Wall Street giant Morgan Stanley believes that crypto winter is over, and Bitcoin’s next halving will kick off a new bull run as it has in the past.
In a recent report titled “Will Crypto Spring Ever Come?” the bank’s wealth management division delved into the four-year cryptocurrency cycle and the significance of Bitcoin’s halving events on market cycles in shaping the crypto landscape.
Morgan Stanley analyst Denny Galindo — author of the report — wrote: “Signs indicate that ‘crypto winter’ — bitcoin’s cyclical bear-market decline — may be in the past.”
The Four Seasons of Crypto
Galindobegan by drawing a parallel between the four-year cryptocurrency cycle and the year’s four seasons. He detailed the four distinct phases of the cryptocurrency cycle, with each phase bearing a resemblance to a season:
According to the report, the summer phase commences with the highly anticipated halving event, where the rate of new Bitcoin creation is slashed in half.
Historically, this phase has been marked by substantial price increases in Bitcoin, as scarcity drives demand. It typically culminates when Bitcoin surpasses its previous all-time high, sparking euphoria in the market.
After reaching a new high, Bitcoin garners media attention, attracts new investors, and piques the interest of businesses. This phase is reminiscent of summer, turning into fall as the crypto market basks in the warmth of renewed interest. It spans the period between surpassing the old high and establishing a new peak, marking the climax of the bull market.
Post-peak, the market enters a bearish phase, similar to the onset of winter. The market cools down as investors lock in profits and divest from Bitcoin.
This phase has historically persisted for around 13 months, with prices experiencing significant declines from their highs. It is a time of consolidation, correction, and introspection for the crypto community.
Preceding each halving event, Bitcoin’s price generally rebounds from its lowest point. However, investor enthusiasm tends to remain relatively subdued, much like the cautious optimism of early spring.
This is the period when the crypto market finds its footing again, preparing for the next halving event and the subsequent bull run. Galindo highlighted that there have been three crypto winters since 2011, each spanning roughly 13 months. He also noted that Bitcoin’s halving event plays a significant role in driving the value of the flagship crypto.
According to Galindo: “Historically, most of Bitcoin’s gains come directly after a ‘halving’ event that occurs every four years.”
This observation lends credence to the notion that a crypto spring may be on the horizon.
Signs of Spring
The report said there are several key factors to consider in determining whether crypto spring has arrived. Historical patterns reveal that the trough of Bitcoin in previous crypto winters typically surfaces about 12 to 14 months after the peak, offering a timeline for market cycles.
Another crucial factor is gauging the decline in Bitcoin’s value from its all-time high. Bitcoin prices have plummeted by approximately 83% from their previous highs in past crypto winters.
Miner capitulation is also a noteworthy indicator, as many miners cease operations due to financial losses when Bitcoin approaches the trough of past cycles. Miner behaviour is monitored through “bitcoin difficulty,” a metric gauging mining ease. Decreasing difficulty signifies proximity to the trough.
The “Bitcoin Price-to-Thermocap Multiple” is another critical metric. “Thermocap” measures the total investment in Bitcoin since its inception. A lower price-to-thermocap ratio indicates a trough, while a higher ratio suggests a peak in the market’s trajectory.
The report added that price action can also signify the end or beginning of a new cycle. A substantial 50% increase in Bitcoin’s price from its lowest point typically indicates a trough.
However, there have been instances where significant price declines followed such gains.