Explore the Law of Crypto Cycle
写于2022年12月。加密市场短期看美元，中期看减半，长期看应用。
中文版见：《深度探讨加密市场周期规律》https://zhuanlan.zhihu.com/p/575405080
This article is based on the author's independent research and analysis. It is only for reference and does not provide any investment proposal. The author assumes no responsibility for the reader's use of this document and any consequences arising therefrom.
At the time of writing, the crypto market is still in a bearish FUD under dollar austerity, but for HODLers who have gone through several rounds of bulls and bears, this may be a cherished trough opportunity. Although we cannot fully quantify the huge reshaping potential of blockchain technology and products for the future digital age, there's no doubt that the dividend of emerging areas such as Web3.0 and metaverse is about to be released.
From a higher dimension to examine the current crypto market, it is necessary to review its past development, and clarify the driving logic of market token and product evolution to better guide our investment. There have been countless achievements in the research of the crypto market cycle, so we will not talk about it lengthily, but try to express our views concisely.
Crypto cycle performance: Seasons in turn
Factors affecting the crypto cycle: Dollar, Halving, Application
The future of crypto cycle: When in doubt, zoom out
1、Crypto cycle performance: Seasons in turn
After more than ten years of rapid development, the field of crypto assets has gradually shifted from a niche market to a mainstream market, especially the bellwether BTC, currently the crypto asset with the highest value consensus, the largest market capitalization and the largest user scale. Now BTC's significant fluctuation cycle has become an important reference for long-term investors.
As for how to understand the cyclical rotation of the crypto market, most views in the market focus on the market value of crytpo assets. They presume that when the price of crypto assets represented by BTC and ETH continues to rise in time (generally by year) and space (generally at least 100%), the market has ushered in a bull market. On the contrary, when the price of the currency continues to decline in time (generally by year) and space (generally at least 50%), the market has ushered in a bear market
However, the cyclical observation of such explicit indicators is not very clear in terms of strategic orientation. In order to clarify the cyclical fluctuation law of the crypto market, we need to explain the following points in turn:
What obvious bull-bear fluctuation laws can be observed from the apparent price movement?
What factors affect the BTC price? How are these factor weights dynamically assigned?
Can the factors affecting the cryptocurrency price explain the actual fluctuation of the cryptocurrency price to some extent?
Let's first discuss the first problem. Since the bull-bear volatility law is summarized according to the technical analysis method of historical data, we naturally return to the beginning, that is, the bull-bear market in the crypto market that should be predefined.
Here we measure the bull-bear by the absolute price within a certain time period, and the time range should be based on the intuitive impression of the year or month. For example, BTC fell more than 20% on a certain day, which cannot be simply attributed to a bear market. Since it is a "market", it should frame a larger time frame, after all, there are also large rebounds in the bear market, and there are also big retreats in the bull market; Meanwhile, in terms of the understanding of space by "bull" and "bear", according to the past price trend law, within a given time frame, the price should rise by at least 300% and fall by more than 50% to count.
In short, when a certain degree of unity is achieved in time and space, it can be called a macro bull market or bear market.
Many people define bull-bear markets in other ways, such as through the amount of data active on the chain, the scale of investment and financing in the primary market, the technical indicators of coin prices (such as bulls on the line and bears on the line according to the 300-day moving average), the BTC basis rate, the size relationship between the BTC realized price and the market price (Grayscale uses this size relationship to define bulls and bears), the ratio of BTC stock to flow (PlanB's S2F model), etc. In fact, in the author's opinion, these bases have their own rationality, and there is also a certain synchronous fluctuation relationship with the rise and fall of the price, so we will define the bull-bear market in the crypto market with the most intuitive and simple price rise and fall. Since BTC's real liquidity trading on the secondary open market occurred after 2012, we cut its price trend from 2012 to the present and obtained the following results according to the above criteria for dividing bull-bear markets.
As shown in the figure, the first halving of BTC occurred on November 28, 2012, when the second phase of the bull market was in progress, and the starting time of this bull market is not delineated in the figure. From the perspective of macro trend, this bull market rose from October 2010 to November 2013 (about 3 years), and the BTC price rose from $2 to $1160. However, the decline of more than 80% occurred in less than a week, so strictly speaking, the starting point of this bull market should be the lowest point since April 2013. Because the BTC market was illiquid and volatile in early stage, there may be divergences between the starting points of the bull market here.
