In his blog post published on 26 October 2023, Lucas Outumuro, Head of Research at crypto analytics firm IntoTheBlock (ITB), investigates whether Bitcoin is entering another cycle, given its strong performance this year. He focuses on supply and demand dynamics, using historical patterns and on-chain data for his analysis.

IntoTheBlock recently introduced a new section called “Perspectives,” which offers in-depth dashboards on various crypto topics. This includes Bitcoin cycles and stablecoin adoption, among others.

Lucas explains that Bitcoin cycles involve periods of price expansion and contraction, typically following a four-year pattern. He attributes the “halving” events, where Bitcoin’s issuance to miners drops by 50% every four years, as a significant driver behind these cycles.

Bitcoin’s issuance schedule is predetermined. The rewards for Bitcoin miners have been decreasing over the years and are set to go down to 3.125 BTC in 2024. This reduction in issuance effectively lowers Bitcoin’s inflation rate. With diminishing rewards, the selling pressure from miners also decreases.

Apart from the “halving,” Lucas points out that long-term investors or “hodlers” have been significant contributors to Bitcoin’s price stability and growth. These investors tend to accumulate Bitcoin during bear markets and sell during bull markets. The entry of traditional finance institutions into the Bitcoin market is also seen as a positive demand-side catalyst.

Lucas discusses the MVRV ratio, which shows the aggregate profitability of Bitcoin holders. This ratio has historically helped signal Bitcoin cycles. When the MVRV ratio drops below 100%, it indicates that Bitcoin is priced lower than its average purchasing price, representing a buying opportunity.

Lucas concludes that on-chain indicators suggest that Bitcoin is likely in the early stages of a bull market. He notes that while past patterns don’t guarantee future returns, the alignment of positive supply and demand factors increases the likelihood of another Bitcoin cycle.