Bitcoin top in 2025?
It’s incredible how Bitcoin is right on track in the 4-year cycle. Not only did the ATH and Bottom fall weeks apart on a 4-year basis 🤯, but we also see similar behavior in terms of price action regarding unrealized profit and losses.
On-chain analysis is an incredible tool that allows us to look at the current state of the market in a way not possible in traditional finance. We can actually see how much profit and loss exists at a moment in time in Bitcoin’s history. We call this profit or loss unrealized because when measuring in dollars, it would only be profit or loss if converted to dollars.
To get a recent view of the market, we get more signal by looking at young transactions, also known as the Short-Term Holders (STH’s). This group, in particular, is interesting because they are most affected by current price action.
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My favorite chart to discuss timing is the 4-year spiral chart. To enhance this chart further, we color-code Bitcoin’s price by the amount of unrealized profit or loss. Dark green colors represent lots of profit and dark red colors losses.
Forgot how to read the spiral chart? Click here.
In the chart above, we skip the first cycle and take 2013 as the starting point. The 2009 cycle isn’t as interesting because it’s a bit of an outlier, as Bitcoin didn’t have price data during its first year. Also, this allows us to zoom in better on the last three more relevant cycles.
4-year cycle, 3 phases
The cycles can each be explained by three phases (shown by the orange arrows), with each their characteristic sub-events.
There’s a full-grown bull market, historically initialized by the Halving. In this phase, fresh demand comes in (shown in the first quadrant). The hype, causing exponential price increases, lasts a year and comes either as a double top (2013 and 2021) or a single top (2017 and potentially 2025?).
With a blow-off top or distribution top at the end of that year, Bitcoin can no longer sustain its bull market and is followed by the next phase. A year-lasting bear market with an 80%+ drawdown, including typically 2 or 3 capitulation events ending with a bottom at the end of that year. After hope is lost for many, Bitcoin is ready for the final and longest phase of the cycle, a 2-year recovery. During this recovery/early bull market, Bitcoin generally rises at a very slow pace.
Price targets on a cycle basis
We are currently 6 months into the recovery phase and recovered around 30% of the total drawdown (from $69,000 to $15,000) back to $30,000. On a cycle basis, over the next 1.5 years, it is likely for Bitcoin to recover the remaining 70%. Around the next halving in April 2024 (shown by the orange dot), it is likely to recover around 50% and reach prices above $40,000. Prices of $50,000 and $60,000 most likely should be reached in the second half of 2024.
Risk of deviation
Could Bitcoin deviate and reach higher or lower prices earlier? As we saw in the previous cycle, prices showed dark green at this stage in 2019. During that cycle, Bitcoin rose from the bottom of $3,000 up to $14,000 (a 65% recovery). During this rally, there was the news of Facebook (Meta) wanting to launch the project Libra. Because Bitcoin rose too quickly, we returned to the baseline later that year, again making red colors. Even though the price has doubled since the bottom, the current 30% recovery is nothing like the 65% recovery we saw in 2019. So far, we have remained close to the recovery trajectory.
An approval of the Blackrock ETF could bring a change to that and serve as a catalyst for achieving higher prices. The initial deadline is mid-August, but it can be postponed to February 2024. The idea of a Bitcoin spot ETF has been talked about for over a decade, but it has always been rejected. However, Blackrock may stand a chance with its impressive 99% approval rate. While a mid-August approval could surely cause a faster recovery, the more likely option is a postponed decision until February 2024. An approved spot ETF in Q1 2024 followed by the halving in Q2 2024 would be an incredible combination to remain on track in the 4-year cycle.
On the contrary, a recession could cause a delay in the 4-year cycle. As there is no history of Bitcoin being in a recession, it’s difficult to predict how it exactly will respond. If it remains correlated to the S&P 500, a recession might temporarily cause turmoil.
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Bitcoin being perceived as a risk asset in traditional finance is part of its maturity process. The correlation with the S&P 500 and the fact that Blackrock wants a spot ETF shows how far we have come. It's not a matter of if, but rather when it’s mature enough to decorrelate.