Following the bear market, from November 30, 2013 to January 14, 2015 (more than one year), BTC fell from $1160 to $150, a drop of 86%.
Then the bull market returned. From January 14, 2015 to December 17, 2017 (about 3 years), BTC soared from $150 to nearly $20000, up 129 times. The second halving of BTC occurred during the mid-term of this bull market, on July 9, 2016.
Then the bear market came again. From December 17, 2017 to December 15, 2018 (about one year), the BTC price fell from $19666 to $3122, a drop of 84%.
The latest bull market occurred from December 15, 2018 to November 10, 2021 (about 3 years), and the price rose from $3122 to $69000, an increase of 22 times. The third halving of BTC occurred during the mid-term of this bull market, on May 12, 2020. (This bull market was impressive. Many people said that "This time it's really different". Plan B, Root and other KOLs believed that the highest price of BTC appeared in November 2021, but April of that year was the top of the bull market. The author remains skeptical about this.)
As of the date of writing, BTC is in the bear market stage, that is, from November 10, 2021 to the present, less than a year later, the space has fallen from $69,000 to the current minimum of $17,600, a temporary decline of 74%.
Judging from the above bull and bear market history, it is not difficult for us to draw the following conclusions:
BTC currently runs in a logarithmic curve channel (see 2.2 of this article for details) , with cyclical (bull market for 3 years, bear market for 1 year) fluctuations alternately;
Most of the dates of the BTC bull-bear cycle are in Q4, especially in November and December;
The BTC price may hit a record high every bull market, but according to its exponential price model (such as the S2F model, etc.), its multiples of increase are marginally decreasing (there is no obvious regularity in the increase data), and the bear market decline will generally reach more than 70%;
The halving of BTC may occurr at the end of the initial period and the beginning of the middle period of the bull market.
Therefore, we assume that with reference to the data law of the historical BTC bull-bear cycle. It is clear that we can make a bold speculation about this bear market: this round of bear market may end in October 2022 to January 2023, and the lowest price may reach $10350-$13800 by 80%-85% decline, instead of spending $25 for bargin-hunting as Warren E.Buffett mocked.
Furthermore, we can thus fit out a macro bottom reading indicator. Since the bear market generally lasts for one year, assuming that the price falls below the low price of nearly 300-day, it indicates that the market has entered the phased bottom area, as shown in the figure below.
「Cycle prediction is not an alarm clock」. We can only derive a general interval description based on past historical experience, and mechanically refer to limited historical data to study and judge the future trend. It is a dangerous thing itself. So can we explore the factors behind the surface laws to explain this causal relationship? We will discuss the logical attribution and weight allocation of BTC bull-bear volatility in the next section.
2、Factors affecting the crypto cycle: Dollar, Halving, Application
The rise and fall of the cryptocurrency market is affected by many factors, but according to our research and analysis, we believe that the main influencing factors are monetary policy (mainly US dollar monetary policy), supply and demand relationship (mainly the 「halving」 of BTC and ETH), market technology innovation and public adoption (that is, market technology innovation, adoption and application).
The crypto market depends on the dollar in the short term, halving in the medium term, and adoption in the long term.
2.1 Short term - US dollar
It is an indisputable fact that the crypto market is significantly affected by macro monetary policy, and the US dollar is the world's largest universal reserve currency and also plays a large part of the practical anchoring role in the crypto field, so the monetary policy of the Federal Reserve (FED) has always affected the crypto market
FED has many tools to regulate the monetary policy of the US dollar, and the direct effect is to adjust the federal benchmark interest rate, that is, FED's rediscount rate on commercial banks. In fact, FED does not make specific provisions on bank interest rates, but the its interest rate is directly related to the bank's financing costs, which can indirectly affect the interest rate level of the U.S. banking industry, and thus affect the prices of U.S. stocks, U.S. bonds and other assets.
