Bitcoin market cycle evolution: from early hype to institutionalization phase

As the largest market-cap cryptocurrency asset, Bitcoin has experienced multiple complete crypto phases cycles since its inception in 2009. Each upward cycle is accompanied by unique driving factors, participant structures, and market characteristics, while the down cycles repeatedly verify its resilience as a digital asset. Understanding the logic behind these cycles is crucial for seizing future opportunities.

The Core of Bitcoin Cycles: The Game of Scarcity and Expectations

Bitcoin’s price fluctuations follow a fundamental rule—halving occurs every four years. This mechanism gradually reduces miner rewards from the initial 50 BTC, ultimately reaching an absolute cap of 21 million coins around 2140. Each halving event triggers a shift in supply expectations, sparking a new crypto phases cycle.

After the first halving in 2012, Bitcoin rose from $145 to $1200, a 730% increase. During the second halving in 2016, the price climbed from $600 to around $19,500. The third halving in 2020 propelled Bitcoin from $8,000 to over $64,000. Behind these numbers lies the same mechanism: supply compression → increased scarcity → revaluation of value.

2013: The Retail Awakening and Trial-and-Error Period

Bitcoin’s first major rally began in 2013. Between May and December of that year, the price surged from $145 to $1200, attracting the attention of the first non-professional investors. The driving forces behind this rally came from three aspects:

Media Attention Explosion: Bitcoin’s sharp rise first made headlines in mainstream financial outlets, sparking public curiosity.

Financial Hedging Demand: During the Cyprus banking crisis, some funds started viewing Bitcoin as a tool to hedge against local currency devaluation.

Initial Infrastructure Development: The emergence of trading platforms lowered the barrier for ordinary investors to participate.

However, in early 2014, the collapse of Mt.Gox (which handled about 70% of global Bitcoin transactions at the time) led to a market confidence crash, with prices falling below $300, a drop of over 75%. This event profoundly impacted Bitcoin’s development trajectory, exposing centralization risks and promoting the later development of more decentralized trading infrastructure.

2017: Retail Boom and Regulatory Countermeasures

The 2017 market showed a completely different crypto phases characteristic. Bitcoin soared from $1,000 at the start of the year to nearly $20,000, a 1900% increase. The participant structure changed significantly.

ICO Boom Spillover: Many new projects raised funds through initial coin offerings, which in turn stimulated demand for Bitcoin.

Rapid Expansion of Exchanges: New trading venues made it easier for retail investors to enter.

Media Frenzy: Bitcoin jumped from financial news to a nationwide topic, with FOMO reaching its peak.

Daily trading volume surged from $200 million at the start of the year to $15 billion by year-end. But the good times didn’t last—early 2018 saw China ban ICOs and domestic crypto trading, triggering chain reactions. Bitcoin eventually fell to $3,200 in December 2018, an 84% decline from its high.

This cycle exposed the fragility of retail markets: when driven solely by sentiment without fundamental support and facing regulatory crackdowns, collapses can be sudden and severe.

2020-2021: The Great Migration of Institutional Capital

The crypto phases during 2020-2021 marked a new stage in Bitcoin’s development—upgrading from a retail game to an institutional allocation.

Milestone of Institutional Entry: Mid-2020, MicroStrategy announced allocating corporate funds to Bitcoin; soon after, publicly listed companies like Square and Tesla followed. These actions sent a strong signal to the market—that Bitcoin is no longer a fringe asset.

Narrative Framework Update: Evolving from “Payment Revolution” to “Digital Gold” and “Inflation Hedge.” Amid the pandemic, with central banks flooding markets with liquidity, Bitcoin’s scarcity narrative resonated more than ever.

Derivatives Market Maturity: CME futures were approved at the end of 2020, followed by the launch of spot ETFs in various countries, lowering institutional entry barriers and costs.

In this phase, Bitcoin rose from $8,000 to $64,000, a 700% increase. Institutional holdings hit record highs—by mid-2021, publicly traded companies held over 125,000 BTC.

2024-25: Spot ETF and a New Chapter in Cycles

The current crypto phases cycle shows clear “institutionalization” features.

Key Catalyst: In January 2024, the US SEC approved a spot Bitcoin ETF. This decision is significant—it allows institutional investors to allocate Bitcoin through traditional 401(k) retirement accounts and funds without dealing with wallets, private keys, and technical complexities.

