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Markets move in cycles, and Bitcoin is (probably) no exception.
A glance at Bitcoin's daily price chart for the past several years shows the coin has experienced at least three price peaks. The most recent peak was followed however by behavior not shared by the previous two that continues today, suggesting to my caffeinated eyes that a 2021 price peak remains in play.
Defining Bitcoin's market cycles
Visual inspection of Bitcoin's price chart since 2016 reveals three major price peaks -- one in mid-December 2017, again in the summer of 2019, and most recently on May 13, 2021. After some thought and random sketching I decided to split Bitcoin's history into three "epochs" defined by the dates these major price points fell on.
Epoch 1's (E1) starting date is not easily defined, so I arbitrarily set it equal to Jan. 1, 2017. I defined the boundary dates between E1 and E2, and E2 and E3, by the minimum coin value's day between each Epoch's peak. Finally, E3's end date is undefined but we'll just set it to today (publish date) for closure.
Each epoch lasted at least a year. E3 is at most 538 days old today, which is in between E1's and E2's age.
Let's take a closer look at the two completed epochs.
E1's and E2's peaks were followed by slow value ramp-downs that lasted roughly half a year each. E1's ramp-down looks like something I'd call "exponential decay" if these numbers represented a physical process.
E2's ramp-down was much more erratic. E2's down-ramp appeared almost linear between the peak near July 2019 and an inflection point at Jan. 2020, where the price rose briefly before an abrupt collapse just after March 2020.
Comparing BTC's price epochs
Let's compare these three Bitcoin price zones another way by referencing the prices and dates to some common value. I'll divide each epoch's price history by that epoch's maximum price to make the y-axes comparable. And I'll turn each epoch price point's date into a time difference from the epoch's peak value.
E3 may or may not be ongoing, so it is represented by the dashed blue trace. E1 and E2 are represented by the lighter red and green traces, respectively.
This graph provides plenty of observations:
- E3 closely followed E1's price decay behavior for the first 100 days after each epoch's respective peaks. E3's similarity to E1 ends about 100 days after the epoch peak when E3's BTC value abruptly jumps.
- E1 and E2 continued about 250 and 350 days, respectively, after their peak BTC values. If E3 is indeed already past its peak then today is about 125 days after E3's peak date -- less than half the time it took for E1 and E2 to finish after they experienced their own peaks.
- E3's abrupt price reversal about 100 days after its epoch peak has an analogue in E2's trace. E2's trace shows a similar abrupt price reversal about 190 days after its epoch peak.
The takeaway
Popular investing wisdom says the market moves in cycles. I made a quick-n-dirty study of Bitcoin's price history and made a few interesting observations. It is important however to acknowledge that these are only observations -- not an analysis.
The distinction between observation and analysis is important. Observation builds your experience base. In the engineering world where I spend the majority of my time, a personal experience base is invaluable because it anchors what I call "engineering intuition" -- the often unconscious judgments you make when you first start analyzing whatever situation is in front of you.
It's important to me that I start building my cryptocurrency experience base. I can throw all types of analysis at the terabytes of data available online, but without an intuitive feel for what I'm looking at and why it may or may not be important I run blind.
Thanks for reading! I'd love to hear about other suggestions on how to define and interpret Bitcoin's price patterns -- drop a comment or a PM if you know of an established method, or have ideas of your own.
All charts produced in Python. Cover photo by Andre Francois McKenzie on Unsplash.
