Sometimes the big picture is hard to see
I’m a long time fan of James Bond, and Ian Fleming’s 1959 novel ‘Goldfinger’.
In the book (not the movie) after James Bond ‘coincidentally’ runs into the master villain Auric Goldfinger for the third time, Goldfinger says:
“Mr. Bond, they have a saying in Chicago: “Once is happenstance. Twice is coincidence. The third time it’s enemy action.”
Of course, what he’s saying is that he’s recognized a pattern of behavior. Having been in the insurance industry for many years I know that actuaries, who base their science on statistical patterns, have a similar saying. To paraphrase Mr. Fleming:
“Once is happenstance. Twice is coincidence. The third time is a pattern.”
If we apply that theory to Bitcoin then an easily recognizable pattern of behavior of the King of Crypto is not only clearly visible but undeniable.
I’ve heard people say time and time again that investing in any cryptocurrency is gambling, or worse, a Ponzi scheme. I can’t dispute that opinion for many Meme coins or the 10,000+ ‘alt’ coins now on the market, but where Bitcoin is concerned…applied correctly…it sure isn’t gambling.
It ain’t rocket science…
The reality is that anyone who takes the time to do the research on the history of Bitcoin, it’s price fluctuations from halving to halving, from all-time highs to crypto winter lows, and everything in between, the idea that Bitcoin is unpredictably volatile becomes simply the nonsense of the uninformed.
It turns out that Bitcoin highs and lows, while being very hard to predict in terms of pricing, are relatively easy to predict in terms of timing.
Of course, this theory flies in the face of traditional stock market investing in that any expert will tell you that time IN the market will result in a much better outcome than TIMING the market. The reality of stock market, real estate and commodity investing is that even the most expert of gurus can’t tell you when or how the next crash or bull run will be with any relative accuracy.
Looking back at the history of Bitcoin, almost the exact opposite is true.
I can tell you, with relative accuracy, when the next bull run on Bitcoin will occur, when it will crash, and when it will start to recover, and when that cycle will repeat again in the future.
That’s a bold statement, eh? And I know you’re saying to yourself “Either this guy is super cocky and full of shit, or he knows something I don’t”. I’m going to wager that if you don’t already know what I’m talking about then the latter is true.
I don’t claim to have a crystal ball. I will tell you point blank that I’m not very good at predicting all time high prices but I am pretty good at predicting bottoms and (so far for this cycle) interim pricing, but there’s a saying that ‘close’ only counts in horseshoes and hand grenades…and nuclear weapons.
However, ‘close‘, in terms of buying close to the bottom and selling close to the top with Bitcoin can make you extremely rich…IF you know when those bottoms and tops might occur.
I do.
And you can bet your britches that this is part and parcel why guys like Larry Fink, CEO of BlackRock, the world’s largest investment firm, went from panning Bitcoin just a few years ago to suddenly saying things like “Bitcoin is an asset that can revolutionize finance through increased tokenization and the democratization of investing“.
He knows. And if you continue reading, now, you will too.
What you do with this information is up to you.
So, let’s get into it.
This is known as the “Bitcoin Cycles Hypothesis” and it postulates that Bitcoin repeats a four-year cycle, give or take a couple weeks, since its beginning, from halving day to halving day. The key difference between Bitcoin and the stock market is that in mature traditional asset markets, the beginning and end of cycles are much harder to identify and usually last much longer than 4 years.
The short version of this theory is that Bitcoin’s prices will be – on an annual basis starting on its next halving date – up, up, down and up. And that it has done that since it was invented nearly 15 years ago.
That being the case, considering that the next halving date is currently projected to be April 17, 2024 (1,487 days from its previous halving date of May 11, 2020) we are currently in the last phase of the current cycle.
What does that mean?
Well, considering that as I write this on 8/12/2023, Bitcoin’s price is $29,432.34, for example: not buying Bitcoin @ <$30,000 (like NOW) is like not buying Bitcoin @ <$10,000 in 2019, or not buying Bitcoin @ <$500 in 2015, or not buying Bitcoin @ <$10 in 2011.
Here’s how I come to that conclusion.
Each 4-year Bitcoin cycle consists of 3 phases:
- The (mature) bull market, which lasts about 1 year. Technically, that is initiated by the BTC halving, but in terms of the actual gate opening, this phase starts right around the last month of the halving year. This phase ends when the newest Bitcoin all-time high (ATH) is achieved, whether that is a double top (as in 2013 and 2021 and potentially 2025 – more on that later) or a single top (as in 2017).
- The bear market, which lasts about 1 year. A bear market follows quickly after the ATH and a cliff drop of the BTC price marks the beginning of ‘crypto winter’. On average, Bitcoin loses well over 75% of its value during this phase of the cycle. The vast majority of new (and even some seasoned veterans who buy into the “this time is different” hype) investors lose hope…and their money…somewhere in here.