Since the 2008 global financial crisis, FED has generally shown a dovish stance of 「cutting interest rates fast, raising interest rates slowly」, and has focused on releasing signals to the market in advance to prompt the market to adjust in a timely manner as expected to reduce policy pressure. In recent years, their monetary policy goals have begun to take into account the stabilization of the equity and bond markets, and have not fully achieved the goals of reducing inflation (referring to inflation rate) and stabilizing employment (referring to the unemployment rate), but its impact on financial markets is still not to be underestimated.
The US dollar has occupied the global currency hegemony for 50 years. Whether as the target of BTC for anchoring and pricing, or as a huge competitor of BTC in fact, it has the largest say in the centralized reality scenario. Under the background of BTC's gradual popularization, the change of the US dollar's strength naturally has a direct transmission effect on BTC. This influence is generally reflected as follows：
1) The vast majority of cryptocurrencies are denominated in US dollars or its stablecoins (such as USDT, USDC), and the pricing relationship of this exchange rate is destined to cause the strength and weakness of the US dollar to be transmitted directly to the price of the cryptocurrency.
Generally speaking, when we assume that BTC's own price information remains unchanged, if the U.S. dollar performance is weak (such as interest rate cut, QE, etc.), the supply of U.S. dollars will be relatively increased, and depositors will withdraw U.S. dollars for other market investments, which will spill over to the crypto market. Then relatively speaking, BTC should become strong, at which point the price of BTC denominated in US dollars should rise, and vice versa.
2) BTC itself has become increasingly solid in its anti-inflation value consensus, and the closing and release expectations/results of the US dollar monetary policy will be directly reflected in the BTC price.
For the first time, BTC has achieved the inviolability of limited ownership of digital assets, and its consensus on value against fiat inflation has become increasingly solid. When the dollar index drops too low, people will be biased to buy BTC to hedge the risk of fiat currency depreciation, and vice versa (since the dollar index relies on a weighted basket of currencies, especially the euro, which is heavily influenced by different macroeconomic policies, so we use the dollar index here to represent global macro-monetary policy. This indicator also reflects other economic conditions, but does not affect our use of observation).
A significant case is that after March 12, 2020, FED implemented the unlimited QE policy in response to the epidemic, and a flood of M0 spilled into the crypto market, greatly pushing up the BTC price, which led to the continuous rise of the entire crypto market.
After 2021, FED began to adopt a series of monetary tightening policies, such as volume reduction, balance sheet reduction and interest rate increase, to cope with the inflationary recession, reaching the highest interest rate increase density since 1981. Undoubtedly, this led to a record high for the dollar index, and the price of BTC, the important anti inflation asset, has also fallen.
As shown in the figure above, we can see that in some periods, the dollar index (DXY) and BTC have a strong reverse relationship. For example, since June 2019, the performance of the US dollar as a global asset haven has gradually strengthened, while BTC has rebounded. Another example, at the end of 2020, US dollar has gradually weakened, while BTC has continued its upward trend.
However, in the medium and long term, this inverse relationship between DXY and BTC is not stable, and even shows a co-directional relationship in some periods, so we need to explore other influencing factors of longer periods.
2.2 Medium term - Halving
If the dollar monetary policy is an exogenous factor affecting the trend of BTC, then the halving deflation model under the supply and demand mechanism is an endogenous factor. As the market's demand for BTC and other assets continues to increase, and the output brought about by halving gradually decreases, it is naturally favorable in the medium term.
The halving mechanism of BTC is set as follows: the total amount of BTC is set to 21 million, about 10 minutes out of the block, the initial reward of 50 BTC per block, every 210,000 blocks generated will be performed once the block halving. According to the system settings, it is easy to calculate that a halving occurs every 4 years.
On November 28, 2012, BTC halved for the first time, which caused the reward from 50 to 25 every 10 minutes, and the price rose from $12 on the day of halving to the highest of $1160 in the bull market
On July 9, 2016, BTC halved for the second time, which caused the reward from 25 to 12.5 every 10 minutes, and the price rose from $650 on the day of halving to a maximum of $19666 in this bull market
On May 12, 2020, BTC will halve for the third time, which caused the reward from 12.5 to 6.25 every 10 minutes, and the price will rise from $8810 on the day of halving to a maximum of $69000 in this bull market
In May 2024 (estimated), BTC will halve for the fourth time, which will cause the reward from 6.25 to 3.125 every 10 minutes
The impact of the halving on investors is obvious. Investors who have experienced several rounds of bulls and bears have also agreed on the halving bullishness, but the most direct impact of the halving is on miners, not investors.
