Bitcoin: Comparison of market cycles
Bitcoin is booming. Most recently, Elon Musk announced that he had put 10% of Tesla’s balance in Bitcoin. However, whenever there is a big drop, people fear that the end is near and Bitcoin will fall back to 90% as it did in 2018 … or 2014 … or 2013.
BTC market cycles today
The first market” cycle “ of BTC was in 2010, Bitcoin rose by more than 5,000% — from a cent per Bitcoin, to half a dollar. Right after that, we saw a 70% drop.
Remember that each cycle involves a lot of 30% / 40% drops. Historically, this has been normal for bull markets.
- The first real market cycle of the PTS in 2011
In 2011, Bitcoin started from a low of $ 0.17 and reached a high of $ 30 in the summer of 2011. Compared to the previous record high, it rose by 6,500%. At the time, the story was clear — could Bitcoin break the dollar?
Of course, this can be said today, but then everything was not so clear. There were a lot of enthusiasts in the market, there was almost no liquidity compared to today, and the media coverage was almost only negative, if any.
- 2011–2013-Bitcoin attracted attention
Bitcoin first really appeared on the screens of a media group and a few investors. We saw an increase from $ 30 to over $ 1,000. In this cycle, there was even a collapse from $ 250 to $ 50 (which is probably the cycle itself), but immediately after this fall, another rally to the $ 1000 mark began.
In 2017, the Bitcoin market grew from about $ 1,000 to almost $ 20,000–2000%. In this cycle, there was a lot of public interest in Bitcoin and, in particular, in altcoins and ICOs. Below is a graph of Google search trends, compared to today.
Here we see that as of today, even though Bitcoin is trading at 2–3X ATH 2017, the public awareness is still not that great. This can be a good indicator that the current cycle is not yet complete, as current buyers look more like institutional (or better corporate — Tesla, Microstrategy, etc.) buyers than retail investors.
Another indicator is the fact that we have not seen such a “craze” as last year: “useless” ICOs with some random archived images, no product, and often not even legal entities appeared everywhere, raising millions, and leaving investors without money.
Another interesting point to pay attention to is the decline in the bull market: in 2017, the cycle had two lows of 35% and a fall of 25%. In the current cycle, we received a 30% adjustment to $ 42,000 and an adjustment from $ 58,000 to $ 43,000.
From stock to Flow model
Plan B created a model called the Stock to Flow Model, which models the price of Bitcoin with a well-known indicator of commodity markets (especially gold).
As history shows, the model seems to be working.
Stock to Flow Model Layout
This would mean that the price of Bitcoin at the end of the cycle would be around $ 100,000 or more. On the chart, it is interesting to see that the price crossed the line 463 s2f (blue line) at the end of each cycle, however, from cycle to cycle, this line “swings”, and at the top it becomes smaller. If this trend continues, we will see the Cue Ball break near this line.
In general, no one knows where asset prices are going, but above we talked about some models and examples of how to look at the value of Bitcoin and its market cycles. There is always the potential risk of a “Black Swan” event, such as a global financial crisis (for example, given the split of the real economy’s stock market, and the resulting bubble), or some other event that will force people to sell their crypto assets.
It is important to remember that each cycle ended with a “fall”. Each crash always ended above the previous high, creating a long-term uptrend for Bitcoin. Both crashes and bubbles become smaller as the market grows and matures.