To what extent is Bitcoin's four-year halving cycle the fundamental driver of its bull-bear market cycles? Is this effect purely psychological, or is it backed by solid supply and demand fundamentals?

The Impact of Bitcoin Halving Cycles on Bull and Bear Markets

Bitcoin's four-year halving cycle (where block rewards are halved approximately every four years, reducing new Bitcoin supply by 50%) is a significant driver of its market cycles, but not the sole driver. Its impact can be summarized as follows:

• One of the Primary Drivers: Historical data shows that halving events (e.g., 2012, 2016, 2020) are typically followed by significant bull markets (substantial price surges). For instance, after the 2020 halving, Bitcoin’s price surged over 300% within a year. This stems from the anticipation and actual effect of reduced supply, propelling the market into an upward cycle.
• Not the Sole Dominant Factor: Halving cycles contribute to only about 30-50% of bull market drivers. Other factors, such as macroeconomic conditions (e.g., inflation, interest rates), regulatory policies, technological developments (e.g., Layer 2 solutions), and institutional investment inflows, also play crucial roles. For example, the 2021 bull market was partly driven by global liquidity easing, not solely by the halving.
• Weaker Correlation with Bear Markets: Post-halving bull markets often end in bear markets (price corrections), but bear markets are more frequently triggered by external shocks (e.g., the 2022 Terra/Luna collapse or regulatory crackdowns). The halving itself does not directly cause bear markets.

The Role of Psychological Expectations and Supply-Demand Fundamentals

Bitcoin halvings exert influence through both psychological expectations and supply-demand fundamentals, which reinforce each other:

• Psychological Expectations:
  • Investors form a consensus of "post-halving price surges" based on historical patterns, leading to FOMO (Fear of Missing Out) buying before halvings and driving up prices.
  • For example, speculative rallies often occur months before halvings—a behavioral finance effect that amplifies volatility but is rarely sustainable.
• Supply-Demand Fundamentals:
  • Solid Foundation: Halvings directly reduce new Bitcoin supply (e.g., daily production drops from 900 BTC to 450 BTC). If demand remains stable or grows (e.g., ETF approvals increasing institutional demand), supply-demand imbalances push prices higher. Reduced miner selling pressure also alleviates market sell-offs.
  • Data Evidence: On-chain analysis shows that post-halving declines in supply growth often correlate positively with price increases. For instance, after 2020, the proportion of HODLers (long-term holders) increased, reflecting scarcity-driven demand for Bitcoin as a store of value.
• Synthesis: Psychological expectations amplify short-term volatility, but supply-demand fundamentals (enhanced scarcity) are the core driver. Long-term, halvings provide a foundation for bull markets through hard-coded supply constraints, while psychological factors merely accelerate their manifestation.