Bitcoin (BTC) price action analysis: Is this the end of a four-year cycle?

For a few weeks now, Bitcoin has been rocking. A 22% drop since its historic peak of $109,000 in mid-January fuels doubts.

Bitcoin has been largely unperturbed since mid-January and the historic peak at $109,000 reached by the flagship cryptocurrency. After a 22% drop from this high, some are beginning to wonder if this marks the end of the four-year cycle, an integral part of the crypto market’s DNA, or merely a turbulent phase ahead of a new surge.

Most analysts lean towards the latter option, but the nuances bear further examination.

A Jolt, Not a Collapse

The figures may seem alarming, but a glance at history offers reassurance. Bitcoin has endured far more violent corrections in previous cycles. Back in 2017, a 40% decline over two weeks did not hinder BTC from sixfold price gains within a year.

In the present context, the magnitude of the downturn is comparable, and the dynamic is similar: a “shakeout,” characterized by a brutal purge to eliminate fragile positions. Technical indicators, despite being bearish in the short term, do not alter the structural trend.

Key support, according to Bitfinex, remains at $72,000-$73,000. Most crucially, the four-year cycles, defined by halvings (reduction of mining rewards), have always acted as bullish catalysts. The latest halving, in April 2024, already propelled a 31% price surge. The underlying mechanics appear intact.

However, a new factor is muddying the picture: institutional adoption. Bitcoin ETFs have injected over $125 billion, generating unprecedented structural demand. These flows, less susceptible to retail investor sentiment, could mitigate cyclical shocks.

“The conventional cycle is ceasing to exist,” some analysts assert.

Threats to the Bitcoin Cycle

While the scenario of a simple adjustment seems plausible, certain risks remain. Bitcoin no longer evolves in isolation. Its correlation with the S&P 500 and Treasury yields has intensified.

A stock market crash, driven by trade tensions or rising interest rates, could easily drag BTC down with it. Reclaiming $84,000 in mid-March does not grant immunity to broader market turbulence.

Another concern is that Bitcoin’s CAGR (compound annual growth rate) over four years has dropped to 8%, reaching a historical low. For Iliya Kalchev from Nexo, this figure raises questions about the sustainability of the four-year cycle.

Institutions, by absorbing a larger portion of the supply, may be accelerating the market’s maturation, which could diminish the magnitude of historical price volatilities.

Finally, geopolitical shocks, such as trade wars or monetary crises, could exert pressure on investor sentiment. If investors opt for traditional safe-haven assets, Bitcoin, still viewed as a riskier asset class, might face temporary disfavor.

The "extreme fear" currently indicated by sentiment indices reflects this nervousness.