From Price Explosions to Mechanism Cycles: Understanding the Essence of Bitcoin Market Cycles

Since its inception in 2009, Bitcoin has witnessed multiple cycles of cryptocurrency bull runs and bear markets. These cycles are not random but driven by specific mechanisms. Understanding these driving forces is crucial for investors to grasp market rhythm.

The Three Main Engines Behind Bitcoin Price Surge

Each Bitcoin bull market does not appear out of nowhere. In-depth analysis reveals that three main factors drive cycle changes:

Halving Mechanism and Supply Tightening

The core design of Bitcoin is a fixed supply—21 million coins. A halving event occurs every four years, reducing mining rewards accordingly. This mechanism has repeatedly triggered cryptocurrency bull runs in history:

• After 2012 halving: Bitcoin rose by 5200%
• After 2016 halving: Increase of 315%
• After 2020 halving: Increase of about 230%

Halving limits new coin supply, creating scarcity. When supply is constrained and demand remains stable or grows, prices inevitably rise. This is a fundamental economic law, and Bitcoin’s code has programmed it as a permanent feature.

Inflow of Institutional Funds and Cognitive Upgrades

Early Bitcoin was seen as a tech geek’s experiment. But starting from 2020-2021, the situation changed fundamentally. Public companies like MicroStrategy and Tesla began holding Bitcoin on their balance sheets. By 2021, corporate institutional holdings exceeded 125,000 coins.

More critically, the event in 2024—the SEC approval of a spot Bitcoin ETF—signifies a turning point: it transforms Bitcoin from a “cryptocurrency asset” into a “traditional financial product.” As of November 2024, Bitcoin ETF inflows surpassed $4.5 billion, attracting conservative investors who previously found it difficult to access such assets.

Asset management giants like Blackstone and BlackRock hold over 467,000 Bitcoin through IBIT funds, creating a positive feedback loop: institutional participation → increased liquidity → rising prices → more institutional attention.

Resonance of Policy and Macro Environment

During the Cyprus banking crisis in 2013, investors first viewed Bitcoin as a “safe haven asset.” The ICO boom in 2017 attracted retail frenzy. The ultra-loose monetary policies and inflation concerns of 2020-2021 resonated with the narrative of Bitcoin as “digital gold.”

After the 2024 US election, the new government’s pro-crypto signals reinforced this trend. Legislators proposed to stockpile 1 million Bitcoin as strategic reserves, and countries like Bhutan and El Salvador have already incorporated Bitcoin into their national treasuries. This marks a qualitative shift in perception—Bitcoin evolving from an “experimental asset” to a “national-level asset.”

Historical Review: The Evolution Logic of Four Bull Markets

2013: From Obscurity to Fame

Bitcoin’s first major surge occurred in 2013. Price skyrocketed from $145 in May to $1,200 in December, a 730% increase.

The driving force behind this cycle was relatively simple: media attention surged dramatically. The Cyprus banking crisis and deposit freezes prompted a reevaluation of decentralized assets’ value. Tech communities and early believers began spreading Bitcoin’s理念 to mainstream audiences.

However, early 2014, the Mt. Gox exchange hack created the first trust crisis. At that time, about 70% of Bitcoin trading was through this exchange, and its collapse caused Bitcoin to fall below $300, a 75% drop. This disaster underscored the importance of infrastructure development.

Key Data Comparison:

• May-December 2013: $145 → $1,200 (+730%)
• 2014 high point decline: over 80%

2017: Retail Frenzy and Policy Clash

The 2017 Bitcoin bull market far exceeded that of 2013. Prices rose from $1,000 at the start of the year to nearly $20,000 by year-end, a 1900% increase.

This period’s unique background was the ICO craze. Hundreds of new projects raised funds via token crowdfunding, attracting大量散户参与. These new investors often also held Bitcoin as a “base asset.” Exchanges proliferated, with daily trading volume rising from less than $200 million at the start of the year to over $15 billion by year-end.