According to a study by CoinMetrics Team, the BTC halving will cause miners to suddenly change their breakeven costs, which in turn will lead miners and investors into such a cycle to eventually bring the market to a new state of supply and demand: profit margins fall – BTC sales increase – yield to the market – then weed the least efficient miners out of the network – mining returns to normal – BTC price continue to rise – mining competition intensifies – profit margins fall.
In essence, the halving represents a reduction in cryptocurrency inflation, and BTC's lower inflation rate and increased scarcity are very important bases to support its anti-devaluation, and it is also the result of Satoshi Nakamoto's solution to 「counter」 indefinite issuance of fiat currencies.
Similarly, the merge of ETH from POW to POS (Merage) can also mechanically reduce ETH circulation. It is estimated that after the completion of the merge, the annual issuance of ETH will be reduced from 4.3% to 0.4%, which is equivalent to three halving at a time, which will make ETH more scarce than BTC.
According to the analysis of the pricing principle of economics, the manifestation of the law of value is that commodity prices are affected by the supply and demand relationship and fluctuate around the value. Then, with the demand growth rate unchanged, if the supply growth rate declines and the supply cost (including the cost of mining equipment, electricity, etc.) rises, it will theoretically prompt BTC to fluctuate up and down around a higher value line.
In fact, the price change that BTC ultimately shows is much affected, but the consensus of halving the profit is becoming more and more solid, and it affects the trend of the medium-term currency price (in fact, the short-term price judgment is more difficult, and the price has not been particularly large in the days before and after the BTC halving).
Some people may ask a question: BTC halving and ETH merger is theoretically to reduce the supply to increase the value of the currency, this part of the premium cost not only forces miners, users to pay, but also to the entire ecosystem passed on to investors, then why do investors accept this「unequal transaction」?
This brings us to the third point we are discussing below, that is the crypto market depends on adpotion in the long run.
2.3 Long term - Adoption
The cycle change analysis based on the micro perspective is often difficult to form consistency. From the macro perspective, the prosperity of the crypto market stems from the prosperity of crypto technology and product use cases, which is consistent with the research framework of people analyzing NASDAQ technology stocks. We believe that the iteration of crypto technology and the innovation of use cases are the biggest driving force to increase Token value, which plays a role of interaction in the crypto world.
People often compare BTC and ETH to real products, calling them「digital gold」and「digital oil」. They do share certain similarities.
First of all, BTC and gold are both relatively scarce in total amount, can not be copied, stable in existence, and have a stable low supply rate. In particular, gold owns three functional characteristics of currency: exchange medium, accounting unit, and value storage.
In the evolution of BTC, the BTC community prefers payment and security in the blockchain impossible triangle, which also makes BTC much criticized in terms of performance expansion, but it also makes BTC performance more stable. In other words, on the road to the digital economy era of value media, the development and application of smart contracts is not BTC's goal. Maintaining sufficient decentralization and security makes the system stable and effective, which is determined by its path experience for more than a decade. In particular, many BTC fundamentalists uphold the principle that simplicity is the only way to be stable. After all, whether it is gold or fiat currency, maintaining its stability is the first priority.
We can get evidence from the increasing number of non-zero addresses of BTC, BTC network throughput, global user adoption rate and other data, which will not be repeated here.
If the value of BTC is based on hedging fiat inflation and increasing user adoption, then ETH undoubtedly depends on the rich smart contract ecosystem it has established.
According to incomplete statistics, as of May 2022, the number of smart contracts developed based on public chain platforms such as ETH, BSC, SOL exceeded 7.25K, the number of ecosystem applications reached 4073, and the number of daily active users reached 95.49K.
It can be said that BTC has brought people into the era of P2P barrier-free payment, while public chains such as ETH have started the wave of deploying decentralized network applications using smart contracts. Looking back on the historical trend of the crypto market, almost every cycle has bred new technologies and applications, leading to a bull market after the outbreak.
