Bitcoin has had an explosive breakout year as a maturing financial asset,. The cryptocurrency is finally being considered by institutional investors for the first time, during a year that will go down in history for unprecedented money printing. 

The asset’s hardcoded digital scarcity is a primary driver of its boom and bust cycles, and in the year following each block reward halving, magic happens. With the new year right around the corner, here’s a look back at past crypto market cycles for a glimpse at what to expect from Bitcoin in 2021.

Looking Back At Historical Bitcoin Market Cycles

All markets are cyclical and go through distinct phases of bear and bull trends. These cycles can take place over the course of decades, or a handful of years. In crypto, cycles often move faster than traditional assets due to the always-on, 24/7 market.

But because Bitcoin is just over a decade old, there are only a couple of boom and bust cycles at which to glean any useable data. In technical terms, when Bitcoin breaks its former all-time high, the new bull market is on.

Fundamentally, this occurs every four years following the asset’s block reward halving. This built-in mechanism slashes the supply of BTC in half at a time when demand is beginning to resume.

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The combined effect of suddenly diminished supply and growing demand throws buying and selling equilibrium so out of balance that price appreciates exponentially.

2020 has acted as the ideal example of the impact each halving can have on the market. Bitcoin went from “a fad” to full-blown FOMO in less than nine months, all because supply and demand is so favorable to positive ROI.

And while 2020 was definitely a breakout year for a bullish Bitcoin, it is next year that will make a new wave of Bitcoin billionaires.

Halving years are marked in blue. In the year following, the cryptocurrency goes full parabolic | Source: BLX on TradingView.com

Move Over 2020, Why 2021 Will Be The Cryptocurrency’s Best Year Yet

Glancing at the chart above and it’s shocking to see just how high Bitcoin has climbed in twelve years. During the twelve years of trading, the cryptocurrency has had three distinct halvings, cutting the reward miners receive from 50 to 25 BTC, then from 25 to 12.5 BTC, to the current 6.25 BTC.

Each time this happens, demand begins to so drastically outweigh the limited supply, the asset goes parabolic and rises exponentially.

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In the two post-halving years on record, the first resulted in well over 6,000% ROI and the second just under 2,000% ROI. What could 2021 bring crypto investors?

Another 2,000-6,000% return isn’t likely simply due to the law of diminishing returns, however, even a 400% increase from current levels would result in a price of $125,000 per BTC.

Featured image from Deposit Photos, Charts from TradingView.com

A downside correction in the Bitcoin market at the beginning of this week may prepare a fresh run-up towards $30,000, says Teddy Cleps.

The independent market analyst tweeted a technically bullish set up on Monday, projecting the Bitcoin price in a trend continuation pattern. In the chart, traders can observe the cryptocurrency consolidating inside a Triangle-like structure following its parabolic upside move above $28,000 on Sunday.

Bitcoin bull run setup, as presented by Teddy Cleps. Source: BTCUSD on TradingView.com

It appears like a potential Bullish Pennant, which could technically send the Bitcoin price higher by as much as the rally that preceded its formation — aka “flagpole.” It is around $3,652 long, as measured by Bitcoinist. Therefore, the bitcoin price has a great potential of hitting $30,000 should it break the Pennant to the upside from its apex.

“The rejection from $28,000 was just telling us where the next triangle started,” said Mr. Cleps. “Let it consolidate, let it reach an apex, let it break out, and then show us the way to $30,000.”

Fundamentals

The bullish analogy surfaced as Bitcoin achieves one record high after another. The cryptocurrency reached a new one of $28,387 on Sunday as traditional markets remained close for the Christmas holiday. Meanwhile, the aggregated open interest of Bitcoin Futures hit another record level of $8.9 billion, further reflecting the market’s enthusiasm.

Bitcoin Futures aggregated open interest across all exchanges. Source: Skew

Robbie Liu, a researcher at OKEx cryptocurrency exchange, noted that Bitcoin expects to sustain its profits on booming institutional adoption. Typically, the leading crypto corrects lower after a rally as traders’ focus shifts on its rivals, causing a so-called “altcoin rally,” which is no longer the case.

Mr. Liu referred to Donald Trump’s decision to sign a bill that would pave the way for a $900 billion stimulus package to reach millions of Americans. Coupled with the Federal Reserve’s dovish policies, it would increase further downside pressure on the US dollar. The greenback is already down by more than 12 percent YTD.

“The three major U.S. stock indexes rose for the second day in a row before the Christmas holiday,” said Mr. Liu. “Meanwhile, stock index futures saw gains today after President Trump signed a new $900 billion stimulus package, and we can expect some of that sentiment to boost Bitcoin.”

Warnings for Bitcoin Bulls

As the bullish euphoria sustains, some analysts have also suggested traders prepare for a short-term downside correction — that could invalidate the Bullish Pennant setup above.

Mark Principato, the executive director at Green Bridge Investing, stated that Bitcoin’s current upside moves “are a sign of speculative froth and the herd mentality.” The analyst stated that the cryptocurrency could still fall towards $23,000, where traders can consider opening a long position.

“Please understand, when the market looks its best, that is often the WORST time to enter,” he explained. “Avoid the hype and all of the “logic” and reasoning as to WHY this move is taking place. It will not enforce good habits in the long run.”

Bitcoin price reached more than $28,000 over the holiday weekend, giving investors extra to celebrate as the bizarre year of 2020 comes to a close. 

Analysts are mixed — some warn Bitcoin has topped out based on technicals while others look to fundamentals and other factors unique to this cycle such as the emergence of institutional buyers to support continuation. But there’s yet another overlooked factor that one investor and crypto startup founder claims could be a real game-changer during this bull run, that wasn’t around during the last. 

How Crypto Collateral Loans Make This Cycle Special

If you take the current Bitcoin market cycle from top to bottom and layer it over the last (pictured below), it’s clear the first-ever cryptocurrency is trending far stronger than the previous example. 

The last bear market into the raging bull that was 2017, currently stands as the best historical example of what to expect this time around. And by all standards, Bitcoin is beating almost all expectations. 

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According to Dutch investor and entrepreneur Marc van der Chijs, “one reason” things are different this time around, is due to Bitcoin collateral-based loans. Rather than cashing out crypto holdings to pay bills, taxes, or to cover emergency situations, holders can get cash in exchange for putting some BTC up for collateral. 

By taking that selling pressure out of the market, there’s more likelihood of price rising exponentially, and could be a “game-changer.”

Bitcoin’s bull run is way ahead of the last cycle already | Source: BTCUSD on TradingView.com

Other Unique Factors Behind This Bitcoin Bull Run

But that’s just “one reason” this time is “different.” And although that is something investors are warned of foolishly thinking, the evidence does suggest things are shaping up in a unique way this time around. 

Institutions buying at any price, while fiat money is inflated beyond recognition. Markets have gone haywire, and the world is realizing what is to come, and Bitcoin could protect against that. 

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This time around, Bitcoin also appears to have little competition from altcoins that stole at least some of the capital coming in last time around.  

Finally, each cycle is fundamentally different due to the lessening supply that comes following each block reward halving. With less BTC supply and the greatest demand ever, far beyond collateral loans are there enough reasons to believe that this bull run will be the most significant yet for the cryptocurrency. 

Featured image from Deposit Photos, Charts from TradingView.com