However, early 2018, tighter regulation shattered this scene. China banned ICOs and domestic exchanges; the US SEC increased scrutiny. Bitcoin eventually dropped to $3,200 in December 2018, an 84% decline from the 2017 high.

This cycle revealed an important rule: Retail-driven bull markets are highly susceptible to policy suppression due to lack of fundamental support.

Key Data Comparison:

• January-December 2017: $1,000 → $20,000 (+1,900%)
• 2017 daily trading volume: from $200 million to $15 billion
• 2018 decline: -84%

2020-2021: The Era of Institutions

The bull market of 2020-2021 was qualitatively far superior to the previous two. Bitcoin rose from $8,000 at the start of 2020 to $64,000 in April 2021, a 700% increase. More importantly, this rally was backed by institutional-level participants.

MicroStrategy CEO Michael Saylor announced corporate Bitcoin holdings, setting a示范效应. Companies like Square and Tesla followed suit. Pension funds and insurance funds also began evaluating Bitcoin exposure.

The narrative shifted from “speculation” to “hedging”—in an environment of central bank liquidity and negative real interest rates, Bitcoin’s value as a “non-correlated asset” and inflation hedge was re-evaluated.

On-chain data also confirms this: by the end of 2021, the total number of Bitcoin addresses exceeded 55 million, with institutional holdings reaching a record high.

Key Data Comparison:

• Early 2020 - April 2021: $8,000 → $64,000 (+700%)
• Institutional inflow: over $10 billion
• Subsequent correction: July 2021, dropped to $30,000 (-53%)

2024-2025: The New Pattern of ETF Era

The current bull market (2024-2025) exhibits unprecedented features. Bitcoin rose from $40,000 at the start of the year to $93,000 in November, a 132% increase.

The core driver is the approval of spot ETFs. After approval in January, capital flooded in. By November, cumulative ETF inflows reached $4.5 billion, surpassing the speed of institutional recognition in any single asset class in history.

Another force comes from the April halving—the fourth halving. The scarcity story of Bitcoin supply is emphasized again. Meanwhile, market expectations that the US will recognize Bitcoin as strategic reserves are heating up—though not yet officially approved, political signals alone are enough to stimulate prices.

Real-time Market Data (December 2024):

• Current price: $88,630
• 24-hour change: +1.33%
• 7-day change: +0.96%
• All-time high(ATH): $126,080
• 24-hour trading volume: $869.3 million
• Circulating market cap: $1.7696 trillion
• Market sentiment: Bullish/Bearish at 50% each (market in balance)

Practical Methods to Identify Bull Market Signals

Investors aiming to grasp cryptocurrency bull runs need to learn how to identify market turning points. This requires not only technical analysis but also a comprehensive judgment of on-chain data and macro background.

Technical Indicators

The Relative Strength Index (RSI) is the most intuitive momentum indicator. When RSI breaks above 70, it usually signals a strong upward trend. In the 2024 rally, Bitcoin’s RSI repeatedly operated in this zone.

The crossover of the 50-day and 200-day moving averages (golden cross) often marks a mid-term trend reversal. When the short-term moving average crosses above the long-term, buying momentum begins to dominate. In early 2024, Bitcoin’s price completed such a golden cross.

On-Chain Data

Exchange outflows are key to judging market sentiment. When investors withdraw coins from exchanges to self-custody wallets, it generally indicates bullish sentiment—they are preparing for long-term holding. Throughout 2024, Bitcoin net outflows from exchanges exceeded 400,000 coins, setting a record.

Stablecoin inflows are also important signals. When investors convert fiat into stablecoins and deposit them into exchanges, it indicates readiness to increase positions. In the second half of 2024, stablecoin inflows accelerated.

Macro Environment

Regulatory recognition is decisive. The approval of spot ETFs in 2024 ushered in a new era. Similarly, future policy breakthroughs recognizing Bitcoin as strategic reserves could trigger the next bull run.

