As someone who has never fully bought into cryptocurrency, I set out to learn more about Bitcoin. I discuss my findings in this article.
Bitcoin and its History
What is Bitcoin?
Bitcoin is a decentralized digital monetary network that allows users to transfer value without relying on a central authority, such as a bank or government. It was introduced in 2009 by the anonymous creator under the name "Satoshi Nakamoto" in the aftermath of the global financial crisis. Its fixed supply of 21 million coins is enforced by code and vastly differs from typical currencies, which can expand depending on central bank decisions. In October 2008, Nakamoto published a nine-page paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The proposal was simple but at the time, very radical... to create a system that allows online payments to be sent directly from one party to another without going through a financial institution. This introduced the "blockchain".
What is the blockchain?
The blockchain is, in simple terms, a public ledger... defined as a transparent digital record-keeping system accessible to anyone. Every transaction ever made in Bitcoin is recorded here, and unlike a private bank ledger, Bitcoin’s ledger is public and distributed across thousands of computers around the world. Bitcoin transactions are recorded together in groups called "blocks," and every 10ish minutes, these blocks are added to previous blocks to form a "chain". Importantly, each block contains a list of recent transactions, a reference to the previous block, and a signature that secures it. Since each block references the one before it, tampering with a past transaction would require rewriting every subsequent block, across thousands of independent computers, all at the same time.
The Pattern that has Caught my Eye
I never participated in the crypto euphoria, well, mainly because I wasn't investing during the bull run post-COVID. From there, however, I watched from the sidelines simply because I didn't know much about what Bitcoin was or its use case. However, after doing some research, a clear pattern has caught my eye.
The Crypto Cycle
Since its inception, Bitcoin has moved in pronounced boom-bust waves roughly every four years. These cycles are not perfectly symmetrical, and they are not guaranteed to continue, but historically, they have followed a surprisingly consistent structure tied to one core event... the Bitcoin halving.
New Bitcoin enters circulation through mining rewards. Approximately every four years, the reward miners receive for validating blocks is cut in half, this is where the name "halving" comes from.
2009: 50 BTC per block
2012: 25 BTC
2016: 12.5 BTC
2020: 6.25 BTC
2024: 3.125 BTC
This process will continue until the maximum 21 million supply is reached.
If you think about this in basic economic terms, if demand remains constant or increases while new (not existing) supply declines, this suggests upward price pressure over time.
If you look at the graph, the pattern becomes clear. Around 17 months after the halving, bitcoin hits a new all-time high. From that time, Bitcoin has historically capitulated around 80% in the span of 13 months.
The above chart, which was made and edited on my own, only shows data from the most recent 3 cycles. Below, I have pulled another chart which shows how this pattern has repeated itself since the first halving of Bitcoin in 2012. Though there is no guarantee that past trends are going to continue in the future, this pattern is very hard to ignore, especially since it seems to be playing out again right in front of our eyes.
Crypto is far from my expertise, and much of what I now know about it I have learned from the research done to make this article. Despite this, I found this pattern too clear not to share. It shows that a rapid recovery after a decline of the current nature is very unlikely. Instead, after capitulation, there is typically an accumulation phase that I project, based on past data, to be around the $25k-$35k level. If Bitcoin defies its prior structure and pushes to new all-time highs next month, I am comfortable missing that move.
It appears to me that these cycles reward patience, and if Bitcoin follows its historical patterns, patience could offer a far better entry than acting out of urgency.