Is time on our side? The case of Bitcoin’s stretch cycles

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Key points

  • The theory that supports the lengthening of Bitcoin cycles is deeply in conflict with the theories based on supply and halving.
  • As each successive cycle lasts longer, investors are experiencing reduced returns.
  • The lower ROI goes hand in hand with the lengthening of the bear and bullish cycles, with longer durations between peaks.

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One of the many unique features of BTC is its halving process, often accompanied by a bullish movement and preceded by a bearish consolidation. Bitcoin halving events have been an established way to traditionally measure Bitcoin cycles not from an absolute minimum, but from a point of view of supply versus demand. Bitcoin halving is an event every four years that halves the reward for mining a block to secure the network. After the last halving, which took place on May 11, 2020, the current premium is 6.25 BTC. It is assigned to the first miner who solves a mathematical algorithm and decrypts the hash of the next block.

The theory of elongation cycles is deeply in conflict with supply and halving theories.

As the existing limited supply decreases further, the theory is that demand begins to exceed the available supply and the price of the asset increases. The stock-to-flow model measures the relative scarcity of the asset based on its supply. Based on this tweet from PlanB (creator of the Bitcoin Stock-to-Flow (S2F) model) the model shows that BTC is in the low end of the 50k-200k 1sd band, a buy signal.

As market participants, we are inevitably attached to the inherent responses that these sudden changes in market sentiment and the volatile values ​​of our portfolios can bring. However, during times of volatility, it is crucial not to lose perspective and remember the slogan, “If in doubt, zoom out.“Bitcoin is by far still the best performing asset of the last decade and its value proposition to society remains fundamentally unchanged.

Based on Everett Roger’s theory of the diffusion of innovations, the diffusion of a new idea strongly depends on its human capital component. In this context, the percentage of customers who adopt a disruptive idea over time can be divided into 5 distinct categories along the risk tolerance spectrum: innovators (2.5%), first adopters (13.5%), early majority (34%), late majority (34%) and laggards (16%). As a result, cryptocurrency adoption is nearing the end of the early adoption phase as it verifies entry into the early majority phase. Importantly, for investors this is where market cap growth begins to accelerate along the S-curve.

These individuals have the highest degree of opinion leadership among the categories of adopters. Early adopters have higher social status, financial liquidity, advanced education, and are more socially advanced than laggards. They are more discreet in their adoption choices than innovators. They use judicious adoption choice to help them maintain a central communication position.

Early adopters create or destroy markets; they are the respected guardians of new innovations. Conversely, if innovators care about what’s new and early adopters care about proven value, then the first majority care about what’s popular.

The hypothesis of extending Bitcoin’s cycles assumes that each subsequent cycle lasts longer, measured from the absolute minimum to the absolute maximum of the BTC price.

For example, the genesis cycle lasted only 250 days, the second lasted 750 days, and the third lasted around 1050 days. The current cycle, which started with a low of $ 3122 on December 15, 2018, is approaching the 1110-day mark right now.

Dubbed the “Supercycle,” this theory suggests that the mass influx of retail investment will break convention. This theory pairs well with the “stretch cycle theory” popularized by the famous cryptographic analyst and founder of In the Cryptoverse, Benjamin Cowen. Broadly speaking, this theory suggests that Bitcoin’s market cycles are lengthening while producing diminishing returns. As incredible as it may seem today, this implies that Bitcoin’s volatility will approach zero in 10-15 years. For Bitcoin to remain compliant with super cycle and stretch cycle theories, it must undergo even more massive adoption before stabilizing at the top of its theoretical S-curve.

As price action travels along the curve, volatility decreases thus creating a more stable Bitcoin over time. It will take decades for the asset to fully stabilize, but it has continued to follow this trend. The only problem with this type of theory is the fact that it is deeply in conflict with supply and halving theories.

Most investors believe in lengthening Bitcoin cycles after PlanB’s stock-to-flow model failed in November. After the failure of the Wyckoff distribution model and the PlanB prediction, Benjamin Cowen cemented his belief in the elongation cycle theory.

Volatility can also decrease further over time as adoption takes place. As Bitcoin’s market capitalization and liquidity increase, volatility is expected to continue to decline as we follow the asset’s logarithmic growth curve.

In contrast to the long-term view and with no bullish catalysts in the immediate horizon, prices plummeted as traders and funds who bought Bitcoin and other assets earlier in the year weigh in by taking profits. The sale is likely to extend into January as some investors will wait for the New Year to sell so they can push their tax obligations forward into 2023. It is in these types of circumstances that Phemex can help investors with its Earn Crypto Products. With the ability to earn up to 8.5% APY via the fixed and flexible savings options, investors are allowed instant withdrawals and deposits at any time. There are also no long-term commitments. The initial deposit and interest can be withdrawn at any time. To subscribe to any of the Earn Crypto options, a user only needs to transfer funds from their spot wallet to their fixed or flexible savings account. Phemex trading systems use a sophisticated combination of risk management, algorithmic calculation and quantitative analysis techniques.

On the other hand, Benjamin Cowen believes that the reason for the lengthening of the cycles is an increase in the influx of money from different leaders around the world. Countries like India, Vietnam and Indonesia emerged as huge crypto hubs in 2021. Additionally, a number of celebrities have supported NFT projects and DeFi platforms.

Big companies like Mastercard, Microsoft, Expedia, AMC Theaters, PayPal, and even Starbucks have entered cryptocurrency territory. Additionally, with the support of Elon Musk and Michael Saylor, Bitcoin saw an inflow of billions of dollars as it even surpassed a market cap of $ 1.3 trillion.

As pointed out by Willy Woo, a popular on-chain analyst, Bitcoin’s 4-year cycle will disappear in the future. It predicts the current one will be the last one.

The typical four-year cycle that most analysts use to predict Bitcoin price rises and falls will be replaced by a “drunkard’s walk” to the top, just like the S&P 500 or other major indices. equity.

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