Is it to late to Grab Bitcoin by the Horns and hold on until 4Q 2025?
Modeling the End of the Current Bull Market
In this Article
Bull Case
Duration Analysis of Historical Cycles
Cycle Fractal and Half Date Analysis
Scenario Analysis for the Baseline Price During the 2025-26 Bitcoin Recession
BlackRock ETF Filings have a 575-1 Approval Record
Bear Case
Macro and Secular Forces Influencing Bitcoins Growth Slowdown
Modeling Recognition
STAT SPOTLIGHT: The average outperformance of Bitcoin during the last two cycles - using the previous two half dates as a starting point, in comparison to the performance leading up to the half dates - during it’s respective duration cycle dates listed below, is 1,515%.
Bull Case
Looking at Bitcoin’s Realized Losses as % of Market Cap, past flushes are consistent with the time frame after past market tops of each respective cycle. If history repeats, this is suggestive that the low in November 2022 may be the start date of the 4th cycle.
Bull Cycle May Go Until 4Q 2025
If history is any guide, the current bull cycle may last through October 2025. This analysis looks at only the previous two cycles and ignores the virgin cycle due to the underdeveloped market structure at the time. Since 2013, price discovery, liquidity and player types have developed rapidly as the asset and network supporting it became more integrated with the global financial system.
The other assumption is, the November 2022 low of $15,485 marked the bottom. The average number of days between the two previous cycles, which stretched from 2015-17 and 2019-21, is 1,065 days, which suggests that November 2025 could be near the date for a cycle peak.
Assuming the closing price on 11/23/22 was a cycle low, using todays date of 6/27/2023, we are 216 days after the 11/23/22 low.
In the chart below, the blue line shows the 4th cycle performance (which we are assuming is the current cycle) has been similar to the previous 2nd and 3rd cycles.
Cycle Fractal and Half Dates
A long-term chart illustrates the market fractal and how the Halving continues to influence market psychology. In the last two cycles, the price bottomed 5-18 months before the programmed four-year Halving event, when the protocol's payment of block rewards to miners is reduced by 50%, hence increasing the asset's scarcity.
Bitcoin's diminishing supply should be a tailwind to higher prices, unless something unlikely happens to reverse demand and adoption trends. Bumps in the road should be expected, but we think the upward price trajectory will prevail.
The price structure mirrors previous cycles with a recovery off of capitulation lows, stalling at a significant resistance, or previous cycle support, before eventually capulating as the Halving approaches.
Below are the half dates and respective returns. Assuming a half date near May 2024, we are 309 days away to the next half date, using today’s date of 6/27/23. Past cycles show Bitcoin increases in value, using the one year time frame, up until the half date, and it’s returns have been comparatively higher one year after past half dates.
For estimating the next Half Date days, the estimates for the 4th Cycle was by taking the average from the last two cycles.
Key takeaway is that Bitcoin performance has been greater after the half date during the last two cycles, using a similar number of days for before and after the half date. That equates to 527 days before and 537 after.
Scenario Analysis of Active Address Growth and Price for the 2025-2026 Bitcoin Recession
The relationship between price and the number of entities is likely to change if activity gravitates to Layer-2s. But if 2022 saw the cycle low, it's safe to assume that entity growth will translate into price appreciation over the next three years.
Within this analysis, we are making the assumption that the CAGR (compound annual growth rate) of active addresses will be positive though 2026. Assuming a 5% CAGR over the next three years, Bitcoin would find support at $36,385 at the next potential activity recession during 2025-26. During the 2018-2021 trough-to-peak rally, active entities rose 40% each year. In our most bullish scenario which assumes a 25% CAGR, the entity count would exceed 520,000 and the price would hit new all-time highs, based on the existing correlation.
Below are some projections of what the price low might be during the 2025-26 bottom assuming different active address CAGR outcomes.
BlackRock Has 575-1 Record with SEC ETF Approvals
BlackRock doesn't appear to file for an ETF unless it views approval as likely. This filing is only the first and lacks many details, including fees, but the proposed trust would use Coinbase as the custodian, which BlackRock already uses for institutional clients.
This is an ETF filing, and will be operated as such, even though the product is called a “trust.” ETFs can operate under various regulatory structures, including unit investment trusts, open-ended funds, grantor trusts, limited partnerships (commodity pools), or a c-corp. This looks like it will operate as a grantor trust.
The SEC has denied Blackrock’s ETF proposals only once - its 2014 application to launch active non-transparent ETFs (ANTs). Of the 575 BlackRock ETFs approved, 400 are still trading.
With ANTs, BlackRock was early but not wrong, and the same could be true for US spot Bitcoin ETFs. BlackRock's only official denial in November 2014 followed similar denials for Precidian in October. Ultimately, the SEC approved another Precidian attempt at ANTs in April 2019.
STAT SPOTLIGHT: Historically, the SEC has denied every spot crypto ETF filing so far. We count 32 with 28 focused on Bitcoin.
Bear Case
The first time Crypto had these headwinds at the same time
Potential first US recession (Not Including 2020)
Vigilant central banks and high interest-rate competition
Yet, Bitcoin bounced in 2023, indicating consensus thinks the worst is over.
Its within historical experience that risk assets can get cheap during recessions. Crypto securities are among the riskiest. Bitcoin may need to prove divergent strength vs. recession force. Best guess is that the US enters recession in the latter part of 2H ‘23 or Q1 ‘24.
Bitcoin may not be old enough to demonstrate it won’t be negatively influenced from the effects of a US economic contraction. If, or when, we get through the contraction in 2024, we’ll have a better sense of how it will perform during such situations.
The 2020 brief recession may offer little accurate guidance to how it may do in recessions. Our behaviors were vastly different due to lockdowns as well as the behavior changes as lockdowns were eased. And that happened on the back on the biggest liquidity pump in history to the 2021 peak. The next recession will be unlike the last.
A price breakout not accompanied by a requisite increase in on-chain activity could be vulnerable from a valuation standpoint. Red circles below are a drop in active addresses showing a high correlation to a fall in Bitcoins price historically. Historical price increases are highly coorelated to an increase of active addresses.
Metcalfe's Law describes how increased interconnections explains a network's value. Although the network value can expand rapidly, and with it’s limited history usually does via increased leverage and derivatives, it’s within historical experience that this can be short-lived. Alternatively, active address bottoms that is correlated to duration analysis of the timing of past cycles, could put a floor into Bitcoin’s pricing.
Macro and Secular Forces Behind Crypto Growth Cycles
Like all global s-curve technologies, Bitcoin, and by extension blockchains, have a logarithmic growth curve. This is defined as exponential growth at the beginning of their life cycle, followed by slower growth as adoption matures.
But what drives adoption?
Macro factors:
The state of the global or local monetary base and the price of money or interest rates.
Secular trends
Innovation in parallel and supporting technologies
Cryptography, data storage, AI
Increasing centralization resulting in deteriorating civil liberties. For example, in a fiat financial system the natural tendency is debt expansion, requiring currency debasement and often increasing government control to manage the system.
Recognizing Our Modeling Limitations
Research Paper on Bitcoin Market Efficiency
We recognize the limitations of modeling prices based on price history and observe the words attributed to the British statistician George Box: "All models are wrong, but some are useful".
In our assumptive analysis, we haven't modeled what drives adoption - such as macro and secular forces - other than to assume that the current trends will continue. Risks are likely understated. Volatility will continue to produce severe left-tail outcomes. In contrast, the relatively low penetration - which River Financial estimates to be between 50 million and 100 million, or 0.63% to 1.25% of the global population - may surprise price forecasters on the upside.
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