Data in Numbers: As of November 2024, inflows into spot Bitcoin ETFs exceeded $4.5 billion, setting new records. BlackRock’s IBIT fund alone holds over 467,000 BTC. In comparison, the total holdings of all spot Bitcoin ETFs are approaching 1 million BTC.

Price Performance: Bitcoin has risen from $40,000 at the start of the year to $93,000 (current trading price $87,420), a 132% annual increase. The all-time high is $126,080.

Supply Side Pressure: The April halving further constricts new supply. Meanwhile, large institutions like MicroStrategy continue to increase holdings, further locking up circulating Bitcoin.

Technical Tools for Identifying Cycle Turning Points

For investors aiming to seize crypto phases opportunities, learning to identify signals of cycle shifts is essential.

On-Chain Indicators:

• Exchange Outflows: Large-scale withdrawal of Bitcoin from exchanges often indicates long-term holding intentions and optimistic market sentiment.
• Stablecoin Inflows: Heavy inflows of stablecoins into exchanges suggest growing buying power.
• Whale Wallet Activity: Buying or selling activity by large wallets often leads market changes.

Technical Indicators:

• RSI (Relative Strength Index): Above 70 typically indicates a strong upward trend.
• 50-day and 200-day Moving Averages: Breakouts after convergence often signal the start of a new upward cycle.

Macro Monitoring:

• Changes in interest rate policies
• Regulatory attitude shifts
• Announcements of new institutional entries

Risks and Opportunities in the Current Cycle

Upside Factors:

• Support from the fifth halving (expected 2028)
• More countries may include Bitcoin in national reserves (e.g., El Salvador, Bhutan precedents)
• Layer-2 expansion solutions (like OP_CAT upgrade) could extend Bitcoin’s functionality from a store of value to DeFi ecosystem participant

Downside Risks:

• Declining risk appetite in a high-interest-rate environment
• Sudden regulatory policy shifts
• Macroeconomic recession potentially triggering risk asset sell-offs
• ESG-related environmental scrutiny on mining

Investment Strategies for Different Cycle Stages

Different crypto phases cycles require tailored strategies:

Early Uptrend: Market awareness begins to improve but adoption remains low. Suitable for gradually building foundational positions.

Mid-Acceleration: FOMO is intense, new participants flood in. Control position sizes and set risk management tools (like stop-loss orders).

High-Range Consolidation: Prices near historical highs or under pressure, volume may decline. Be alert, consider partial profit-taking.

Downward Correction: Market pessimism prevails, but long-term holders often accumulate during this phase.

Infrastructure Development and Its Impact on Cycles

Each crypto phases cycle spurs infrastructure progress:

• 2013: Drives the birth of exchanges and wallet tools
• 2017: Promotes blockchain security audits and compliant exchanges
• 2021: Triggers innovations in derivatives markets and custody solutions
• 2024: The emergence of spot ETFs marks the formal integration of institutional finance

These advancements lower participation barriers, attracting larger capital flows, creating a self-reinforcing cycle.

Key Events to Watch in the Future

Technological Upgrades: The OP_CAT code recovery could significantly boost Bitcoin’s computational capacity, potentially increasing transactions per second from the current 7 to thousands. This opens doors for DeFi applications within the Bitcoin ecosystem.

Policy Inclinations: The proposed “Bitcoin Act of 2024” by the US Senate suggests the Treasury will purchase 1 million BTC over five years. Such government-level recognition, if realized, would fundamentally change the market landscape.

Institutional Expansion: Expect more pension funds, insurance firms, and family offices to allocate Bitcoin as part of their asset portfolios.

Looking Ahead: The Dialogue Between Cycles and Evolution

Bitcoin’s crypto phases cycle reflects a deeper truth: markets tend to overestimate short-term changes and underestimate long-term trends. Over the past decade, seemingly catastrophic “crashes” (like Mt.Gox in 2014, regulatory bans in 2018) have ultimately become catalysts for technological progress and market restructuring.

What sets the current cycle apart is that Bitcoin has evolved from a fringe asset to a mainstream financial component. This means future cycle fluctuations, while still intense, may see gradually rising bottoms and prolonged tops.

For investors, understanding the essence of cycles is not about perfect timing but about avoiding being caught off guard when opportunities arise and remaining calm during risks. Bitcoin’s history shows that those who experience full cycles and survive often reap the greatest rewards.

The key is to stay alert, keep learning, and adhere to fundamentals—this is the true secret to navigating cycles.