Bitcoin’s 4-year Cycle Is Broken, And This Time, Data Proves It

Data shows that BTC’s “average annual returns have gradually declined, with no peaks at all in the last cycle, confirming the hypothesis that Bitcoin's risk/return structure has changed.”

The phenomenon of financial bubbles is hotly debated among industry operators, and there are several academic papers on the subject, starting with Professor Didier Sornette’s 2014 study of financial bubbles.

In fact, the paper defines a “bubble” as a period of unsustainable growth with prices rising faster and faster, i.e., growing more than exponentially. Obviously, bubbles by definition are destined to burst and bring prices back to their starting value or worse.

In the recent past, Bitcoin (BTC) has experienced periods of more than exponential growth, followed by very sharp declines, called “crypto winter,” a period when no one talked about Bitcoin and other assets anymore, meaning there was a freeze around the sector, and prices collapsed. Previous declines following the Bitcoin price bubble were -91%, -82%, -81%, and -75% in the last crypto winter.

So far, the price trend of Bitcoin has followed a distinct cycle marked by halving every 210,000 blocks, equal to about four years, which has rhythmically determined periods of decline, recovery and then exponential growth.

In 2011, together with Professor Ruggero Bertelli, Diaman Partners published a paper on a deterministic statistical indicator called the Diaman Ratio. This indicator creates a linear regression between prices on a logarithmic scale (as shown above for the price of Bitcoin) and time.

Without going into detail about this indicator, which is actually very useful for those who use quantitative tools to make investment decisions, the purpose of this first part of the analysis is to verify how much and how Bitcoin has entered a bubble in the past.

To do this, if DR < 0, it means that the price is falling; if DR < 1, it means that growth is sustainable; if DR = 1, it means that growth is exponential; if DR > 1, it means that growth is more than exponential, which corresponds to Sornette’s definition of bubbles.

Diaman Partners took the daily historical series of Bitcoin, calculated the one-year DR, and checked when it was greater than 1.

The graph clearly shows that in previous cycles there were periods of more than exponential growth, while in the recent cycle, apart from an attempt when ETFs were approved in the United States and the price of Bitcoin exceeded the 2021 high before the 2024 halving, a

Source: CoinTelegraph