The Market Cycle

All markets operate in cycles, but the cause of these cycles could be greatly different. Day traders search for patters typically caused by other traders. Long and short positions in the traditional market aim to predict the business cycle, which has a lot to do with how different businesses and governments interact, changing incentive and profitability over time.

In commodities the cycles are predictable, but traders often change the predictability of the value of the commodities.

Why are commodity markets predictable?

If the wheat harvest is in September you can predict that the farmer sells it afterward. The processor then sells it after processing, and the wholesaler then sells it to the retail store. While our economy is a little more complex than this picture, it's the fundamental basis. If you know when the windfall happens in advance you can place investments to capitalize from it. As more investors recognize a very predictable pattern they invest earlier and sell earlier until the value proposition has market equilibrium or has been randomized by the investors.

Is Bitcoin a Commodity?


Some may debate semantics here, and there are plenty of cryptos that fall under the definition of a security, Bitcoin and most major coins are commodities. They are found or made through effort, not decree. They exist individually, as in, cannot be copied. I do see a future clarification between physical and digital commodities because they are very different, but both are commodities.

United States Court rulings have also deemed Bitcoin, Litecoin and some other cryptos as commodities.

Predicting the Cycle

Bitcoin has a supply cycle that is publicly known to anyone willing to look. Bitcoin blocks are about 10 minutes apart, and every 210,000 blocks the amount of bitcoin units able to be found by a miner is halved by the network consensus rules. This means there is less new bitcoin that can be sold every 4 years. In the world of commodities, something that is in demand but has a lowering supply increases in value. Less bitcoin to be sold but equal buyers means higher prices. One could buy wheat in October, then sell it in August, like one could buy bitcoin in 2015 and sell it in 2017 then buy in 2019 and sell in 2021.

Because of existing stock each Bitcoin cycle should have less market effect than the last and because of the nature of investors the cycle could be dulled to no price effect, or greatly over invested to highs far beyond the expected effect.

What about other coins?

Coins besides Bitcoin have their own network rules and cycles. Even so, almost all follow the Bitcoin cycle because they rely on Bitcoin popularity to grow more than their own fundamentals. This may change in the future, but as of writing in 2021, it is proving true again.

So every 4 years bitcoin price will go up?

If only it were that simple. Investors will ultimately decide where to put their value. If there were only basic miners and users that always existed at the same levels it would be extremely easy to predict the exact future value of 1 satoshi. Because the market is much more complex, other factors could far overshadow the supply metric. Additionally, each Bitcoin cycle has less effect on the existing stock, so each halving should be less relevant compared to outside factors.