Bitcoin Cheat Sheet: Navigating Surges and Crashes in the 4-Year Halving Cycle

Introduction

Previously, I posted an article titled “Wall Street Cheat Sheet: Mastering Fear and Greed for Successful Investing.” The Wall Street Cheat Sheet visually represents market cycles and the emotions investors experience, showing the collective emotional pattern of investors as it swings from disbelief to euphoria and back to disbelief. It provides the changing investor psychology when bubbles form. You can refer to the related post through the link below.

Wall Street Cheat Sheet: Mastering Fear and Greed for Successful Investing

Today, let’s focus on Bitcoin. I’ll introduce Bitcoin’s unique Cheat Sheet, based on the 4-year halving cycle, along with 3 other graphs that applies the normal Wall Street Cheat Sheet to Bitcoin.

Bitcoin Cheat Sheet: 2017~2019

The chart below shows the changes in Bitcoin’s price and the emotional shifts of Bitcoin investors from May 2017 to September 2019.

Source: TradingView

Just like the usual Wall Street Cheat Sheet, which illustrates the emotional changes investors go through during a bubble in the asset they are investing in, the Bitcoin Cheat Sheet similarly shows the cyclical psychological pattern investors experience:

Disbelief → 2) Hope → 3) Optimism → 4) Belief → 5) Thrill → 6) Euphoria → 7) Complacency → 8) Anxiety → 9) Denial → 10) Panic → 11) Capitulation → 12) Anger → 13) Depression → 1) Disbelief.

Investors’ Emotional Shifts: 2018~2019

On July 9, 2016, during Bitcoin’s second halving, the reward miners received every 10 minutes on average dropped from 25 Bitcoins to 12.5 Bitcoins. After some time, due to a supply shortage compared to demand, the price skyrocketed until early 2018. The chart below shows a simplified cycle of investors' emotions, moving from Euphoria to Complacency → Anxiety → Denial → Panic → Capitulation → Anger → Depression → Disbelief, as they followed the rise and fall of Bitcoin price.

Source: https://fullycrypto.com/where-is-crypto-on-the-wall-street-cheat-sheet

As a reference, if we compare this to the fourth halving in April 2024, when the mining reward dropped from 6.25 Bitcoins to 3.125 Bitcoins every 10 minutes, we can see how significant the supply reduction was during the second halving. In the second halving, the drop was 12.5 Bitcoins, while in the fourth halving, it was 3.125 Bitcoins, a difference of 9.375 Bitcoins. The supply cliff was much steeper then, which explains the more dramatic price surge.

Investors’ Emotional Shifts: 2021~2022

On May 11, 2020, Bitcoin’s third halving took place. The mining reward dropped from 12.5 Bitcoins to 6.25 Bitcoins every 10 minutes. Similarly, after some time, a supply shortage occurred, leading to a massive price surge until early November 2021.

Once again, investors reached emotional peaks of euphoria, followed by emotional declines into fear, capitulation, and anger, experiencing investment losses along the way. The chart below shows this cycle in a simplified form.

Source: https://fullycrypto.com/where-is-crypto-on-the-wall-street-cheat-sheet

The Real Bitcoin Cheat Sheet

The Wall Street Cheat Sheet is approximately accurate in bubbles because it reflects the unchanging collective nature of human psychology, which drives bubbles to form and burst. However, the critical drawback is that, in reality, it's incredibly difficult to predict when investors' emotions will shift from disbelief to hope, leap from belief to euphoria, or descend through denial into fear and capitulation.

To gain even a small hint, some investors refer to indicators like the CNN Fear & Greed Index or the ARMS Index (also called the TRIN) for the stock market. However, these indicators are often not very helpful in identifying where we are in the bubble cycle, which typically occurs over the medium to long term. In the end, each investor has to make their own subjective judgment.

In contrast, there is a significant advantage when it comes to Bitcoin investing. While the psychology of Bitcoin investors also follows the cheat sheet, the timing of emotional shifts generally aligns with the set 4-year halving cycle. This is a cycle that Bitcoin investors are very familiar with.

The three charts we reviewed above insert Bitcoin into the Wall Street Cheat Sheet. The graph below illustrates the psychological changes of Bitcoin investors in a circular form, following Bitcoin’s unique halving cycle.

We don't know the exact beginning and end of each phase and the Bitcoin is no exception in that sense. However, we do know that the cycle is approximately 4 years long, and from empirical experience, we have a very rough idea of when Bitcoin prices surge and when they start to decline after each halving.

Source: bitcoinstrategyplatform.com

Each time the end points representing Bitcoin’s price complete one full 360-degree rotation, 4 years have passed. Isn’t it fascinating that even the emotional shifts of investors can be expressed in an infinitely repeating circle, closely aligned with a 4-year having cycle?

The Real Bitcoin Cheat Sheet: Where Are We Now?

Investors are most curious about where we currently stand in the fourth halving cycle. Has the peak already passed in this cycle, or has the real bull market not yet begun? “Bitcoin Strategy Platform” provides updated charts like the one below. According to the above Bitcoin Cheat Sheet (circular graph), we are currently moving from the "Complacency" phase into the "Optimism" phase.

If you look at the circular graph like a clock, once we pass the 12 o’clock position, we’ll enter the "Belief" phase. After that, there are still two more phases left until we reach "Euphoria." Since there are many phases remaining, we may speculate that Bitcoin still has significant room for growth in this cycle.

Source: www.bitcoinstrategyplatform.com

Closing Remarks

Bitcoin can be viewed as a financial asset, and it follows the same asset price bubble formation and collapse, along with the accompanying psychological cycles of investors, as described by the typical Wall Street Cheat Sheet.

However, with other assets, there's no way to predict when a bubble will start, reach its peak, or begin to burst. As Isaac Newton, the genius who discovered gravity and invented calculus, once said, "I can calculate the motion of heavenly bodies, but not the madness of people."

However, Bitcoin has a crucial difference from other assets. While it's still impossible to know exactly when each stage of the bubble will begin or end, Bitcoin's cycle is 4 years long and consistently follows the halving events. By studying the past three cycles, we can roughly estimate when Bitcoin prices will start to surge after a halving and when they are likely to begin declining. Of course, the exact timing will differ from cycle to cycle.

Investors who understand Bitcoin's unique cycle and the broader price trends, as well as the collective psychological shifts outlined in the Bitcoin Cheat Sheet, have a significant advantage over those who don’t.

Just as the weather cools down after a hot summer when fall arrives, it feels like the investment environment has suddenly shifted as Bitcoin made a significant rebound last week, perhaps signaling that the time has come.

As always, it’s uncertain whether this is the start of a genuine bull market. What’s important is that even if the real uptrend begins, we must not forget that after the phases of "Optimism" and "Belief," there are often a (sometimes substantial) correction phases.

While enjoying the significant uptrend of "Thrill" and "Euphoria" - if we experience them - we must prepare our minds in advance so that we don’t fall into “Complacency” and later experience the emotions of "Fear" and "Anger."

Thanks for reading. Wish you grow rich slowly and surely!

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