Bitcoin Halving cycle has been broken! Data confirms Fluctuation drops by 50%, the winter is over.

The latest research by Diaman Partners and Professor Ruggero Bertelli shows that the four-year Halving cycle theory of Bitcoin is being broken. Data shows that the average annual return of BTC is gradually declining, with no peaks appearing in the last cycle, confirming the hypothesis that the risk/reward structure of Bitcoin has changed. The annual volatility of Bitcoin has sharply decreased from over 140% in its early development to around 50% currently.

Bitcoin Halving Cycle Theory and Bubble Detection

(Source: Diaman Partners)

In the past, Bitcoin has experienced sharp declines after several exponential growth phases, known as the “cryptocurrency winter.” During this period, people almost stopped talking about Bitcoin and other cryptocurrency assets, and the entire industry came to a standstill with prices plummeting. The declines following previous Bitcoin bubbles burst were -91%, -82%, -81%, and -75%, and the last cryptocurrency winter also saw astonishing levels of decline.

So far, the price trend of Bitcoin follows a clear cycle, halving every 210,000 blocks, which is roughly equivalent to four years. This rhythmically determines the cycles of price decline, recovery, and exponential growth. The phenomenon of financial bubbles has sparked intense debate among industry insiders, and several academic papers have explored this topic, dating back to Professor Didier Sornette's research on financial bubbles in 2014.

In fact, the paper defines “bubble” as a period of unsustainable growth characterized by a sustained rapid increase in prices (i.e., exponential growth). Clearly, bubbles are destined to burst, and prices will fall back to initial levels, or even lower. Diaman Partners, in collaboration with Professor Ruggero Bertelli, published a paper on a deterministic statistical indicator – the Diaman Ratio. This indicator establishes a linear regression relationship between logarithmic scale prices and time.

The criteria for this indicator are as follows: If DR < 0, it indicates that the price is falling; if DR < 1, it indicates that the growth is sustainable; if DR = 1, it indicates that the growth is exponential; if DR > 1, it indicates that the growth exceeds exponential growth, which aligns with Sornette's definition of a bubble. Diaman Partners obtained the daily historical series of Bitcoin, calculated the DR for one year, and checked when it was greater than 1.

Research clearly shows that during the previous Bitcoin Halving cycles, there were periods of exponential growth, and in the recent cycle, aside from the attempt by the U.S. to approve an ETF that caused the Bitcoin price to exceed the 2021 high before the 2024 Halving (which has never happened before), the Diaman ratio has never been far above 0. This is a key finding, indicating that the recent round of cycles did not experience a “bubble” stage in the traditional sense.

Volatility Crash and Yield Curve Shift

(Source: Diaman Partners)

In order to test whether the hypothesis of the Bitcoin halving cycle has truly been broken, the research team selected the volatility of Bitcoin prices, with an observation window of four years, the same as the halving cycle, and slid this volatility calculation window over time to see if it remains constant or decreases over time. The chart shows a sharp decline in volatility, with annual volatility exceeding 140% in the early development stage, followed by a gradual decline to around 50% or lower at present.

Although lower volatility also means lower expected returns, it signifies more stable future prices with fewer unexpected situations. In fact, if we adopt a rolling annual return chart, selecting performance from 2011 and calculating the annual return day by day, we will find that past returns have shown a declining trend, while returns over the past three years have actually remained stable. This confirms that the Bitcoin Halving cycle theory (which suggests that after years of brilliance, disaster follows) has been broken to some extent.

Key Data on Volatility and Yield Changes

Annual Volatility: Decreased from over 140% in the early stages to about 50% currently, a decrease of more than 60%.

Average Annual Return Rate: Showing a gradual downward trend, with no peaks occurring in the last cycle.

Risk-Return Structure: Has shifted from an extremely high-risk, high-return to a relatively stable growth model.

Bubble Strength: Decreases over time, no exponential growth observed in the 2024 cycle.

Data shows that the average annual return rate is showing a gradual downward trend, with no peak occurring in the last cycle, confirming the hypothesis of a change in the risk-return structure of Bitcoin. However, the price of Bitcoin has risen from 15,000 USD in December 2022 to a recent high of 126,000 USD, so this cycle has still achieved a very considerable return, though not as striking as previous cycles.

(Source: Diaman Partners)

The average annual return chart over the four-year observation period shows that Bitcoin returns exhibit a significant downward trend over time. Considering Bitcoin's total market capitalization, this is understandable, as doubling an asset worth $20 billion is one thing, while doubling an asset worth $2 trillion is another. This market cap effect is a natural evolutionary process that all mature assets will experience.

ETF Approval Completely Rewrites Bitcoin Halving Cycle

The US approved the ETF, and BlackRock's IBIT spot Bitcoin ETF has reached an asset size of 100 billion USD in less than three years, becoming the fastest-growing financial product in history. This breaks the Bitcoin Halving cycle, which predicts that Bitcoin will experience growth, hyper growth, and a cryptocurrency winter, and will reach new highs after the next Halving.

The approval of the ETF has led to a massive influx of institutional funds, which are fundamentally different from retail speculative funds. Institutional investors typically adopt long-term allocation strategies rather than short-term speculation, and this change in the structure of funds has fundamentally stabilized the price volatility of Bitcoin. When tens of billions of dollars in long-term funds enter the market, the relative impact of price fluctuations caused by short-term speculators diminishes.

In addition, the existence of ETFs provides a compliant investment channel for traditional financial institutions, allowing large institutional investors such as pension funds and insurance companies to include Bitcoin in their asset allocation. This process of mainstreaming has changed the market structure of Bitcoin, shifting from a speculative market dominated by retail investors to a more institutionalized and mature asset market.

Does this mean that the Bitcoin Halving cycle will no longer follow the four-year pattern, and that the cryptocurrency winter will begin at the end of the second year of the cycle? It is still too early to draw conclusions, but the growth structure of Bitcoin has likely changed. Returns are more stable, with lower volatility, indicating that the cryptocurrency winter will not be “very cold” like past cycles, with losses not exceeding 50%-60%. Instead, there may be periods of declines alternating with new highs, rather than the exponential growth seen in the past.

The New Normal of Bitcoin from a Statistical Perspective

Assuming we can consider that the rise of the fourth Bitcoin Halving cycle has ended (something no one can affirm or deny), the total wealth created so far has surpassed that of other cycles, confirming that Bitcoin, both as a network and as an asset itself, has generated more wealth in its short 15-year history than any other type of investment.

From a statistical perspective, the following conclusion can be drawn: Bitcoin has been considered to be in a “bubble” phase four times, experiencing exponential growth. However, unlike traditional bubbles that would burst within a few months, Bitcoin has shown strong growth resilience, with its average Diaman ratio being less than 1; the growth is high but not exponential. In fact, power laws can describe the growth of Bitcoin prices quite well.

It can also be clearly seen that the intensity and duration of these “bubble” phenomena have decreased over time, to the extent that in the last cycle starting in 2024, (at least so far) price growth is no longer exponential. Both returns and volatility are declining, indicating that it may take Bitcoin 15 years to reach a value of over one million dollars (if it can indeed reach it), making many predictions about Bitcoin reaching 13 million dollars by 2040 statistically very unlikely.

What does this new normal mean for investors? First, the expectation of receiving tens of times returns after each Bitcoin Halving cycle has become unrealistic. Second, Bitcoin is transitioning from a high-risk speculative asset to a relatively stable store of value, similar to the evolutionary path of traditional safe-haven assets like gold. Finally, the cryptocurrency winter may not be as extreme as in 2018 or 2022, but rather manifest as a milder correction.