From retail investor frenzy to institutional dominance, is Bitcoin's four-year bull market cycle coming to an end?

Author: Two Prime

Compiled by: Tim, PANews

There has been a lot of discussion about Bitcoin’s four-year bull-bear cycle. This pattern of doubling up, crashing, and then climbing to new highs has been the norm for most of Bitcoin’s history. But it’s important to note that there are good reasons to suggest that this four-year cycle may be coming to an end.

The first question that needs to be raised is: Why does a four-year cycle occur?

It can be attributed to three factors:

Halving Effect

The bitcoin mining reward is halved every 210,000 blocks (approximately every four years), a mechanism that creates a supply shortage and usually causes a price increase in the following years.

The scarcity of an asset is often measured by the stock-to-flow ratio (S2F), which is the ratio of the current total supply to the annual increase in supply. For example, the scarce asset gold has an S2F ratio of 60 (which fluctuates slightly due to the discovery of new gold mines). The current Bitcoin S2F ratio is about 120, which means that its annual increase in supply is only about half of that of gold. This number will increase with each subsequent halving.

​​Global liquidity cycle​​

The correlation between Bitcoin and global M2 liquidity has been explained many times by us and many other institutions. It is worth noting that many people believe that liquidity also follows a cyclical law of about four years. Although its accuracy is not as high as the metronome of Bitcoin halving, this correlation does exist. If this theory is true, the phenomenon of Bitcoin keeping pace with it makes sense.

Psychological perspective

Every time a bull market surges, a new wave of popularity is born. People's behavior patterns confirm Gandhi's assertion: first ignore you, then laugh at you, then fight you, and finally you will win. This cycle repeats itself, and about every four years people will further accept the value of Bitcoin and give it stronger rationality. People will always fall into overexcitement, and the subsequent crash will cause the whole cycle to repeat again.

The question now is, are these factors still driving the price of Bitcoin?

1. Halving Effect

After each halving, the proportion of new bitcoins to the total supply has been decreasing more and more. When the new supply accounted for 25% of the total supply, the decline to 12.5% ​​did have a huge impact; but now that it has dropped from about 0.8% to 0.4%, its actual impact is no longer comparable.

​​2. Global liquidity cycle​​

Global liquidity remains a relevant factor for Bitcoin prices, although this influence is shifting. Bitcoin has shifted from retail-dominated to institutional-dominated, and trading behavior has changed. Institutions are accumulating for the long term, and short- to medium-term price declines will not shake them out of the market. Therefore, while global liquidity will still have an impact on Bitcoin prices, its sensitivity to M2 liquidity will continue to weaken. In addition, OTC institutional purchases of Bitcoin have also reduced price volatility, which is where the real confidence in Bitcoin lies. Uncontrolled financial spending will be absorbed by Bitcoin and continue to move towards a bright future.

3. Psychological perspective

The more widely Bitcoin is adopted, the more psychologically stable it will be. The influence of retail selling will be weakened, and the shift of market dominance to institutional buyers will also reduce the volatility caused by retail investors.

Overall, Bitcoin is still one of the world's most promising assets, and its growth model is undergoing a transformation from cyclical growth to linear growth (on a logarithmic scale). Global liquidity has become the dominant force in the current market. Unlike the top-down propagation path of most assets (from institutions to retail investors), Bitcoin has achieved bottom-up penetration from the mass base to mainstream institutions. Because of this, we have witnessed the market stabilizing in the process of maturity, and its evolutionary model is becoming more standardized and orderly. (Image source: DeathCab)