total transaction fees reached 1,257.72 BTC, more than 3.07 times the block reward for that day (409.38 BTC). This is the first time that miners’ income from fees has exceeded the block reward, marking a trend towards a fee-based mining model.
As miner income from transaction fees increases, the importance of halving events in shaping miner incentives may decrease. If transaction fees account for a larger proportion of miner income (as shown in the yellow shaded area in the graph below), miners may be less concerned about the 50% reduction in block rewards (block reward income is represented by the blue shaded area in the graph). This shift indicates that the dominant impact of halving events on miner behavior and Bitcoin prices may gradually weaken over time.


6. Impact of Hodling
The trend of long-term Bitcoin hodling is increasing, which is another factor that may weaken the cyclical price fluctuations of Bitcoin. Data shows that over 30% of the supply has not moved in the past five years, a percentage that may continue to rapidly increase at a macro level, as shown in the graph below; the orange line represents the percentage of Bitcoins that have not changed hands for at least half a century. Whether these Bitcoins are lost or held by long-term investors, this behavior reduces the circulating supply, surpassing the impact of the new supply reduction from halving events.
If 10% of the investors holding for over five years (about 3.2% of the circulating BTC supply) decide to profit from this cycle, there will be 630,400 BTC flowing into the open market. Throughout the entire four-year halving cycle, only 656,250 new Bitcoins will be minted, clearly illustrating the new market dynamics.


7. Prospects for Extending Market Cycles
The decreasing inflation may attract more institutional investors, even sovereign investments. Institutions like BlackRock and countries like El Salvador recognize the increasing scarcity of Bitcoin and the potential for price increases. It is expected that as more investors realize the unique monetary properties of Bitcoin, demand will surge. However, this demand may be more synchronized with traditional liquidity cycles and macroeconomic risk preferences than driven by retail speculation as in previous cycles.
Given that the impact of Bitcoin’s fundamental factors may weaken, the increasing influence of new market participants, and the historically strong positive correlation between Bitcoin and traditional assets and indices (such as the S&P 500), Bitcoin may start following more traditional market cycles, such as stock market cycles that typically last 8-10 years. In the graph below, we can see the price trends of Bitcoin (black line) and the S&P 500 (blue line).
These parallel trends can be measured on a scale from -1 (inverse correlation) to 1 (positive correlation). Over the past five years, the six-month correlation between these assets often exceeds 0.6, showing a strong correlation between the two. When one moves, the other usually follows.


8. Evolving Bitcoin Market
Until we observe significant deviations from historical patterns, such as Bitcoin failing to reach new all-time highs after halving events, the four-year cycle remains a valuable framework for understanding Bitcoin market behavior. The decreasing impact of halving events does not mean they become bearish. On the contrary, their impact may weaken.
The recent Bitcoin halving event remains bullish and may continue to have a positive impact on Bitcoin prices in 2024 and beyond, although returns may decrease, and price fluctuations may lessen. While there is currently no concrete evidence that the impact of halving events has ceased, it is expected that the overall impact of future halving events will weaken, affecting the predictable four-year cycle.