Overviewing Bitcoin's 12 Years: What Insights Can We Get from History?

Since Bitcoin hit its all-time high of $64,846 on April 14, it has oscillated downward over the following two months, touching as low as $29,000. According to OKX market data, as of this writing, Bitcoin is trading at $38,769, still down over 40% from its April 14 high.

Bitcoin recent price trend, source OKX

Bitcoin's weak rebound, divergence in investor sentiment toward market outlook

Accompanying Bitcoin's price decline, the total crypto market capitalization has also seen a significant drop, falling from $2.56 trillion to a recent $1.68 trillion, a decline of nearly 35%.

Total crypto market cap changes, source coinmarketcap

Meanwhile, another piece of information widely followed by the market is that in the two weeks since Bitcoin touched its recent low of $29,000, there has been no relatively strong rebound, remaining suppressed below the 200-day moving average (current MA200 price is approximately $41,435). OKX Research believes that from a technical analysis perspective, the MA200 is viewed as an important bull-bear dividing line in the market, so judging from Bitcoin's current trajectory, BTC has undoubtedly fallen into a technical bear market in the short term.

However, for many investors who focus more on macro market dynamics, while the signals from technical analysis are not optimistic, from a macro perspective, crypto market fundamentals have not deteriorated, and there are still promising developments.

Of course, the macro positives here mainly refer to the "money printing" plans of the United States and other major world economies. Judging by the results of the $1.9 trillion economic stimulus plan proposed by Biden at the beginning of this year, the impact on the crypto market in the short to medium term has been positive.

January 2021 Biden administration $1.9 trillion economic stimulus plan implementation milestones and Bitcoin market

Following this, the Biden administration proposed in March and April of this year the $2.3 trillion American Jobs Plan Act and the approximately $1.8 trillion American Families Plan stimulus act, respectively. In the early hours of May 29 Beijing time, the White House released Biden's first budget proposal, planning to increase government spending to $6 trillion in fiscal year 2022 (October 2021 ~ September 2022). The U.S. government's successive "money printing" plans will undoubtedly exacerbate inflation, and with high probability will push up global major asset prices like U.S. stocks, just as last year. As an emerging investment market with huge potential, Bitcoin is bound to benefit from this.

Can we find clues from historical trends?

Objectively speaking, looking at Bitcoin's current trajectory, whether investors who believe the bull market has ended and a bear market is coming, or those who remain bullish and believe it will reverse and continue the bull market, can find ample reasons to support their views. For any investment target analysis and judgment, this is inherently a matter of opinion. So we might as well break free from the constraints of technical and fundamental analysis, focus on Bitcoin's 12-year development history and the historical performance of 2 complete bull-bear cycles, to explore the similarities and find valuable reference information for the second half of this market cycle.

Bull market historical performance

If we compare and analyze the 2013 bull market and the 2017 bull market, we can discover that both candlestick patterns followed very standard trajectories, highly consistent with Bitcoin's four-year halving cycle — the first halving occurred on November 28, 2012, then reached that bull market's price peak on November 30, 2013, an interval of 367 days; the second halving occurred on July 10, 2016, then reached that bull market's price peak on December 17, 2017, an interval of 525 days.

In addition, we can also see that in the previous two halving bull markets, not only did the upward trend last a long time, but there were also obvious characteristics of high upward slope + multiple large pullbacks of over 30%, for example on April 10-12, 2013, Bitcoin price fell 70% in two days, and additionally on April 25-May 2 and November 20 of the same year, there were pullbacks exceeding 30%. In the second halving bull market, this situation occurred even more frequently, for instance on May 25-27, June 12-July 15, and September 2-15, 2017, there were declines approaching or exceeding 40%.

Looking at this bull market, what are the similarities and differences with the previous two? Recently, Jiang Zhuoer, CEO of BTC.TOP, proposed a "atypical bull market" view on his Weibo, summarizing the differences between this bull market and previous ones while following the general tone of the "halving bull market":

1) In 2019, when it "should have" been consolidating at the bottom, it experienced a small bull market rising 340% over 3 months;

2) Due to multiple factors in 2020, global capital markets collectively experienced liquidity depletion, and Bitcoin saw an unprecedented "flash crash" on March 12-13;

3) Starting from October 2020, during Bitcoin's rise from $10,000 to $60,000, there was no major pullback exceeding 30%;

4) After Bitcoin reached the high of $64,846, extreme market conditions occurred successively on April 18 and May 19 over the following month.

Historical Bitcoin 'halving bull markets', source Jiang Zhuoer Weibo

Historical Bitcoin "halving bull markets", source Jiang Zhuoer Weibo

Although from Bitcoin's performance in this bull market so far, there are indeed many "atypical" features, what cannot be ignored is that so far it still follows the laws of the "halving bull market" in its development. So even if we can no longer simply apply past historical experience, we can still understand the principles behind the candlestick chart from simple economic principles.

In other words, we need to return to the universally recognized "halving bull market." The important theoretical basis of the "halving bull market" is the most basic supply-demand relationship principle in economics — when demand does not suddenly change, an instantaneous halving of supply inevitably leads to price increases. If we analogize Bitcoin to commodities in traditional financial markets, Bitcoin miners play the role of producers, while various investors in the secondary market play the role of consumers.

Then according to the Kitchin cycle theory proposed by American economist Joseph Kitchin — demand shocks for goods are passive and external, while supply adjustments are active and internal, therefore different changes in demand and supply (inventory) form four cyclical phases: passive inventory destocking, active inventory replenishment, passive inventory replenishment, and active inventory destocking. We surprisingly discovered that Bitcoin's bull-bear transition process also conforms to these four cyclical phases.

Kitchin cycle diagram, source internet

If judging Bitcoin's bull-bear cycle according to Kitchin cycle theory, it's much simpler — just need to focus on the producers, that is, miners' dynamics. When miners dump mining machines in the market, it actually means with high probability that the bear market has basically bottomed; when mining machine manufacturers produce at full capacity and there's still great demand for mining machines in the market, and mainstream mining machine payback periods significantly shorten, we're probably very close to the top. This point seems relatively easy to verify, for example at the end of November 2018.

OKX

Conclusion

In this Bitcoin uptrend, whether "typical" or "atypical," one reality we need to face is that after 12 years of refinement, Bitcoin has developed from a niche product for tech geeks into a global investment target with a market capitalization of $700 billion, gaining recognition from multiple sovereign country regulatory agencies, many large multinational companies including traditional financial giants, and small and medium investors worldwide. Its liquidity and risk resistance have already been significantly enhanced.

Amount of Bitcoin locked in DeFi, source defipulse

On the other hand, amid the DeFi boom, the total amount of Bitcoin locked on Ethereum currently reaches 178,000, developing extremely rapidly. Bitcoin is continuously being endowed with new value in more DeFi applications — its essence is a technology-driven financial innovation, financial innovation creates market demand, and demand drives up prices in a great wealth migration. With the gradual construction and improvement of blockchain infrastructure in the future, more blockchain applications will begin to explode, and Bitcoin's demand will also achieve greater growth.

Disclaimer

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