The current bull market is a sight to behold as Bitcoin marches past $50,000. It’s a tough pill to swallow for Bitcoin detractors claiming this is tulip mania 2.0 and that it will end badly for everyone who invested.
However, if you purchased Bitcoin at any point in this bull cycle, you also have to wonder when will it end? Bitcoin can’t go up forever, and eventually, the bull market will lose its steam and give back some of the historic gains.
It’s easy to love Bitcoin and Ethereum while they are going up. However, it’s tough to watch your portfolio or treasury lose 30% – 40% of its value overnight. In that situation, you become powerless and emotional, watching assets vaporize into thin air. Hoping with the rest of the crowd, the pain won’t last long… but returning to highs can often take years.
While institutional inflows continue to raise the price floor for Bitcoin, digital assets volatility is still very real. As recently as 2020, we saw a 70% pullback from highs, and the drop in 2017 was over 80% and took 3 years to recover. This bull market isn’t over yet, but when could it start losing momentum?
We are 40,000 blocks into a 210,000 block cycle.
The first 70,000 blocks are typically the bull cycles.
This equates to roughly 57% of the way through this bull market.
Any major bullish news could extend it slightly.
— Two Prime Digital Assets (@two_prime) February 18, 2021
How much time do we have left on the current bull-cycle?
Every Bitcoin halving cycle requires 210,000 blocks to be mined and takes roughly 4 years to complete. Historically, each halving cycle’s first 70,000 blocks represent the bull run’s strongest period, accounting for a logarithmic move higher.
We are currently at 40,000 blocks, but there isn’t any clear indication of a slowdown, especially with all the positive Bitcoin corporate treasury news.
If we’re 40,000 blocks into a 70,000 block cycle, that means we’re 57% of the way through.
It equates to roughly 16 months post halving, to which the bear market usually begins. The last halving was nine months ago, so we have seven more months in the current cycle. At Two Prime, we estimate that most of this bull cycle is completed in the first half of 2022. At this point, we would expect considerable volatility to return to the market.
Of course, this is not an exact science. We could easily overshoot the 70,000 block target if companies like Apple or Oracle add Bitcoin to their balance sheet or governments decide to add it to their treasury reserves. We could also undershoot it if corporations stop buying and governments decide it’s too late in the cycle to start buying.
There are many data points to consider when assessing how long this bull market will last, and no one knows the answer, but we can come up with a rough idea of when. According to Bitcoin Stock-to-Flow, we’re still on schedule for a $100,000+ Bitcoin.
Understanding the Bull Market of 2017
Retail traders and the ICO boom fueled the 2017 Bitcoin bull market. ICOs were arguably the killer application of blockchain technology at the time, but nothing fully functioned yet. In other words, there were a lot of promises but not much follow-through.
Raising millions in minutes through an ICO is an excellent concept if those teams eventually follow through, but most of them did not. While the ICO boom was birthed out of the Ethereum blockchain, Ethereum was more talk than action and was only 2 – years old in 2017.
Crypto influencers mentioned institutional investors were coming, but we didn’t see a lot of that either. Coinbase was also the primary onramp into Bitcoin, Ethereum, and other coins, while Binance was in its infancy.
Why it might be different this time – Factors positively impacting this Bull Cycle.
In retrospect, it was inevitable
— Elon Musk (@elonmusk) January 29, 2021
This bull cycle is much different and is fueled primarily by institutional investors and corporations adding Bitcoin to their balance sheets. While most expected that institutional investors would eventually adopt Bitcoin, no one could predict that a company like Tesla would add $1.5B to their treasury reserves.
Tesla bought in around $42,000 Bitcoin, which arguably could create a massive floor whenever the next bear market begins. Tesla didn’t buy $1.5B to sell anytime soon.
Additionally, while there was quantitative easing during previous Bitcoin bull markets, there has never been anything entirely on this level. Covid19 accelerated the adoption of everything digitally, and the world’s governments were forced to respond with money printing as economies were locked down to stop the spread.
While people were hunkering down at home, they were suddenly forced to onboard themselves into the digital world. Now people who avoided using digital tools had no choice but to give them at least a try.
Lots of new people bought Bitcoin and Ethereum while sitting at home waiting for lockdowns to end. They also had a lot of time to read up on and buy into Bitcoin as a reserve currency thesis.
More Efficient Money
The world’s economy will be rebuilt digitally, and digital infrastructure needs digital assets to run more efficiently. The immediate solution to that problem is digital assets like Bitcoin and Ethereum.
Fiat currencies are clunky by nature, and even the governments across the globe understand this. The United States is exploring creating a digital dollar while China already has one.
Bitcoin is 12 – years old, which is a lifetime in the tech industry. Any central bank digital currency will undoubtedly pale in comparison and will take a lot of time to improve effectiveness and efficiency.
There is also no guarantee that people will opt in to a central bank’s digital currency.
How to Prepare for the Upcoming Bear Market
#Bitcoin never sleeps, pal.
— Michael Saylor (@michael_saylor) February 17, 2021
If the current bull market will end in roughly 7 – 12 months, it’s essential to have a risk-managed investing plan for when the pullback begins.
One day the bullish news will end, and traders and investors will sell. Thanks to Michael Saylor and Elon Musk, there are massive floors to prevent an 80% drawdown that has happened in previous bear markets.
However, there is no guarantee that Bitcoin won’t dip below where Tesla bought at $42,000. Additionally, because there are more on-ramps for retail to buy Bitcoin and Ethereum, there are also way more off-ramps.
Two Prime exists because we understand Bitcoin volatility and use it to protect our client’s wealth by hedging risk.
We target 80% – 90% beta on the upside while protecting against large secular drawdowns exceeding 50% from peak to trough.
If you have been considering an investment in cryptocurrency, or if you already have digital assets in your portfolio, Two Prime offers risk-managed solutions to deliver long-term wealth preservation and growth for family offices, corporate treasuries, and high net worth individuals.
This article is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. There is not enough information contained in this document to make an investment decision.