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

Crypto in a flash

Bitcoin BTCUSD,
-1.79%
rose 13.4% over the past seven days, trading at around $22,844 on Thursday, according to CoinDesk data. Ether ETHUSD,
+1.22%
rose 32% over the seven-day stretch to around $1,534. Meme token Dogecoin DOGEUSD,
+0.56%
rose 12.8% while another dog theme, Shiba Inu SHIBUSD,
0.25,
trading 10% higher from seven days ago.

Cryptometrics

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’s driving 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.

In a conference call, CEO Elon Musk said the sale occurred because he was “uncertain” about when COVID-related shutdowns in China would ease and he sought to maximize Tesla’s cash position.

“We are certainly open to increasing our bitcoin holdings in the future, so this should not be taken as a judgment on bitcoin,” Musk told analysts on a call after Tesla’s results.

“It’s just that we were concerned about the overall liquidity of the company given the shutdowns in China,” Musk said, before adding that the company did not sell any of its dogecoin.

Tesla TSLA,
+10.07%
bought $1.5 billion worth of bitcoin in early 2021, when the crypto was trading above $30,000, but quickly sold 10% of the total in a move executives characterized as evidence of liquidity. The decline in Tesla’s remaining bitcoin resulted in a drop in value of more than $100 million in the quarter, according to CFO Zachary Kirkhorn.

MarketWatch’s Claudia Assis and Jeremy C. Owens wrote more here on Tesla.

Crypto companies, funds

Shares of Coinbase Global Inc. COIN,
-4.25%
lost 4.4% to $72.00 on Thursday and they were down 5.7% over the last five trading sessions. Michael Saylor’s Micro strategy Inc.
MSTR,
-2.38%
fell 1.8% on Thursday to $283.60, while it was up 39% in the past five days.

Mining company Riot Blockchain Inc. RIOT,
+5.98%
shares rose 6.1% to $5.23 on Thursday, and are up 61% in the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
+3.21%
rose 3% to $12.86, up 60.9% in the past five days. Another miner, Ebang International Holdings Inc. EBONY,
-6.02%
shares fell 6.5% to $0.56 on Thursday, while up 0.3% over the past five days.

Overstock.com Inc.
OSTK,
-1.65%‘s
shares were down 1.5% at $28.65. The shares rose by 13.5% during the five increased period.

Shares of Block Inc.
SQ,
-1.11%,
formerly known as Square, lost 1.2% to $73.90, while shares rose 18.5% for the week. Tesla Inc. TSLA,
+10.07%
shares rose 10.4% to $819.3, while up 14.6% over the past five sessions.

PayPal Holdings Inc.
PYPL,
+2.14%
rose 2.4% to $82.20, and it was up 18.2% over five sessions. Nvidia Corp.
NVDA,
+0.64%
shares rose 1% to $179.90, up 17% in the past five trading days.

Advanced Micro Devices Inc.
AMD,
+1.15%
shares rose 1.4% to $90.69 on Thursday, and were up 15.4% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF
BITO,
-3.21%
was down 3% to $14.20 on Thursday, while its Short Bitcoin Strategy ETF
BITI,
+3.31%
rose 3% to $34.77. Valkyrie Bitcoin Strategy ETF
BTF,
-3.29%
lost 3.2% to $8.84, while VanEck Bitcoin Strategy ETF
xbtf,
-3.51%
fell 3.6% to $22.26.

Grayscale Bitcoin Trust
GBTC,
-4.62%
fell 3.9% to $14.97.

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