Bitcoin Cycles, Entering 2025

Summary During its halving, bitcoin’s mathematically-metered supply - or “issuance” - is cut in half. In April, the issuance of bitcoin was cut in half from 6.25 to 3.125 bitcoin per block. Compared to its last cycle high at $67,589 on November 8, 2021, the price of bitcoin as of November 13, 2024, was 1.33x higher. By David Puell, Research Associate During its halving, bitcoin’s mathematically-metered supply - or “issuance” - is cut in half. The halving has occurred roughly every four years since bitcoin’s inception during the Global Financial Crisis. Past halvings have taken place during the early stages of bitcoin bull markets. On April 19, however, bitcoin’s fourth halving led to a choppy market, until recently. Although the launch of the US spot bitcoin ETFs in January bolstered market demand early in the year, other significant events increased supply in circulation thereafter. Chief among them were the release of long-dormant coins into circulation - those seized by the German and US governments, followed by repayments to Mt. Gox creditors. 1 Our message to investors is that bitcoin’s performance is roughly in sync with the historical four-year cycles. As a result, we are optimistic about its prospects for the next six to twelve months. In this paper, we examine the cyclical dynamics that should continue to shape bitcoin’s long-term market performance. Bitcoin Halving Cycles In April, the issuance of bitcoin was cut in half from 6.25 to 3.125 bitcoin per block. Since then, as of November 13, its price has increased 41.2% from $64,013 to $90,446, underperforming the last two post-halving periods during which it appreciated 53.3% and 122.5%, respectively, by this time in the cycle, as shown below. 2 Source: Glassnode, as of November 13, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results. Bitcoin Performance From Last Cycle High and Last Cycle Low Compared to its last cycle high at $67,589 on November 8, 2021, the price of bitcoin as of November 13, 2024, was 1.33x higher. Importantly, however, during the bear market in 2022, bitcoin’s maximum drop was “only” 76.9%, less than previous cycle declines of -86.3% in 2018, -85.1% in 2015, and -93.5% in 2011, as shown below. Source: Glassnode, as of November 13, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results. That said, since its last cycle low, the price of bitcoin has increased 5.72x, not far from the 5.18x at this point in the 2015-2018 cycle and 5.93x in the 2018-2022 cycle. If it continues to follow the average pattern of those two cycles, the price of bitcoin over this cycle could increase 15.4x to ~$243,000 during the next year (880 days after the cycle low in November 2021), as shown in the dotted circle below. Source: Glassnode, as of November 13, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results. Forecasts are inherently limited and cannot be relied upon. Bitcoin Calendar Year Cycles By November 13, 2024, even though the price of bitcoin has increased 2.14x, or 114.1% year-to-date, its performance has paled relative to the highest returns in three of the past annual cycles, as shown below. That said, the multiple is clearly higher than those during the three years of negative returns in 2014, 2018, and 2022. Source: Glassnode, as of November 13, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results. In 2024, with the launch of the spot bitcoin ETFs in the US, bitcoin’s performance multiple went through a notable “overbought” spike in the second quarter and, with the release of supplies associated with government seizures and repayments to Mt. Gox creditors, bitcoin suffered a prolonged “oversold” period that lasted until after the US Presidential Election, as shown below. Source: Glassnode, as of November 13, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results. As of November 13, 2024, bitcoin’s performance multiple reached 2.14x, outperforming the 2.06x average 3 for all sampled years, 2011 to 2023, as well as the 2.04x average of all calendar years in which halvings have occurred: 2012, 2016, and 2020. If bitcoin were to match the general historical average or the average of all halving years at December’s end, its 2024 performance multiple could hit between 2.48x and 2.94x, its price potentially reaching between ~$104,000 and ~$124,000. Bottom line, if institutions continue to gravitate toward this new asset class, and the US government seriously contemplates adding bitcoin to its strategic reserves, we anticipate a strong close to 2024 and continued momentum during 2025. Important Information Bitcoin is a relatively new asset class, and the market for bitcoin is subject to rapid changes and uncertainty. Bitcoin is largely unregulated and bitcoin investments may be more susceptible to fraud and manipulation than more regulated investments. Bitcoin is subject to unique and substantial risks, including significant price volatility and lack of liquidity, and theft. Bitcoin is subject to rapid price swings, including as a result of actions and statements by influencers and the media, changes in the supply of and demand for bitcoin, and other factors. There is no assurance that bitcoin will maintain its value over the long term. ARK strongly encourages any investor considering an investment in bitcoin or any other digital asset to consult with a financial professional before investing. All statements made regarding bitcoin are strictly beliefs and points of view held by ARK and are not recommendations by ARK to buy, sell or hold bitcoin. Historical results are not indications of future results. Mt. Gox was a bitcoin exchange that once handled up to 70% of bitcoin’s total trading volume. It declared bankruptcy in 2014 after it was found to have run a fraudulent fractional reserve, incurring the loss of 850k bitcoin from users’ funds at the time. During 2024, a large portion of reclaimed bitcoin was repaid to creditors, from an estimated 141,686 bitcoin at the start of the year to 27,877 by November 13. Data estimates sourced from Glassnode. All charts in this article use a performance multiple as unit of measurement for returns, calculated by dividing the price dollar value at the end of the date range by the price dollar value at the start of the date range. All averages in this article are calculated as geometric means, as opposed to arithmetic means. Arithmetic means take the sum of all values in a time series and divide it by the number of data points in said time series; conversely, the geometric mean takes the product of all values and takes the nth root of the number of data points in the time series. We’ve used this geometric calculation since it results in more conservative means than its arithmetic counterpart. ©2021-2026, ARK Investment Management LLC (“ARK” ® ”ARK Invest”). All content is original and has been researched and produced by ARK unless otherwise stated. No part of ARK’s original content may be reproduced in any form, or referred to in any other publication, without the express written permission of ARK. The content is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect to any products or services for any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. 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