2013-2014
In 2013, the crypto market reached its first peak, during which a large number of developers and crypto startups such as ETH public chain infrastructure, crypto wallets, etc. flooded into the market.
2017-2018
At the end of 2015, ETH proposed ERC20 standard, which became the technical incentive for the bull market of lCO in 2017. In 2017, the issuance of smart contracts expanded the boundaries of blockchain technology, and blockchain came into people's view as the underlying technology. In this round, ETH's market value ranked second, laying the foundation and driving the valuation of other public chain sectors.
2020-2021
DeFi originated from the excess mortgage loan platform Compound released in 2018. Its innovative model of liquidity mining triggered the DeFi wave in 2020, from the most basic lending, trading to more complex synthetic assets, payments and insurance, and even led to the exponential growth of data on NFT and GameFi. At the same time, the value of ETH public chain overflowed, and the Layer1/Layer2 public chain infrastructure also rose for high performance and low cost.
2021 to now
In addition to the continuation of hot spots such as NFT and DAO, new public chains such as Sui, Aptos, Aleo, and Armonia have also been launched. The market is reconstructing the valuation logic of public chain upgrades (such as POW to POS) and new public chains.
In fact, it is very difficult to predict what technologies and products will drive each bull market. What can be traced is that although ETH is still the public chain with the largest value, the narrative and competition of the Layer1/Layer2 public chain infiltrates each round of cycle, and are constantly being built and optimized to carry a broader application value and imagination
For example, in a report in September 2022, Huabi Research interviewed more than 20 representative excellent global investment institutions, all of which were optimistic about crypto infrastructure projects, especially ZK (zero knowledge proof) and new public chain, in which they had paid strategic attention to the new public chain track.
Although the hot spots of each cycle may be different, each round of 「stress testing」 experienced by the crypto industry has made the entire ecosystem stronger. In particular, technological innovation and product brewing during the bear market have provided the most powerful springboard for the next market boom. If we look at it from this perspective, the public chains that will play an important role in the next round of Web3.0 may be Layer1 public chains that have adopted POS consensus, Aptos and Armonia.
The biggest feature of Aptos is that it adopts a new development language MOVE designed for smart contracts, and tries to achieve a modular technology stack, exploring new expansion directions on the way of monolithic chain expansion.
According to the whitepaper of Aptos, it provides improvement ideas in the following aspects.
Security: Aptos, combined with improved leader-based BFT consensus mechanisms, supports flexible key management capabilities that make key management solutions more transparent on-chain. Additional features such as trading replay protection, Move-based key management, and transparency of re-signed transactions enable a more secure user experience.
Performance: Achieve higher throughput and hardware efficiency through parallel, batch optimization and modular trading processing. The new Block-STM smart contract parallel execution engine enables developers to execute tasks to achieve optimistic concurrency control, collaborative scheduling, multi version data structures, etc.
Upgradability: Aptos modular architecture ensures the flexibility of the client and enables seamless upgrading without disturbing users. In addition, in order to rapidly deploy new technological innovations and support new Web3.0 use cases, Aptos blockchain provides an embedded on-chain change management protocol.
Another newly launched public chain, Armonia, has the same potential. The biggest feature of Armonia Meta Chain (AMC) is to achieve safe and efficient parallel processing through the mother-child multichain technology architecture and the original APOS consensus mechanism. At the same time, its low transaction costs provides huge potential for large-scale commercial operation of Web3.0 and metaverse.
AMC is an ecosystem public chain based on the multi-chain underlying architecture, which has the following characteristics.
Security: The first Armonia DPOS consensus mechanism, with 21 main nodes + 10000 backup nodes participating in mining, while adopting a hybrid governance model to integrate a cross-chain mechanism on the mother chain bottom layer, so that the mother chain can provide a safe and stable ecosystem trust foundation for child chains.
Performance: The mother chain uses industry-efficient WASM virtual machines with processing speeds of up to 5000 TPS, and spreads transactions in different domains or applications through child chains sharding to achieve higher parallel processing speeds. The child chains can be quickly built by certain L0 SDK provided by the platform, and can be isomorphic or heterogeneous with the mother chain. Among all child chains, and between child chains and mother chain, reliable and efficient cross-chain operations can be achieved through the cross-chain contract on the mother chain.
