Bitcoin Halvings Are Bull Market Things — Will This Time Be Different?

This bear market is brutal. Top cryptocurrencies are down more than 70%, dramatic bankruptcies have left potentially millions out of pocket and bitcoin miner capitulation looks more likely by the day.

But just how brutal? Previous boom-and-bust cycles add perspective. 

Blockworks analyzed bitcoin price data stretching back to 2010 — when bitcoin (BTC) was worth a fraction of a dollar — to model exactly how long each bull and bear market lasted.

The current bear market has lasted 335 days, so far, dating back to Feb. 3, 2022. Bitcoin has fallen nearly 55% since, from nearly $36,300 to a low of $15,550.

We’re not quite in the territory of the longest bitcoin bear market on record. That title belongs to the previous big bear, a 390-day stretch between Feb. 21, 2018 and Mar. 18, 2019. Bitcoin tanked from $10,250 to a local bottom of below $3,200 over that period, a 70% drop.

Our methodology: We mapped existing definitions for the start of a bear market from the traditional finance world. So, a bear market begins when an asset trades 20% below its recent high for more than two months. 

Riffing on this metric, a bear market ends when an asset trades 20% above its recent low for one month or more. And, for the purposes of this (basic) exercise, a bull market begins as soon as a bear market is no more.

It’s an imperfect model for crypto bear markets overall, considering we’ve only charted bitcoin. But considering BTC persists as the ecosystem’s bellwether asset, it serves as a decent guide.

But here’s what it does mean: We’re around two months shy of the longest bitcoin bear market. 

Ever.

Not like the other bears

To Peter Eberle, chief investment officer at crypto investment firm Castle Funds, bitcoin is in a stronger position now than in previous prolonged down periods. 

So much leverage has already been unwound across the board by defunct crypto lenders and exchanges, and embattled firms have already liquidated quality assets, such as bitcoin and ether, to meet redemptions.

“A big difference that we have seen between the bear market of 2018-2019 is how this time institutions did not back away from projects that they were building,” Eberle told Blockworks. “In 2018, most institutions building BTC infrastructure just gave up because they believed the industry was dead. This time they may have put the brakes on some projects, but they did not abandon them.”

In making his care, Eberle highlighted major moves forward from the likes of Fidelity, which launched commission-free crypto trading for retail clients last November. BNY Mellon also shared plans to custody bitcoin for clients. 

“These two developments have enormous implications, but were overshadowed by the FTX fraud,” Eberle said.

Dreams of endlessly cyclical bull runs are dampened by dreary economic factors. Increased rates to curb inflation mixed with slowed spending and ongoing war in Europe uniquely overshadow our current bear market.

To Vivek Raman, head of proof-of-stake at research unit BitOoda, this bear market’s first punch was a resulting paradigm shift in macro markets, to which previous cycles didn’t have to contend.

Markets transitioned from an era of easy monetary policy since the 2008 financial crisis — low rates and high liquidity — to one of higher rates, rising cost of capital and stricter monetary discipline, Raman said.

“As a result, assets that thrived in the former environment were high growth and not necessarily high cash flow – we saw tech companies soar, valuations from [venture capitalists] soar, and this permeated into a lot of crypto assets performing very well without underlying fundamental value.”

Those perks are long gone, thanks to the Fed’s aggressive rate hikes. Raman reasoned the Fed is likely to slow or pause additional increases to renormalize the economy by tamping down soaring inflation. But there have been “thriving bull markets in eras of higher rates,” according to Raman, including periods of the 1990s and 2000s.

Lex Sokolin, chief cryptoeconomics officer at ConsenSys, told Blockworks that investors are largely risk-averse and waiting for a recession. That makes relying on consumer discretionary spending or stimulus-led savings to bail out crypto prices difficult, he said.

“Instead, we will need to see organic growth from Web3 and real economic activity,” Sokolin said. “One of the most relevant metrics would be smart contract usage, which is the core value proposition of Web3 — automated economic protocols.”

450 days to go until Bitcoin halves

One cycle theory posits that bitcoin bears and bulls are tied to its halving schedule. Every four years, block mining rewards are reduced by 50% — slashing issuance as bitcoin approaches its 21 million supply limit.

Every single halving has occurred during the early innings of a bull market leading up to a significant run one year later.

The one in 2016, when bitcoin was worth a few hundred dollars, preceded a major charge to $20,000 in late 2017. And when Bitcoin halved in 2020, the asset was worth around $9,000 — by Nov. 2021, it traded close to $70,000.

Bitcoin’s next halving — a date difficult to pin down — is right now expected sometime in April of 2024. That gives Halving-Truthers at least half a year more of depressed market action before their pre-programmed bullishness triumphantly returns.

An end to the bitcoin bear market can’t come soon enough for miners, whose livelihoods are inextricably linked to the protocol’s halving schedule. Katie Talati, director of research at investment firm Arca, told Blockworks that capitulating miners wielded much larger influence over the price of bitcoin last cycle. 

So, too, did Asian crypto markets, anchored in more than 70% of the bitcoin hash rate being housed in China at times. The West has been increasingly dominant in the bitcoin market ever since China’s renewed crypto crackdown in 2021.

“There are a lot of things that factor into bitcoin’s price,” Talati said. “The halving definitely has an impact because it changes a lot of those factors, it changes the economics of the game and makes production more expensive.”

Talati’s take is that bitcoin is going to go back up at some point — along with Eberle and Raman. But Talati sees a future where something more tangible, such as demand for Ethereum block space, may one day determine overall crypto market sentiment, making ether crypto’s bellwether digital asset over bitcoin.

In the meantime, all eyes are on what contagion might still remain from FTX, Eberle said. 

More companies could well go bust before this bear market wraps, according to Raman — which could mean further downward pressure from ensuing asset liquidations. 

“The hardest part isn’t determining whether we will have another bull market – all markets will be cyclical – but it’s knowing when the bear cycle will end, since each bear market has different circumstances,” Raman said.

He pointed to signs of a macro bottom: Fed pausing its rake hikes, normalized inflation and restarting moderate monetary stimulus. 

A crypto bottom: apathetic sentiment (worse than the current “attack and anger” phase, in which most people forget about crypto altogether) and renewed institutional capital (ETH staking withdrawals could do the trick), as well as new users and use cases, plus regulatory clarity.

And don’t forget the 2024 halving, “since BTC halvings tend to coincide with new bull markets.”

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