Bitcoin diminishing return?
Bitcoin is famous with its cycles, halving and huge returns. Since 2012 price has gone up from 2$ to 90,000$. Each cycle starts with halving and then price goes up by hundreds or thousands percent and then come back down.
Since 2012, we have completed three cycles and we are in the fourth one.
In the first cycle, the lowest price was 2$ and then jumped to 1160$, this was a 52,287% increase!
The next cycle from bottom to top we had 12,511% increase.
The third cycle had 1,921% increase.
The pattern seems clear. Each time the return is diminishing by 4 to 6 times:
52287 divided by 12511 = 4.17
12511 divided by 1921 = 6.5
That means in this cycle the increase from the cycle bottom at 15,500$ should have been between 320% to 480% (this number comes from 1921% divided by 4 and 6).
A 320% to 480% increase from 15,500$ is 70,000$ and 95,000$ respectively. Bitcoin is well beyond the first target at 70,000$ and at the moment of writing this, is only 5,000$ short of 95,000$.
However, there is a problem with diminishing return theory.
To make it more clear let's look at this theory from market top perspective. In the last two cycles, market top to market top, have had 1,900% and 356% return. That means the return diminished by 5.5 times. If the same thing were to happen again it means the current market top should have only been 65% (356 divided by 5.5) of the previous market top. That means the current market top should be 45,000$.
Now the same thing will happen to market bottom to top if you believe that market has diminishing return. Based on this theory in the next cycle from market bottom to top there only will be around 80% to 120% increase and the cycle after only 25% to 75% increase from bottom and so on. That means at some point the price will never reaches even back to the previous cycle top. This is very unlikely given that bitcoin will only be more scarce and the global money supply will only increase.
Since 2012, we have completed three cycles and we are in the fourth one.
In the first cycle, the lowest price was 2$ and then jumped to 1160$, this was a 52,287% increase!
The next cycle from bottom to top we had 12,511% increase.
The third cycle had 1,921% increase.
The pattern seems clear. Each time the return is diminishing by 4 to 6 times:
52287 divided by 12511 = 4.17
12511 divided by 1921 = 6.5
That means in this cycle the increase from the cycle bottom at 15,500$ should have been between 320% to 480% (this number comes from 1921% divided by 4 and 6).
A 320% to 480% increase from 15,500$ is 70,000$ and 95,000$ respectively. Bitcoin is well beyond the first target at 70,000$ and at the moment of writing this, is only 5,000$ short of 95,000$.
However, there is a problem with diminishing return theory.
To make it more clear let's look at this theory from market top perspective. In the last two cycles, market top to market top, have had 1,900% and 356% return. That means the return diminished by 5.5 times. If the same thing were to happen again it means the current market top should have only been 65% (356 divided by 5.5) of the previous market top. That means the current market top should be 45,000$.
Now the same thing will happen to market bottom to top if you believe that market has diminishing return. Based on this theory in the next cycle from market bottom to top there only will be around 80% to 120% increase and the cycle after only 25% to 75% increase from bottom and so on. That means at some point the price will never reaches even back to the previous cycle top. This is very unlikely given that bitcoin will only be more scarce and the global money supply will only increase.
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