- The recovery phase, AKA the early bull market, which lasts about 2 years. After the sharp declines and Bitcoin reaches a macro price bottom, there is a long phase of accumulation opportunity that defines the so-called ‘boredom’ of crypto winter. During this phase, Bitcoin goes up, but it does so very slowly with numerous corrections. And in some cycles, like 2012-16 and this one, trades in nearly flat patterns for months at a time.
Bigtime credit to well-known analyst @theratinalroot, who shares my opinion on this theory and has illustrated it so well in the following graph:
As you can see in the graph above, (at this writing) we are currently in Phase 3 of the Bitcoin cycle, the previous bottom being back on November 20, 2022 at $15,599.05. And we will likely not see any remarkable rocket-like pumps in price for the months to come, again, making this part of the cycle a perfect time to accumulate at a low price relative to the eventual new all-time high, estimated near the end of 2025.
How does the halving come into play and start this ball rolling?
First, you have to understand how Bitcoin mining works. Bitcoin is mined in what is referred to as “blocks”. Each block refers to a set of Bitcoin transactions from a certain time period. Blocks are “stacked” on top of each other in such a way that one block depends on, and is connected to, the previous block. Using this method, a ‘chain’ of blocks is created, and thus we come to the term “blockchain”.
A halving happens at every 210,000 blocks. The 2024 halving will happen on block number 840,000. It’s called a halving because the reward for mining each block is cut in half at that point, so each halving decreases the amount of new bitcoins generated per block. This means the supply of new bitcoins is less after each halving, making buying each Bitcoin more expensive due to the more limited supply.
In the practical application of the law of supply and demand, lower supply with steady demand typically leads to higher prices. Since the halving reduces the supply of new Bitcoins, and demand usually remains steady and has usually increased as the price goes up due to wider interest as the media regains its interest and we see more and more wild high price predictions, the halving has always been the bellwether of Bitcoin’s biggest bull runs.
Below, the long blue lines indicate the last three halvings (11/28/2012, 7/9/2016 and 5/11/2020). Note how the price jumped significantly shortly after each halving.
Source: https://buybitcoinworldwide.com/halving/
So, if this is true, why aren’t there more Bitcoin gazillionaires than ever? Why isn’t everyone doing this already?
Reread the first few paragraphs of this post. Everyone was expecting Bitcoin to be like gold or stocks. Unpredictable.
It’s not.
Notice that the spiral graph starts at 2013, NOT back in 2009 when Bitcoin was first invented. That’s because the first cycle, starting in January of 2009 and ending at the end of November in 2012 is considered an outlier, a potential fluke, so from an actuarial or analysis perspective it is ignored in terms of pattern recognition.
Hey…that repeated once. Okay. Yeah, so?
Then twice. Okay. Just a fluke though probably.
Third time’s the charm. Now you have my attention. Keep an eye on it.
The timing of this cycle’s bottom was technically the fourth proving point, which is why we’ve seen the ‘sudden’ switch in sentiment by many investment Big Dogs. It really isn’t sudden at all, they’ve just been waiting for confirmation because people kept saying…
“But this time will be different.”
Rug pulls. Big time hacks. Countries banning all cryptos. Failing exchanges. The SEC on a rampage. Whale manipulation. The government secretly aiming at CBDCs.
Now ETFs.
I’ve heard all the arguments that Bitcoin ‘cycles’ are simply coincidental, and nobody can predict its future.
Wanna bet?
The reality is that investor psychology comes into play here as well.
You may have seen this infographic before that shows the typical retail investor’s emotions as the stock market rises and falls.
Again, thanks to @theratinalroot who created the Bitcoin spiral graph showing the same behaviors.
Source: bitcoinstrategyplatform.com
What are the odds that once the coming bull run gets into gear that new investors in crypto having FOMO will pile on like they did last cycle (without doing any research) not wanting to miss out the one to one million gains that get hyped every cycle?
Pretty darn good.
Just like in the stock market, many will buy in the ‘Thrill’ phase (high prices) and sell in the ‘Panic’ phase (low prices) and media pundits will decry that Bitcoin is “too volatile” for the average investor.
It just ain’t so.
If you’ve ever studied organizational behavior, or even history or politics, you’ve likely heard some variant of this list:
There are known knowns. These are things we know we know. Easy to identify.
There are known unknowns. These are things we know we don’t know. Still, mostly identifiable.
There are unknown unknowns. These are things we don’t know we don’t know. Almost impossible to identify.
And lastly there are unknown knowns. These are things we know, but we don’t realize we know them until someone (or some occurrence) points them out. Think of this last part as an explanation of ‘not seeing the forest for the trees’.
Consider this explanation of Bitcoin cycles as showing you the forest.
Big picture. There it is…right in front of you…the whole time. But you probably didn’t see it.
Granted, there are still plenty of unknowns of all kinds with crypto.
What impact will the ETFs have? Are more regulations ever going to be put in place? etc.
And, with the $100,000 price being a marker that Bitcoin may cross this coming cycle, being certainly a psychological target for long-term HODLERs – just like the $50,000 price point was likely the cause of the last double top in this cycle – will this coming bull market have a double top too?
Very likely. But I’ll save that discussion for another day.
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