The long-accepted “4-year cycle” theory in cryptocurrency markets is frequently questioned by investors during each bull or bear season. In its latest report, the popular analytics company The DeFi Report examines why Bitcoin persistently follows this 4-year timeline and why the market consistently misinterprets this cycle.
One of the strongest points highlighted in the report was that ignoring market cycles consistently misleads investors. It noted that those who declared “This time it’s different because institutional capital has entered” during bull markets or “Bitcoin is dead, it was all a Ponzi scheme” during bear markets have been wrong four times in a row in the past.
According to experts, the 4-year cycle is not an arbitrary timeline; it is a natural financial process resulting from a combination of human psychology, media attention, incentives, and, most importantly, credit and leverage mechanisms.
The analysis presented Realized Cap data as a key indicator for understanding Bitcoin’s price floor. It stated that Bitcoin’s current capital base, consisting of net money actually injected into the network, is approximately $1.1 trillion.
The upward breakout of market value from this base is caused by leverage in the system, DeFi loans, and speculation (premium). It has been stated that these premiums have largely eroded in the current bear market, and the price has been pulled back towards the capital base.
It was added that because Bitcoin doesn’t have a “book value” like a traditional stock that generates cash flow, this realized cost floor constitutes the most reliable support/base level in bear markets.
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Analyst Mike listed the main factors that trigger cyclical movements and are currently in the “leverage clearing” phase as follows:
- It was stated that stablecoins are no longer just a “bridge” for the transition from fiat to cryptocurrency, but are now directly accepted as the currency of the on-chain world. An increase in the supply of stablecoins is expected to bring liquidity to the system, ushering in a new upward trend.
- It has been reported that active DeFi loans in the Ethereum ecosystem have fallen by 57% from their peak, and on-chain loans in the system have been significantly cleaned up.
- It was stated that open interest in Bitcoin futures has decreased by 52% since its peak, indicating that the bubble in major assets has been almost completely expelled.
- It was pointed out that miners are the most critical actors in the cycle; they operate with high margins during bull seasons, but fall below operating costs during bear seasons, resulting in capitulation (selling at a loss) at the worst possible time.
In the final part of the analysis, Mike also shared why he focuses on Bitcoin and specific applications (dApps) in his portfolio instead of leading altcoins Ethereum ($ETH) and Solana (SOL).
The analyst, stating that he views Bitcoin as a “benchmark,” said that Ethereum failed to outperform Bitcoin ($ETH/BTC) in the last cycle, and that despite Solana’s excellent performance, its chart now indicates a similar saturation point.
*This is not investment advice.