Upgradability: Armonia provides complete decentralized services (DFS storage, DCOMP computing, DNET network, DID identity authentication, etc.) through customized child chain design and modular construction, which can realize the blockchain characteristics of different child chains, and can be combined and replaced to meet the diversified upgrade needs of the ecosystem.
Judging from the historical experience of the crypto public chain, if new public chain wishes to stand out, it cannot be limited to the past TPS, but should consider the compatibility of future market projects and the support for the new track. Aptos and Armonia have the potential for technology, capital support, and new narrative, but at present, only Armonia has begun to launch some landing projects such as APLink, NFTOne, etc. As for whether it can meet broader development needs and capture greater market value in the future, we will wait and see.
3、The future of crypto cycle: When in doubt, zoom out
We discussed the three direct factors that affect the bull bear cycle of the crypto market above: dollar, halving, and adoption. As far as the author is concerned, from the perspective of the historical trend and logical relationship of the market, in most of the time, the influence weights of these three elements are intertwined.
Of course, in the actual investment analysis, it should not be excluded that other factors (such as major regulatory policy changes, hacking incidents, major movements of whales, etc.) may have an impact on the price of cryptocurrency in a short time.
Date
Rise and fall
Drivers
Monetary policy (short-term)
Halving mechanism (medium-term)
Application popularization (long-term)
2013.11.30-2015.01.14
bear market
BTC -86%
In November 2013, FED released the signal of reducing the incremental bond purchase, and began to reduce QE in a comprehensive way by December. The interest rate had been 0.25% until October 2015.
No halving occurred during the bear market
2015.01.14-2017.12.17
bull market
BTC 129 times
ETH 237 times
From November 2014 to November 2015, FED signaled the end of easing and began tightening monetary policy. In December 2015, it began monetary policy normalization, raising interest rates twice to 0.5% in 2015Q4, raising interest rates once to 0.75% in all of 2016, and raising interest rates three times to 1.5% in 2017.
2016.07.09
BTC rewards reduced from 25 to 12.5 and expected annual inflation from 7% to 3.5%
ETHICO、Layer0/1 competition
2017.12.17-2018.12.15
bear market
BTC -84%
ETH -94%
From December 14, 2017 to December 20, 2018, FED raised interest rates five times, raising rates from 1.5% to 2.5%.
No halving occurred during the bear market
2018.12.16-2021.11.10
bull market
BTC 22 times
ETH 58 times
Interest rate cuts began in August 2019, with a total of 3 rate cuts totaling 75 basis points that year; In 2020, in response to the impact of the new crown epidemic, developed economies around the world launched ultra-loose monetary policy and active fiscal policy. FED cut interest rates by two emergency rates in March totaling 150 basis points to 0-0.25% and expanding its balance sheet to $7.2 trillion, after which the U.S. government implemented a $2.9 trillion fiscal stimulus.
Interest rates were stable throughout 2021, but the Taper signal was released in September.
2020.05.12
BTC rewards reduced from 12.5 to 6.25 and expected annual inflation from 3.5% to 1.75%
DeFi、NFT、GameFi、Layer1/2 competition
2021.11.10-？
bear market
BTC -74%
ETH -82%
（as of 2022.06.13)
FED began Taper in November 2021, kicking off the rhythm of unconventional monetary policy normalization. Starting the rate hike cycle in March 2022, this round of interest rate hikes has raised interest rates by 5 times in September for a total of 300 basis points to 3.00%-3.25% (interest rate hikes will continue to 4.4% in November and December).
2022.09.15
ETH Merge，Annual inflation expected to fall from 3.9% to 0.4%
？
bull market
Most economists surveyed by the Wall Street Journal believe the Fed's first rate cut will occur by the end of 2023.
Perhap 2024.04-2024.05
BTC rewards reduced from 6.25 to 3.125 and expected annual inflation from 1.75% to 0.875%
Web3.0？（DAO？TradeFi？SocialFi？SBT？）New public chain？
Note: The occurrence time of ETH and BTC periodic top and bottom prices is not exactly the same, and the above are calculated using the amplitude of the same period, and there may be slight errors in time.
