Tanahub.com — The crypto market possesses unique dynamics that set it apart from traditional markets like stocks and bonds. One of the popular theories in the crypto community is the 4-year cycle theory, which posits that the crypto market, particularly Bitcoin as the primary asset, tends to follow a pattern of upward and downward phases in four-year intervals.
This theory is often regarded as an unofficial guide for understanding asset price changes and broader market behavior. But what is the origin of this theory, and is it still relevant today? There are many opinions about its relevance and how long it will remain valid. One thing is certain: only time will tell.
The Premise of the 4-Year Cycle Theory
The 4-year cycle theory suggests that the crypto market moves in a four-year pattern consisting of bull phases (parabolic rises) and bear phases (sharp declines). This four-year period is assumed to revolve around the halving event, which reduces Bitcoin miners’ block rewards.
Halving is an event that occurs approximately every four years, where the rewards given to Bitcoin miners are cut in half. The premise of this theory is based on the hypothesis that halving reduces the supply of Bitcoin entering the market, which in turn can drive up prices if demand remains steady or increases.
The theory states that each four-year cycle generally consists of four main phases: accumulation, bull, distribution, and bear. Of these four years, three are typically bullish, while one is bearish.
Accumulation Phase (Early Bullish)
This phase occurs after a prolonged bearish phase. Asset prices tend to be at very low levels, often attracting long-term investors or whales who begin accumulating large amounts of assets. This forms a new stable price floor before the market turns upward. The accumulation phase typically signals the end of the bearish phase and the beginning of a new bullish cycle. It usually happens in the second year after a halving.
Bull Phase (Bullish)
After sufficient accumulation, the bull or bull run phase begins. Prices start to rise with higher trading volumes due to increased market interest, often triggered by Bitcoin’s halving. During this phase, the prices of cryptocurrencies like Bitcoin and other major coins rise sharply, garnering widespread media and investor attention. This is when prices experience exponential growth, and the market is highly optimistic, attracting more new investors. The bull phase occurs approximately one to two years after a halving.
Distribution Phase (Late Bullish)
When prices peak following the bullish phase, the distribution phase begins. Long-term investors start selling a significant portion of their assets to secure profits. Prices begin to plateau or even decline gradually as selling volumes surpass buying volumes. Although the market still shows euphoria, there are signs that the upward trend is nearing its peak. The distribution phase usually takes place in the third year after a halving.
Bear Phase (Bearish)
Following the distribution phase, the bearish phase begins. Prices start to fall drastically, and selling volumes increase as market panic sets in. During this phase, asset prices drop rapidly as investors tend to sell off to minimize losses. This phase is often referred to as the “crypto winter,” where crypto asset prices hit their lowest points before entering the next cycle. Typically, this phase begins in the fourth year post-halving, leading up to the next halving period.
The Origins of the Theory
It is unclear who first introduced this theory or when it emerged. What is certain is that it became prominent as the 4-year pattern started being observed after Bitcoin’s first halving in 2012.
This cycle theory is more pronounced in the crypto market than in traditional asset markets, even though the concept of market cycles is not entirely new. In stock markets, there are also economic cycle patterns, often spanning 7–10 years, encompassing phases of expansion and recession.
In traditional markets, price fluctuations are usually influenced by macroeconomic factors like monetary policies, geopolitical conditions, or the fundamentals of the assets themselves. In contrast, in the crypto market, the periodic halving creates regular time-based patterns in Bitcoin’s supply, giving the market its distinct characteristics.
Historical Data on Bitcoin’s 4-Year Halving Cycle
First Cycle (2012–2016)
In 2012, Bitcoin underwent its first halving, reducing the block reward from 50 BTC to 25 BTC. During this period, Bitcoin’s price surged from around $12 to approximately $1,000 in 2013. This rise was followed by a sharp correction, leading to a bearish market until 2015. The accumulation phase then lasted until the next halving in 2016.
Second Cycle (2016–2020)
In 2016, Bitcoin experienced its second halving, reducing the reward to 12.5 BTC. This cycle followed a similar pattern, with Bitcoin’s price skyrocketing to about $20,000 by the end of 2017 before a long decline to near $3,000 by the end of 2018. After the bear phase, Bitcoin entered an accumulation and recovery phase from 2019 to 2020.
Third Cycle (2020–2024)
In May 2020, Bitcoin went through its third halving, reducing rewards to 6.25 BTC. Prices began rising again in late 2020, peaking at over $60,000 by late 2021. The bear market returned in 2022, with significant price declines, before stabilizing at certain levels in early 2023.
