Bitcoin Plunges 30% in a Month... Growing Fears Over 'Halving Cycle Theory' [News Seolcham]

The Halving That Regulates Bitcoin Circulation
Followed by Price Surges and Repeated Corrections
New Variables Emerge, Including Spot ETFs and DAT Firms

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After reaching a peak of $126,270 on the 5th of last month, the price of Bitcoin has plummeted by more than 30% over the past month, recording the lowest returns compared to other assets such as stocks, government bonds, and gold. While the overall risk appetite has diminished due to reduced expectations for a U.S. benchmark interest rate cut, some analysts point out that the particularly severe losses in the cryptocurrency market are due to Bitcoin’s unique supply adjustment mechanism known as the halving cycle. Applying the halving cycle theory, it can be interpreted that Bitcoin has entered a bear market after ending its recent bull run following last year's halving event.

The Halving That Controls Bitcoin Supply Will Shape Future Prices

Out of the total issuance cap of 21 million Bitcoins, approximately 19.95 million have already been mined, leaving only 1.05 million coins available for future mining. To incentivize mining, Bitcoin rewards miners with new coins, but to maintain scarcity, the mining reward is halved roughly every four years through an event called the halving. This halving, embedded in the blockchain’s design, will continue until the mid-2100s and will be repeated until the total issuance cap of 21 million is reached.

Because Bitcoin’s price has surged for 12 to 18 months every time a halving occurs-roughly every four years-before peaking and then declining, the term "four-year cycle theory" has emerged. In fact, during the first halving in 2012, Bitcoin’s price soared 91-fold from $12 to $1,100. At the second halving in 2016, it jumped from $658 to $19,000, and at the third halving in 2020, it surged from $8,572 to $69,000. After each halving rally, a correction of about 50% to 75% has always followed.

A More Complex Cryptocurrency Market: "Monetary Supply Matters More"

Bitcoin underwent its fourth halving in April last year, and from that point until last month, its price doubled. This period also lasted 18 months, matching the longest bull run after a previous halving. In other words, according to the halving cycle theory, Bitcoin is now entering a correction phase that could see a drop of up to 50% to 75%.

Of course, some experts are skeptical of the halving cycle theory. They argue that Bitcoin’s price fluctuations around the halving events are merely coincidental. Arthur Hayes, co-founder of the cryptocurrency exchange BitMEX and Chief Investment Officer at Maelstrom Fund, said last month, "Bitcoin’s price is driven by the monetary policies of major countries. The halving cycle theory emerged simply because periods of monetary expansion happened to coincide with past halving events," adding, "In reality, Bitcoin’s price surged when monetary supply increased in the United States and China, and plunged when it contracted."

Jerome Powell, Chairman of the United States Federal Reserve (Fed). Photo by Reuters Yonhap News

He added, "President Donald Trump is pressuring the Federal Reserve to increase monetary supply to stimulate the economy, and China is printing money to prevent deflation," predicting, "Bitcoin’s price will rise on expectations of such policies."

The market has also become more complex. A prime example is the approval of a Bitcoin spot exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) in January last year. As a result of the Bitcoin ETF, retail investors and pension funds have started flowing into Bitcoin. In addition, "Digital Asset Treasury (DAT)" companies such as MicroStrategy have emerged, which directly accumulate and manage cryptocurrencies for profit.

Micha?l van de Poppe, a cryptocurrency analyst, noted in a market analysis earlier this month, "Over the past 18 months, 60,000 Bitcoins have been purchased through ETFs, and institutional investors are generating steady demand," adding, "It is premature to say the halving cycle theory has completely disappeared, but the dynamics of Bitcoin’s supply and demand have already been fundamentally transformed."