When will crypto winter end? Bitcoin halvings may not be enough to explain market cycles

by James · July 24, 2022

By Frances Yue

Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that hits your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch, and I’m going to walk you through the latest in this bear market.

Find me on Twitter at @FrancesYue_ to send feedback or tell us what you think we should cover. You can also reach me via email to share your personal crypto stories.

Crypto in a flash

Bitcoin gained 13.4% over the past seven days, trading at around $22,844 on Thursday, according to CoinDesk data. Ether rose 32% over the seven-day stretch to around $1,534. Meme token Dogecoin rose 12.8% while another dog theme, Shiba Inu, is trading 10% higher than seven days ago.

Crypto metrics

Biggest Gainers    Price   %7-day return 
Ethereum Classic   $24.21  68.1% 
Lido DAO           $1.46   56.4% 
cETH               $29.88  37.9% 
Lido Staked Ether  $1,461  36.4% 
Polygon            $0.86   35.5% 
                           Source: CoinGecko as of July 21 
Biggest Decliners  Price      %7-day return 
PAX Gold           $1,701.34  -2.2% 
Tether Gold        $1,706.93  -1.2% 
LEO Token          $5.23      -1.1% 
cDAI               $0.02      -0.6% 
Neutrino USD       $0.99      -0.5% 
                              Source: CoinGecko as of July 21

What drives crypto cycles?

It’s a popular narrative that crypto market cycles tend to coincide with bitcoin halvings, a process in which the block reward given to the crypto’s miners is halved after every 210,000 blocks mined, or roughly every four years.

According to historical patterns, a bitcoin halving event is often followed by a one-year bull market, a one-year bear market and two years of recovery, some said.

However, bitcoin halvings may not be sufficient to explain crypto cycles, according to Matt Hougan, chief investment officer at Bitwise Asset Management.

Bitcoin halvings don’t always sync with the big price moves in crypto, Hougan noted. Hougan also argued that the reduced supply in bitcoin is not enough to drive too much price movement, and the halving events should already be priced in, as their timing is known to investors.

What drives the market cycle, instead, were useful innovations in the space, Hougan said in an interview with MarketWatch.

In Bitcoin’s early days, the rally in 2011 and 2013 was fueled by the rise of crypto exchanges, according to Hougan. Coinbase, for example, was founded in 2012.

The launch of Ethereum in 2015 and the subsequent emergence of the initial coin offering contributed to the crypto boom in 2017, while the bull market in 2021 was mainly driven by the growth of decentralized finance and non-fungible tokens and the US SEC’s approval of bitcoin futures ETFs, Hougan noted.

For the rest of the year, the crypto market may continue to be volatile, according to Hougan. “We’re still working through the last of the down payment process,” Hougan said. “We’re also dealing with some short-term regulatory headwinds, including what was expected to be kind of a tumultuous fall for crypto from a regulatory perspective.”

However, he expects a crypto bull market to begin to take hold in 2023, despite a looming recession. “As we enter the next technological cycle in crypto, I believe the secular trends driving crypto growth will overwhelm the macro trends,” Hougan said.

Tesla’s bitcoin sale

As crypto prices crashed, Tesla shed 75% of its bitcoin holdings for $936 million in the second quarter, according to the electric car maker’s earnings report released on Wednesday.