Fourth Cycle (2024–Present)
Following these three cycles, Bitcoin entered the fourth cycle after the halving in April 2024. The block reward was reduced to 3.125 BTC. Analysts and market observers are still anticipating whether this cycle’s pattern will repeat, and whether Bitcoin prices will experience parabolic growth in the near future. As of November 13, Bitcoin’s price has already risen sharply from $64,000 at the halving to $93,000.
Why Do Many Believe in This Theory?
Many believe in this theory because, so far, the 4-year pattern has shown a correlation with Bitcoin’s historical price movements. The cycle theory is seen as relevant due to the consistent patterns recorded over the last three cycles, offering a predictive framework that has so far been validated by historical data.
The halving event, which reduces Bitcoin’s supply, is considered the primary driver of price increases. This pattern is reinforced by market psychology, where investors gain confidence and tend to invest after observing consistent post-halving price increases.
Furthermore, as more investors recognize this cycle, the resulting buying and selling patterns strengthen the theory, creating a “self-fulfilling prophecy” effect.
Criticism and Counterarguments Against the Theory
While this theory is popular and has proven to be reliable, its existence is not free from criticism and skepticism. Questions about the theory’s validity can be summarized with a simple skeptical maxim: how can Bitcoin and other cryptocurrency price movements be dictated by mere time intervals? If that were true, anyone could easily profit from crypto investments: buy during the bear phase and sell during the bull phase.
As the crypto market matures and institutional players become more involved, along with government regulations, price volatility is likely to decrease, potentially rendering the four-year cycle pattern obsolete.
The presence of major players in the market could alter the cycle, as they have the power to stabilize prices. Moreover, the impact of Bitcoin halving may diminish over time as the total Bitcoin supply nears its cap, reducing the scarcity effect.
The crypto market is also influenced by macroeconomic factors such as global recessions or inflation, which could disrupt the cycles typically observed. Additionally, the emergence of numerous new cryptocurrencies flooding the market makes parabolic price increases for all assets unlikely, as it would require massive liquidity to move the prices of all altcoins.
Furthermore, in the distant future, the introduction of new cryptocurrencies with advanced technologies could reduce Bitcoin’s market dominance and disrupt the cycle pattern that has so far depended on Bitcoin halvings.
Some renowned market participants also present counterarguments. Notable analyst Jordan Fish, known as Cobie, argues that the current market conditions have fundamentally changed, particularly with the rise of leverage usage and Bitcoin ETFs.
Cobie contends that these new financial instruments have altered the flow of capital into and out of the crypto ecosystem. This creates less predictable dynamics, and according to him, the cycles are no longer relevant because the market has become more fragmented, with assets behaving individually rather than moving in unison as in previous cycles.
Similarly, another analyst, Willy Woo, suggests that the four-year cycle theory might eventually fail. Large-scale Bitcoin accumulation by institutional investors is a strong indicator that the current trend could differ from previous cycles. He believes that the crypto market is currently experiencing its final cycle, with price increases and decreases occurring faster and more irregularly.
Veteran trader Justin Bennett argues that the crypto market, especially Bitcoin, is now more influenced by global economic business cycles, as evidenced by its correlation with the United States Purchasing Managers Index (PMI). The PMI, an indicator of economic health, particularly in the manufacturing and service sectors, shows that Bitcoin price movements follow economic cycles rather than traditional crypto cycles.
Based on this, Bennett posits that amidst potential economic contractions or recessions, the four-year cycle pattern will not consistently hold. He also notes that Bitcoin, as a high-risk asset, heavily depends on the post-2008 financial crisis economic conditions. He emphasizes that Bitcoin is not inherently programmed to rise in a fixed cyclical pattern, as often assumed.
Another criticism views the halving cycle as more coincidental with trends in the M2 money supply, which also seems to follow a four-year pattern. The M2 money supply, a measure of total circulating money, including cash, deposits, and liquid investments, can influence risky assets, including Bitcoin. Changes in the cycle might reflect broader trends in the market for risk assets rather than the internal effects of Bitcoin halving.
From this perspective, Bitcoin’s price increases and decreases are seen as more closely tied to macroeconomic conditions, particularly global monetary policy cycles, than to Bitcoin’s internal halving events.
Is the Four-Year Cycle Theory Valid?
The four-year crypto market cycle theory has provided an intriguing perspective for investors seeking to understand Bitcoin’s price patterns over time. While historically it has shown a degree of regularity supporting the theory, global economic changes, institutional adoption, and the development of new financial instruments are adding complexity to the cycle pattern.
On the other hand, skepticism rooted in the premise of a more mature market is also worth considering. Evolving economic trajectories and market dynamics could reduce the accuracy of predictions based on the four-year cycle.
Whether the four-year cycle theory will continue to hold or eventually fade away remains to be seen. What is certain is that there will always be potential black swan events lurking, especially in the young and unpredictable crypto market arena.