Bitcoin has had an explosive breakthrough year as a mature financial asset. Cryptocurrency is finally being considered for the first time by institutional investors – in a year that will go down in history for unprecedented money printing.
The hard-coded digital scarcity of the asset is a primary driver of its boom and bust cycles, and magic happens the year after each block reward halve. With the New Year approaching, here’s a look back at past crypto market cycles to get a glimpse of what to expect from Bitcoin in 2021.
Review of historical Bitcoin market cycles
All markets are cyclical and go through various phases of bear and bull trends. These cycles can extend over decades or a handful of years.
With cryptocurrencies, cycles often move faster than traditional assets because the market is active around the clock. But since Bitcoin is only a little over a decade old, there are only a few boom and bust cycles on which you can read useful data.
Technically, a new bull market will begin when Crypto Bank breaks its previous all-time high.
Basically, this happens every four years after the asset’s block rewards have been halved. This built-in mechanism will cut the supply of BTC in half at a time when demand starts to rise again.
The combined effect of suddenly decreasing supply and increasing demand throws the balance of buying and selling so much that the price increases exponentially.
2020 was an ideal example of the impact each halving can have on the market. Bitcoin went from a „fad“ to a full blown FOMO in less than nine months – all because supply and demand are so cheap for positive returns.
And while 2020 was definitely a breakout year for a bullish bitcoin, it’s the next year that will create a new wave of bitcoin billionaires.
Why 2021 will be the best Bitcoin year
If you look at the chart above, it’s shocking how high Bitcoin has climbed in twelve years. Over the past twelve years, the cryptocurrency has seen three significant halves, with the reward miners getting reduced from 50 to 25 BTC, then from 25 to 12.5 BTC, and finally to the current 6.25 BTC.
Every time this happens, demand begins to outweigh limited supply so drastically that the asset increases parabolically and exponentially.
In the two recorded years after the halving, the first resulted in a return of well over 6,000% and the second resulted in a return of just under 2,000%. What could 2021 bring for crypto investors?
Another 2,000-6,000% return is not likely, simply due to the Law of Decreasing Income, however even a 400% increase from the current level would result in a price of $ 125,000 per BTC.