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Bitcoin has been experiencing significant fluctuations recently. Following a 22% decline from its all-time high of $109,000 in mid-January, uncertainties loom. Does this signify the conclusion of a four-year cycle inherent to the crypto market, or merely a brief turbulence preceding a resurgence? Analysts are leaning toward the latter perspective, though it warrants a deeper examination.
A jolt, not a collapse
While the statistics may be alarming, historical patterns offer reassurance. Bitcoin has endured far more severe corrections during its past cycles. For instance, in 2017, a 40% drop within a fortnight didn’t prevent BTC from skyrocketing to six times its value within a year.
The current downturn seems to follow a parallel trend: it appears as a “shakeout,” a harsh clearance designed to eliminate weaker positions.
Though technical indicators may appear bearish in the immediate future, they do not negate the overarching structural trend.
According to Bitfinex, the crucial support level between $72,000 and $73,000 remains intact. Most importantly, the four-year cycles, characterized by halving events (which reduce mining rewards), have consistently acted as bullish catalysts. The most recent such event in April 2024 spurred a price increase of 31%. The fundamental mechanics seem to remain unaffected.
However, a new factor clouds the outlook: the growing institutional adoption. Bitcoin ETFs have infused over $125 billion into the market, creating an unprecedented structural demand.
These investments, less susceptible to the whims of retail traders, may help cushion against cyclical upheavals. “The traditional cycle is fading,” some analysts boldly assert.
Threats to the Bitcoin cycle
While the notion of a mere adjustment seems plausible, risks still loom. Bitcoin no longer operates in isolation.
Its correlation with the S&P 500 and Treasury yields has strengthened. A downturn in the stock market, sparked by trade disputes or rising interest rates, could pull BTC down with it. The $84,000 recovered in mid-March doesn’t ensure immunity.
Another point of concern is Bitcoin’s CAGR (compound annual growth rate) over four years, which has tumbled to 8%, a record low.
Iliya Kalchev from Nexo expresses that this statistic raises concerns regarding the sustainability of the four-year cycle. As institutions absorb an increasing portion of the supply, they could be hastening the market’s maturation… potentially at the expense of its historical upheavals.
Finally, geopolitical disturbances — whether trade conflicts or monetary crises — could impact market sentiment. If investors seek refuge in traditional safe-haven assets, Bitcoin, still viewed as risky, could face temporary distrust. The current state of “extreme fear,” as indicated by sentiment indices, reflects this anxiety.
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Intrigued by Bitcoin since 2017, Evariste has diligently studied the subject. Initially drawn to trading, he now actively seeks to comprehend all advancements surrounding cryptocurrencies. As an editor, he aims to consistently produce high-quality content that accurately represents the state of the industry as a whole.
DISCLAIMER
The opinions expressed in this article are those of the author alone and should not be construed as investment advice. Conduct your own research prior to making any investment decisions.
