When will the current cycle of cryptocurrency market collapse end? Calculating the date of the next bull run
In January this year, the first signs of a new bear cycle in the crypto industry emerged. Its capitalisation fell below $2 trillion, and the price of Bitcoin continued to decline, killing any hope investors had of the cryptocurrency returning to its all-time high of around $69,000. BTC has now been trading mostly in the $20,000 zone for several months without any noticeable volatility. When will the current market cycle end?
Why has Bitcoin fallen
The process of becoming a bearish cycle started back in 2021. During this period, many regulators around the world threatened to impose strict controls on digital assets. The previous year was also marked by some significant negative news. For example, the US Securities and Exchange Commission (SEC) continued to pursue a case against the popular Ripple crypto project. In addition, the Chinese government has banned Bitcoin mining in its territory, forcing most Chinese miners to move to other regions – in theory at least.
Global inflation and interest rate hikes by central banks have caused fear and uncertainty in the market, resulting in lower-than-expected crypto-investment. While inflation and interest rate problems are most associated with the US, other major countries have not been spared from this trend either.
Rising benchmark lending rate in the USA
Earlier this year, the US Federal Reserve announced strict measures to “accelerate the winding down of monthly bond purchases”. In other words, the US was planning to introduce measures to slow down economic growth in order to control the ever-increasing inflation in the country. The graph below shows the evolution of inflation in the US economy from 2016 to 2022.
Inflation in the US
In fact, in order to reduce inflation, the US Federal Reserve raised the federal funds rate twice during the year. This has reduced the disposable income of US residents, while also reducing the amount of investment in high-risk assets, including cryptocurrencies.
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In an additional blow to the fortunes of many cryptocurrency companies, already suffering from a sharp decline in revenues this spring, the collapse of the Terra project ecosystem. The event resulted in multi-billion dollar losses and the bankruptcy of various platforms, which also had a negative impact on Bitcoin.
When cryptocurrencies start to rise
Markets, including the cryptocurrency market, develop in cycles. The conventional wisdom is that the market cycle consists of four complete phases: accumulation, rise, distribution or distribution and fall. In Bitcoin’s case, one cycle lasts approximately four years or 1,275 days. According to Grayscale analysts, the bear cycle ends when the market price becomes above the realised BTC price again.
Bitcoin market cycles
The term “realised price” has the following definition.
The sum of all assets at their purchase price or realised market capitalisation, divided by the market capitalisation of the asset, which gives an idea of how many positions are in profit or loss.
The rise and fall of Bitcoin in the current cycle
The market value of BTC fell below its realised price on June 13, 2022. Below is a table from the Grayscale report back in July of this year, but its relevance is not so important – we are interested in the second column, namely the number of days in the past when the realized price was higher than the market price. Before the current bearish trend there were only three – in 2012, 2016 and 2020. The most recent period is the collapse of BTC after the COVID-19 pandemic began.
Dynamics of Bitcoin market and realised price movements
Given the data above, the market price of Bitcoin should be above the realised price by around winter, meaning that the bearish trend is predicted to end between November and December. But that does not mean that BTC will immediately begin to rise significantly, because on average Bitcoin needs about a year more to rise to a new all-time high.
How long will Bitcoin fall?
According to Cointelegraph’s sources, another benchmark for investors could be the Bitcoin halving procedure, which means reducing the reward for a new block in the cryptocurrency’s network. Based on previous cycles, as shown in the chart below, the cryptocurrency rises to a new all-time high within eighteen months of halving.
Bitcoin Halving
But the 2022 bearish trend is also unique for several reasons. Firstly, key macroeconomic variables like high interest rates and soaring inflation have increased bearish pressure on the market. Secondly, Terra's collapse was almost the worst financial loss in the history of the industry, making it quite comparable to the closure of the Mt.Gox exchange. Third, it is the first bearish trend during which there is such a strong correlation between the stock market and Bitcoin.
Bitcoin’s correlation with the S&P 500 Index
The contrast with previous periods of BTC's prolonged decline is clear. Still, many analysts believe that the current bearish trend will end between November and December 2022, and a new bull run will start between late 2024 and early 2025.
That said, we traditionally advise investors not to expect the market to show certain results by a given date, as such predictions most often do not come true. The key is to develop a strategy that will allow any time frame to last. It is also traditionally important not to invest in crypto that you are not prepared to lose.
Does all of this add up to your personal predictions? Share your opinion on this in our Millionaire Crypto Chat. There we will discuss other important developments in the world of blockchain and decentralisation.
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