A spate of bad news, from nose-diving crypto currency prices to bankrupt crypto exchanges, has made investors wary of the crypto market of late. The latest report by Morgan Stanley, however, predicts that a new cycle for Bitcoin is about to begin that may lead to another crypto bull-run from around April 2024.
Morgan Stanley has attempted to unravel the cycles of Bitcoin prices in the report and predicts the next upsurge in Bitcoin's exchange rates. Bitcoin is not only among the pioneers of cryptocurrency but also makes for about 50% of the total digital assets by market capitalisation. Hence it is considered an informal barometer of the crypto market.
The report has come up with a key insight that Bitcoin may go through a 'Halving' event around April 2024 that may cause the cryptocurrency's price rise. And as we move closer to the Halving event, the Bear market phase for Bitcoin may be over for this cycle.
What is 'Bitcoin Halving' event?
To maintain the nature of its limited availability, Bitcoin is designed to go through a process called 'halving'. Specifically, the report states, every four years, the number of Bitcoins created every 10 minutes is cut in half. Eventually, when there are 21 million Bitcoins in existence, no more Bitcoins will be mined.
Thus, as the supply of new Bitcoin gets limited, by design, the shortage caused by the halving can potentially spur a bull run. The Morgan Stanley report states that there have been three such bull runs on Bitcoin since its inception in 2011, each lasting 12 to 18 months after the halving.
The report suggests a seasonal cycle for Bitcoin trading based on the halving event, much akin to the farming seasons, which investors knowingly or unknowingly follow in order to maximise trading gains from Bitcoin.
The Four Seasons of Bitcoin trading
The Summer: This season starts with the Halving event when maximum gains from Bitcoin happen. The Summer marks the start of the bull-run and ends once the price of Bitcoin hits its prior peak.
The Fall: This season starts when the price of Bitcoin surpasses its previous high, of the previous bull run. During this season, Bitcoin starts attracting new investors as its price movement attracts the attention of media and businesses. As new investors start buying Bitcoin, the prices are driven even higher. The Bitcoin Fall season lasts from the time when Bitcoin passes the old high till it reaches a new one. The end of Bitcoin Fall signals that the bull market has run its course.
The Winter: The Bitcoin Winter starts when it reaches a new high. At this time, investors decide to lock in their gains and sell. This causes prices to drop and new investment is scared off. This season lasts from the new peak till it hits the lowest price. The report mentions that there have been three winters since 2011, lasting about 13 months each.
The Spring: After Bitcoin prices touch the rock-bottom it starts recovering slowly, which marks the on-set of the Bitcoin Spring season. According to the report, currently Bitcoin may be in its Spring season. The Spring starts from the Nadir and lasts till the ‘Halving’ event when the prices start recovering but investor interest tends to be weak.
What indicates that the Bitcoin Spring is here?
As per the analysis of historical data, the report states that previous nadirs of Bitcoin were around 83% lower than the peak price, that is reached in about 12 to 14 months from its peak time. During the Bitcoin Winter there are issues with the viability of exchanges, bankruptcies, and gloomy stories in the media. This time ushers in the lowering of ‘Bitcoin difficulty’, indicating the end of Bitcoin winter. 'Bitcoin difficulty' is a statistical indicator that measures the difficulty in mining Bitcoin. As the Bitcoin Winter proceeds, many Bitcoin miners start shutting down due to losses incurred because of the declining price of Bitcoin. As more miners shut down, it becomes easier for those still operational to mine Bitcoin. Lower Bitcoin difficulty indicates that there are relatively fewer operational miners. These are usually the indicators that the worst point of the Bitcoin cycle has been reached and the time for recovery, aka the Bitcoin Spring, is on the horizon.
The report also states that another indication that Bitcoin Winter is over is when the price rises to 50% of the lowest price. Although there also have been instances when there were severe price-drops, as well, after this point. Another measure of the start of Bitcoin Spring is the Bitcoin Price-to-Thermocap-multiple. Bitcoin Thermocap is the amount of money invested in Bitcoin since its inception. Low Bitcoin-price-to-thermocap-multiple indicates a trough in the Bitcoin cycle while high multiple indicates crest. Based on the analysis of these indicators, the Morgan Stanley report concludes that the Bitcoin Winter is over and the Spring is here, which is ultimately the harbinger of Bitcoin Summer when the cryptocurrency bull-run starts.
However, the report also cautions the investors that its predictions about the 'Halving' event around April 2024 may not be a gospel truth, and the crypto cycles will be better understood as more historical data accumulates with the passage of time.