Bitcoin Halvings Are Bull Market Things — Will This Time Be Different?

This bear market is punishing. Top cryptocurrencies have dropped by more than 70%, catastrophic bankruptcies have left potentially millions out of pocket, and bitcoin miner surrender appears to be becoming more imminent by the day.

But how harsh is it？ Previous boom-and-bust cycles provide context.

WikiBIT examined bitcoin price data dating back to 2010 — when bitcoin (BTC) was worth a fraction of a dollar — to determine the length of each bull and bear market.

So far, the current bear market has lasted 335 days, beginning on February 3, 2022. Since then, Bitcoin has dropped about 55%, from nearly $36,300 to a low of $15,550.

We're still not in the midst of the longest bitcoin bear market on record. The previous large bear reigned supreme for 390 days, from February 21, 2018 to March 18, 2019. During that time, Bitcoin fell 70% from $10,250 to a local low of under $3,200.

Our approach was to map current criteria of the commencement of a bear market from the traditional finance industry. When an asset trades 20% below its recent high for more than two months, a bear market has begun.

A bear market ends when an asset trades 20% above its recent bottom for one month or more, according to this criteria. And, for the purposes of this (simple) exercise, a bull market starts when a bear market ends.

Given that we've only plotted bitcoin, it's an imperfect model for crypto bear markets in general. However, because BTC remains the ecosystem's bellwether asset, it acts as a good guide.

But here's what it does mean: we're just two months from from the longest bitcoin bear market in history.

Ever.

Not like the other bears

According to Peter Eberle, chief investment officer of crypto investment firm Castle Funds, bitcoin is now in a better position than it has been in prior extended down periods.

Defunct crypto lenders and exchanges have already unwound so much leverage that struggling corporations have already liquidated quality assets, such as bitcoin and ether, to fulfill redemptions.

“A significant difference between the bear market of 2018-2019 is that institutions did not shy away from initiatives that they were creating,” told by Eberle. “In 2018, most institutions creating BTC infrastructure simply gave up because they assumed the industry was dormant. They may have placed some projects on hold this time, but they did not abandon them.”

In making his case, Eberle cited important advances made by companies such as Fidelity, which began commission-free crypto trading for retail consumers last November. BNY Mellon also announced plans to hold bitcoin for clients.

“These two revelations have huge implications, but they have been eclipsed by the FTX fraud,” Eberle added.

Drab economic realities undercut hopes of endless cyclical bull runs. Rate hikes to combat inflation, along with slower spending and Europe's protracted war, uniquely overshadow our current bear market.

According to Vivek Raman, head of proof-of-stake at research unit BitOoda, the first punch of this bear market was a subsequent paradigm shift in macro markets, with which previous cycles did not have to contend.

Since the 2008 financial crisis, markets have shifted from an age of easy monetary policy — low rates and great liquidity — to one of higher rates, rising capital costs, and stricter monetary discipline, according to Raman.

“As a result, assets that thrived in the previous climate were high growth rather than high cash flow - we saw tech businesses rise, valuations from [venture capitalists] soar, and this seeped into a lot of crypto assets performing extremely well without underlying fundamental value.”

Because of the Fed's aggressive rate hikes, those benefits are no longer available. Raman believes the Fed would limit or halt further hikes in order to renormalize the economy by tamping down surging inflation. According to Raman, there have been “thriving bull markets in eras of higher rates,” such as the 1990s and 2000s.

According to Lex Sokolin, chief cryptoeconomics officer at ConsenSys, investors are generally risk-averse and waiting for a recession. This makes it harder to rely on consumer discretionary spending or stimulus-led savings to prop up crypto prices, he says.

“Instead, organic development from Web3 and real economic activity will be required,” Sokolin stated. “Smart contract utilization, which is the primary value proposition of Web3 — automated economic protocols,” says one analyst.

450 days to go until Bitcoin halves

According to one cycle idea, bitcoin bears and bulls are linked to its halving timetable. Block mining rewards are lowered by 50% every four years, reducing issuance as bitcoin approaches its 21 million supply limit.

Every halving has occurred in the early stages of a bull market preceding a big run one year later.

The one in 2016, when bitcoin was worth a few hundred dollars, was followed by a significant surge to $20,000 in late 2017. When Bitcoin was half in 2020, it was worth roughly $9,000; by November 2021, it was trading near $70,000.

Bitcoin's next halving – a date that is difficult to predict — is currently scheduled for April 2024. That allows Halving-Truthers at least another half-year of bearish market movement before their pre-programmed bullishness triumphantly returns.

For miners, whose livelihoods are intrinsically linked to the protocol's halving schedule, the conclusion of the bitcoin bear market cannot come soon enough. According to Katie Talati, director of research at investment firm Arca, capitulating miners had a considerably greater influence over bitcoin's price last cycle.

So did Asian crypto marketplaces, with China hosting more than 70% of the bitcoin hash rate at times. Since China's intensified crypto crackdown in 2021, the West has grown increasingly dominant in the bitcoin industry.

“A lot of things influence the price of bitcoin,” Talati explained. “The halving clearly has an influence because it alters a lot of those things, changes the economics of the game, and raises the cost of manufacturing.”

Talati believes that bitcoin, like Eberle and Raman, will rise again at some point. Talati, on the other hand, foresee a future in which something more substantial, such as demand for Ethereum block space, would one day decide global crypto market mood, elevating ether to the status of bellwether digital asset over bitcoin.

Meanwhile, all eyes are on what FTX contagion may still exist, according to Eberle.

According to Raman, more companies may go bankrupt before the bear market ends, putting more downward pressure on asset liquidations.

“The most difficult element isn't predicting whether we'll have another bull market - all markets will be cyclical – but predicting when the bear cycle will end, because each bear market has new characteristics,” Raman added.

He cited signals of a macrobottom including the Fed stopping rate hikes, normalizing inflation, and resuming mild monetary support.

A crypto bottom would include apathy (worse than the present “attack and anger” phase, in which most people forget about crypto entirely), increased institutional capital (ETH staking withdrawals could do the trick), new users and use cases, and regulatory clarification.

Remember the 2024 halving, “since BTC halvings tend to coincide with fresh bull markets.”

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