Potential Catalysts for the Next Bull Market

Expansion of National Reserves

Currently, only a few countries have incorporated Bitcoin into official reserves. Bhutan, through Druk Holding & Investments, has accumulated over 13,000 BTC; El Salvador holds about 5,875 BTC. If the US passes the “Bitcoin Act” to stockpile 1 million BTC, it would create a demand increase of over $1.1 trillion—enough to fundamentally change the market landscape.

The chain reaction of such policy breakthroughs is formidable. Once major powers participate, competitive reserve demand will activate. Small countries, central banks, and sovereign funds will evaluate the strategic value of holding Bitcoin. This could push prices above $200,000.

Expansion of Bitcoin Network Capabilities

OP_CAT is a piece of code that was previously removed. If reactivated, it would enable Bitcoin to execute more complex contracts. What does this mean? The Bitcoin network could support second-layer solutions (Layer-2), processing thousands of transactions per second instead of the current 7.

Once this upgrade is implemented, Bitcoin will no longer be just “digital gold” but also a foundation for DeFi applications. This will attract some users and capital flows from the Ethereum ecosystem into Bitcoin.

Deep Participation of Enterprises and Pension Funds

Currently, only a small fraction of S&P 500 companies hold Bitcoin. If this proportion rises to 10%, an additional $300-500 billion inflow would be needed. If pension systems (globally about $55 trillion) allocate just 1% to Bitcoin, that would create a demand of $550 billion.

These are not fantasies but extensions of existing models.

Checklist to Prepare for the Next Bull Market

1. Knowledge Accumulation

Deeply understand Bitcoin’s technical fundamentals, economic models, and historical cycles. Do not be fooled by short-term price fluctuations; grasp the fundamental drivers behind each bull cycle.

2. Diversified Investment

Do not put all your funds into Bitcoin alone. Build a portfolio including Bitcoin, Ethereum, stablecoins, and traditional assets. This reduces risk from any single asset.

3. Choose Reliable Platforms

Select platforms with good security records, sufficient liquidity, and user-friendly interfaces for trading. Platform risk was fully demonstrated in the 2011 Mt. Gox collapse.

4. Use Hardware Wallets

For long-term holdings, use cold storage (hardware wallets) instead of exchange accounts. Self-custody is the only way to reduce counterparty risk.

5. Set Risk Management

Use stop-loss orders to limit potential losses. Discipline is more important than predictions in highly volatile markets.

6. Monitor Key Data

Regularly track:

• ETF inflows/outflows
• Whale holdings changes
• Miner selling pressure
• On-chain active addresses
• Exchange balances

These data can be viewed in real-time on on-chain analysis platforms.

7. Tax Planning

Tax treatment of crypto assets varies greatly across jurisdictions. Consult professionals in advance to arrange trading strategies reasonably.

8. Engage with the Community

Participate in Bitcoin discussion communities, but discern information quality. Focus on technical developers’ insights rather than traders’ emotions.

Conclusion: When Will the Next Opportunity Arrive

Bitcoin’s bull cycle is not determined by a single factor but by the combined effect of multiple conditions. Halving, policy support, institutional participation, and macro environment all play vital roles.

What stage is the current market in? Data at the end of 2024 shows Bitcoin still has about 26% room to reach its all-time high. The market sentiment index is neutral (50% bullish and 50% bearish), indicating most participants have not formed a strong consensus.

This is usually a sign of mild optimism. When the market shifts from a 50-50 balance to a one-sided bullish (above 70%), it’s often the riskiest moment. Conversely, the same applies when shifting to bearish.

The next cryptocurrency bull run is likely to be triggered by any of the following events:

• Passage of Bitcoin as strategic reserve policy
• Activation of OP_CAT upgrade
• Restart of global easing policies
• Surge in corporate allocation demand

Whatever the trigger, prepared investors will have a greater advantage than those rushing in. Bitcoin’s history teaches us that patience combined with knowledge often leads to profits amid volatility.