When will the Bitcoin bear market end? Among market participants, there are two common perspectives.
Believers in the “four-year cycle” theory see Bitcoin halving events as the key driver of price movements and expect the current bear market to play out like those in the past. Historically, Bitcoin’s price has bottomed about a year after the cyclical peak and roughly 2.5 years after the halving event. Cumulative drawdowns have averaged ~80%.1 The four-year cycle theory implies that Bitcoin’s price could fall further, with a bottom in September or October.
The alternative perspective is that Bitcoin has “grown up” as an asset, and its price will henceforth be influenced by shifts in the macro backdrop, like virtually all major asset classes. For example, Bitcoin bear markets in the past have corresponded with slowing economic growth and/or rising real interest rates (Exhibit 1). The current bear market has also featured a major shift in Fed policy expectations and rising real interest rates. Naturally, if macro factors are in the driver’s seat, Bitcoin’s price could bottom when these macro factors turn around.
We subscribe to the latter view. If the Fed forgoes rate hikes and economic growth holds up well, Bitcoin’s price may already have bottomed.
Key Takeaway: The “four-year cycle” view predicts lower lows for Bitcoin’s price, but a macro perspective suggests the bottom may already be in.
Exhibit 1: Bitcoin price cycles have corresponded to shifts in macro backdrop
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