Why Bitcoin’s Price Continues to fall? The Halving Cycle is the Answer
Bitcoin (BTC) tumbled below the $30,000 psychological number and lost over 38% of its value since the start of the year. The cryptocurrency market cap also shrank to $545 billion – the lowest level since December 2020. To make sense of the current BTC price drop, we must look at the bigger picture.
Halving Cycle Model
Based on the halving model, Bitcoin seems on track to test the $20,000 support in the long term. The $20,000 level is right near the key, the 50-month simple moving average (SMA), which can be used to track the 4-year halving cycle.
The Bitcoin halving occurs every 210,000 blocks, which typically is every four years same as the presidential elections.
Bitcoin's 4-year halving cycle goes like this: a rally to a new all-time high followed by a pullback.
The previous pullbacks sent Bitcoin's price towards the 50-month SMA. Naturally, the close below the 12-month Simple Moving Average (SMA) triggered the sell-off.
At the time of writing, the 50-month SMA comes around the $21,000 level, so we can expect the price to retest this level to complete the 4-year halving model.
What is the Bitcoin Halving Cycle?
Bitcoin's price has a strong correlation to its supply. This is because Bitcoin is governed by a fixed monetary policy that has been coded into its protocol. The monetary policy ensures that only 21 million bitcoins will ever come into existence.
The same way the U.S. Federal Reserve (FED) issues USD, the Bitcoin protocol issues bitcoins. The U.S. Federal Reserve automatically issues the USD, whereas Bitcoin issues bitcoins via mining.
In mining, miners compete with each other in a race to verify blocks and get rewarded with 12.5 bitcoins that are created out of thin air.
The monetary policy controls the issuance of new Bitcoins. The Bitcoin protocol halves the supply every four years. The halving occurs every 210,000 blocks, which is roughly every four years.
Bitcoin Halving history
The first halving occurred in November 2012. Since then, Bitcoin has gone through two more halvings. At the time of the third halving in May 2020, Bitcoin had a market cap of $150 billion.
After the third halving, Bitcoin's price has hit a new all-time high of $68,000 and had a market cap of over $1.2 trillion.
Looking Ahead
Based on the previous cycles, the bottom around the 50-months SMA takes anywhere between 6 months and up to 8 months to complete following the break below the 12 SMA. Therefore, we should be hitting bottom soonish.