Crypto market bull-bear cycle conversion profile Source：Armonia
The core meaning of the specific role of the above three elements in the bull bear cycle of the crypto market can be summarized as follows:
(1) The three factors have their own division of labor and interact with each other on the market. We can summarize as follows: the crypto market depends on the dollar in the short term, halving in the medium term, and adoption in the long term.
Although their effects on prices have their own division of labor, they interact with each other, and even have resonance or offset results in some periods. For example, the bull market launched after March 12, 2020 is the resonance background of the simultaneous bullish of three major factors: the loose monetary policy and active fiscal policy of the United States triggered by the epidemic crisis, the halving of BTC on May 12, 2020 and the "DeFi Summer" triggered by liquidity mining.
However, we also saw that in the bull market from 2015 to 2017, the moderate interest rate increase policy of the US dollar, which played a short-term role, did not curb the rise of the currency price, but rather the BTC halving and the wave of ICO dominated the bullish effect.
Similarly, from November 2021, the Federal Reserve started Taper and raised interest rates continuously, which made it bearish in the short term, while the convergence of BTC's halving effect (the halving effect in 2020 is decreasing, and the halving effect in 2024 is not yet brewing) made it bearish in the medium term. At the same time, although the crypto ecological application is developing as a whole, squeezing foam also appeared, so the overall situation is in a bear pattern.
(2) The short-term dollar factor and the medium-term halving factor have a one-way impact on the market, but the long-term application (ecosystem) factor has a two-way relationship with the market. Especially when the market is too hyperactive or pessimistic, this long-term factor may be released in the short term.
When the price continues to rise, it will trigger user interest and social media activities, stimulate more investment funds and development teams to enter, so ecosystem applications will be more prosperous. But when the price continues to fall, this upward spiral will become a death spiral, especially the application with large bubble and limited crypto products will quickly decline, and even trigger a series of negative effects (such as the market panic caused by the crash of Terra in May 2022 and The Three Arrows in June).
(3) For long-term investors, they should pay more attention to the rising trend than short-term fluctuations. The possible consensus of the crypto community in the future is that a series of innovations in crypto technology is not a panacea for real problems, and will encounter various obstacles in promotion. Meanwhile, the value of its token is not purely speculative that is completely dependent on the market price, let alone “Ponzi Schemes" where a few negative events can overturn all paradigm innovations.
So instead of focusing on short-term fluctuations that are uncontrollable for various inevitable and accidental reasons, it is better to zoom in on the pattern and focus on more valuable technological innovation and open practice. Of course, this does not mean blindly buying more. The specific investment trading strategies and rules vary, especially for investors involved in derivatives, who also need to pay attention to the impact of sharp price fluctuations in the short term. After all, it is not uncommon for a daily decline of nearly 50% during a bull market and a daily increase of more than 20% during a bear market.
(4) From a macro perspective, the real-world asset inflation rate (fiat currency M2 growth rate minus GDP growth rate) is in long-term rise, BTC and ETH 「halving」will reduce supply, and the crypto application is long-term development and prosperity, so although the price of the currency rises and falls, there is still a lot of potential for growth in the long run.
From this, we get a more intuitive market logic that the crypto market gradually evolves into the cyclical characteristics of a 3-year bull market and a 1-year bear market with BTC halving every 4 years, and the twists and turns of which depend on the expected game of the US dollar monetary policy and the combined impact of other factors. In the long run, the popularity of crypto assets and technology will show a macro upward trend, until one day the logic of the model changes, diverting its fluctuation path. The market goes up and down, but in the end it is long-term upward. It also conforms to people's understanding of development — spiral rise and wave advance.
Food for thought, what should we do when we are in a bear market now?
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https://www.jinse.com/news/blockchain/2231577.html
https://www.jinse.com/news/blockchain/2244945.html
https://medium.com/ @state_xyz/aptos-a-formidable-layer-1-addressing-the-blockchain-trilemma-398ff9be62d7
https://aptos.dev/aptos-white-paper/aptos-white-paper-index/
https://github.com/armoniax/amax.whitepaper/blob/main/amax.whitepaper-en.md
https://datacenter.jin10.com/reportType/dc_usa_interest_rate_decision
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