According to Morgan Stanley (NYSE: MS), cryptocurrencies have gone from being media darlings for their meteoric rise in value to becoming subjects of scrutiny due to cases of financial losses, currency failures, and fraudulent schemes. As investors navigate this volatile terrain, insights from previous cryptocurrency trading cycles could serve as crucial navigation tools.
in a report (titled "Will Cryptocurrency Spring Ever Come?"), published by Morgan Stanley Wealth Management on October 17, MS notes that Bitcoin is the cornerstone of the cryptocurrency market and accounts for around 50% of the total capitalization of the digital asset market. One of its defining attributes is the "halving" mechanism, designed to create a limited supply to preserve Bitcoin's value. Every four years, the production rate of new bitcoins is halved, and this will continue until the maximum supply of 21 million bitcoins is reached.
MS discusses how this intentionally restricted supply of Bitcoin can impact its price by catalyzing bullish market trends. Since its introduction in 2011, Bitcoin has experienced three such bull cycles, each of which began between 12 and 18 months after a halving event.
According to MS analysis, the cryptocurrency market follows a four-year cycle, analogous to the four seasons:
- Summer: According to MS, the most significant growth in Bitcoin price typically occurs immediately after a halving event, and ceases when it reaches its previous high point.
- Autumn: When Bitcoin surpasses its previous peak, it attracts media attention and attracts new investors, says MS. This increased interest may push the price to new highs, ending the current bull market.
- Winter: MS notes that this phase begins when investors decide to liquidate their holdings, causing a market slowdown and deterring new investments. Historically, these periods have lasted about 13 months.
- Spring: This season is characterized by a recovery in prices from the market's lowest point, although MS mentions that investor enthusiasm usually remains muted during this period.
MS advises investors to consider several factors to identify whether โCrypto Springโ is really here or if the market is still going through a โCrypto Winterโ:
- Time since last peak: Historically, the lowest point in Bitcoin's value occurred between 12 and 14 months after the peak.
- Bitcoin Drawdown Magnitude: MS notes that the previous lows were approximately 83% below their respective highs.
- Mining Activities: Cessation of mining activities due to unprofitable operations could be a sign that the market is near its lowest point.
- Market indicators: MS also points to metrics like โbitcoin price-thermocap multipleโ and exchange viability as signals to watch out for.
According to MS, the next Bitcoin halving is expected to occur around April 2024, and current data indicates that we may be exiting โcrypto winterโ into a new โcrypto spring.โ However, they warn that there is still much that is unknown, since only three of these โspringsโ have been observed.
MS emphasizes that past performance should not be viewed as an indicator of future results. The cryptocurrency market faces various risks, including encryption failures, software failures, economic crises or coordinated government actions, which could disrupt expected trends.
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