The theory surrounding Bitcoin cycles has long been considered a fundamental tool for predicting its price movements, particularly in relation to Bitcoin halving eventsHistorically, these halving events have often led to substantial price increases for BitcoinHowever, recent market performance and the factors driving it suggest that the effectiveness of this theory may be waning.

This article aims to provide a retrospective analysis of four Bitcoin cycles spanning from 2011 to 2024, delving into the shifts observed in the current cycle.

At the heart of the Bitcoin cycle theory is the inherent design of the cryptocurrency, where the mining reward is halved approximately every 210,000 blocks, a process that happens roughly every four yearsThis mechanism is aimed at controlling Bitcoin's supply and enhancing its scarcityHistorically, halving events have been associated with significant price surges, forming distinct cycles

For instance:

• In 2012, following the first halving, Bitcoin's price skyrocketed from around $12 to over $1,000 by the end of 2013.
• Following the 2016 halving, the price surged to nearly $3,000 shortly thereafter, culminating in a near $20,000 peak by the end of 2017.
• The 2020 halving saw Bitcoin quickly rise to new all-time highs in 2021 after its May event.

These historical instances of significant price increases post-halving have garnered widespread recognition and trust in the Bitcoin cycle theoryHowever, the upcoming halving in April 2024, which will mark the fourth occurrence, has seen a different trend in its post-halving performance, with many indicating it is less than expected.

If we compare the historical dates of Bitcoin halvings along a common timeline and assess the subsequent price performances against the halving day price, it becomes apparent that the current cycle is underperforming

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Although the market surpassed its previous cyclical highs before the April halving, the current cycle still appears relatively sluggish.

Here’s a summary of the price fluctuations roughly 144 days post-halving for each cycle:

• Cycle 1: +895%
• Cycle 2: +15%
• Cycle 3: +37%
• Cycle 4: -11%

In the most recent cycle, the price reaction post-halving has been considerably weaker than previous cycles; Bitcoin's price is not performing wellBut what is behind this divergence? How does the current cycle differ from its predecessors?

The Bitcoin cycle from 2023 to 2024 shares certain similarities with its historical counterparts, yet notable differences emergeAfter the FTX collapse at the end of 2022, the market experienced about 18 months of stability characterized by gradual price increasesThe introduction of Bitcoin ETFs attracted new capital, propelling the price to a peak of $73,000, followed by a three-month period of range-bound trading.

During this range-bound phase, Bitcoin's price experienced one of its deepest cyclical corrections from May to July, with a decline of over 26%. Despite this notable drop, it was comparatively less severe than those of previous cycles, revealing a more stabilized market structure and a growing maturity of Bitcoin as a financial asset.

Another key technical indicator to analyze is the MVRV Z-score, which highlights disparities in Bitcoin market performance across cycles

The MVRV Z-score is a relative metric calculated as (Market Cap - Realized Cap) / Standard Deviation of Market CapAn excessively high Z-score indicates that Bitcoin's market value is overestimated compared to its inherent value, which can adversely affect pricesConversely, a low Z-score suggests that the market value is underestimated.

Bitcoin appears to be transitioning towards a more stable, progressively upward trajectory instead of the previous patterns of volatilityThis incremental growth model may prove more attractive in the long term.

To illustrate why Bitcoin's volatility has diminished, we can examine the 5+ Years HODL Wave metric, which indicates the percentage of Bitcoin that hasn’t been moved on-chain for five or more yearsThis reflects behaviors among long-term market participants.

It’s worth noting that a portion of these Bitcoins has likely been lost, as users may no longer have access to wallets due to lost private keys, though this ratio is relatively small

Currently, over 30% of Bitcoin has not changed hands in the past five years, a figure that is likely to continue rising.

This phenomenon results in a decrease in the circulating supply of Bitcoin, overshadowing the supply reductions from halving eventsIt indicates an increasing trend of long-term Bitcoin holding, allowing the market to better withstand short-term fluctuations, and may contribute to the ongoing decline in Bitcoin's volatility.

Additional factors include market maturation, prompting more investors to adopt long-term holding strategies, thereby further reducing circulation and mitigating price shocksFurthermore, changes in supply and demand dynamics, with continuous capital inflows providing price support, also play a crucial roleGlobal economic uncertainties, policy shifts, and market sentiments can affect Bitcoin’s price as well.

In such an environment, Bitcoin's price may display more correlation with traditional financial market trends, consequently reducing its independent volatility