The idea of market cycles is widely accepted in finance. The most basic principle is that what goes up must come down. The underlying rationale is that investors will accumulate when prices are low, causing prices to rise. As the price reaches a peak, sell pressure will take over as holders seek to cash out, thereby pushing the price back down.
If you bought Bitcoin (BTC) in 2017 or earlier, this will sound eerily familiar. It essentially describes what happened during the last bull run when BTC hit a high of $20,000. Therefore, most crypto holders are watching the current market conditions with bated breath.
But so far, apart from a few corrections, prices have held, or at least swiftly regained the losses. What are the chances it will continue? Can we expect 2021 to play out similarly to 2017 and early 2018, or is the cycle of the current run only just starting?
Echos of the past
In terms of the similarities between now and 2017, there are some critical parallels, the first of which is the relationship between BTC prices and the mining reward halvings. Each time the mining reward halves, it introduces new scarcity to Bitcoin’s supply.
The second halving was in July 2016, and within 18 months, Bitcoin had climbed around 3,900%, rising from $500 to a high of $20,000 before crashing. The third halving was in May 2020 when BTC was trading around $9,000. Nine months later, Bitcoin was able to reach a new all-time high at around $62,000, gaining 560% in the process.
In the same period following the 2016 halving, the gains were significantly less in percentage terms, with BTC having risen around 150% by April 2017. If the markets follow the same pattern, they will witness even more epic increases followed by a sharp crash. Of course, such price movements after a halving only apply to Bitcoin. But where BTC goes, the rest of the markets tend to follow.
There are also some correlations between on-chain metrics in 2017 and 2021. Both 2017 and 2021 show a high…