The End of Bitcoin's Four-Year Cycle: A New Era of Liquidity

For many years, Bitcoin's four-year cycle provided investors with a straightforward narrative: halving rewards led to scarcity, and scarcity drove prices upward. This pattern, consistent for over a decade, saw the mining rewards halved every four years, resulting in a tighter supply followed by speculative buying that often pushed prices to new all-time highs.

However, the current landscape presents a stark contrast. As Bitcoin trades slightly above $100,000 this week—down approximately 20% from its October peak that exceeded $126,000—the traditional narrative appears increasingly frail.

In a revealing statement, Wintermute, a prominent player among digital asset market makers, openly declared, "The halving-driven four-year cycle is no longer relevant." In a recent note, the firm emphasized that current performance is primarily influenced by liquidity rather than the halving events. This assertion may challenge the beliefs of long-time Bitcoin enthusiasts, but the available data supports this pivot in perspective.

Today, the Bitcoin market is increasingly characterized by the influence of ETFs, stablecoins, and significant institutional liquidity flows. In contrast, the issuance of new coins from miners appears to be a minor factor in the grand scheme of market activity.

The recent rise and subsequent decline of Bitcoin closely align with one key metric: ETF inflows. In the week ending October 4, crypto ETFs worldwide attracted a staggering $5.95 billion, with U.S.-based funds contributing the bulk of this capital. Just two days later, the market recorded an unprecedented daily net inflow of $1.2 billion.

This influx of funds coincided almost perfectly with Bitcoin's ascent to its record high of approximately $126,000. However, as ETF inflows diminished later in the month, so too did Bitcoin's momentum, pushing it back toward the $100,000 mark by early November amidst mixed ETF reports and minor outflows.

The correlation between ETF activity and Bitcoin's price movements is striking, suggesting a newfound reliance on liquidity rather than the historical halving cycle. Previously, the halving event served as a clear model for understanding Bitcoin's supply and demand dynamics: every 210,000 blocks mined resulted in a halving of the rewards distributed to miners.

Since the last halving in April, miners now earn 3.125 BTC per block, translating to roughly 450 new coins produced daily, valued at about $45 million at current market prices. While this daily supply influx might seem substantial, it pales in comparison to the colossal institutional capital now flowing through ETFs and other financial instruments.

To illustrate, just a few ETFs can absorb $1.2 billion worth of Bitcoin in a single day—an amount that is twenty-five times greater than the daily supply entering the market. Even regular weekly net flows often equal or surpass the total weekly supply of newly minted coins.

While the halving event maintains its significance for miner economics, its impact on market pricing has notably diminished. The crux of the matter shifts from the volume of new coins produced to the amount of capital circulating through regulated financial channels.

Adding another dimension to this evolving liquidity landscape are stablecoins. The total supply of dollar-pegged tokens currently ranges between $280 billion and $308 billion, depending on the source, effectively acting as the base currency for the cryptocurrency markets.

A growing supply of stablecoins has historically been associated with rising asset prices, offering fresh collateral for leveraged trading and immediate liquidity for investors. Whereas the halving restricts the flow of new Bitcoins, stablecoins serve to enhance demand by unlocking additional capital in the market.

Kaiko Research's October report vividly illustrated this transformation in real-time. In mid-October, a sudden wave of deleveraging erased over $500 billion from the total cryptocurrency market capitalization as order-book depth vanished, and open interest reset to lower levels. This episode highlights the fragility of the market, driven primarily by liquidity flows rather than the predictable rhythms of the halving cycle.

As the market continues to evolve, the traditional four-year cycle narrative appears to be losing its grip. Investors must now navigate a landscape where liquidity and institutional involvement dictate trends, reshaping how they view Bitcoin's price dynamics. The question remains: as the role of market makers and liquidity flows expands, will Bitcoin's identity as a scarce digital asset be redefined in this new paradigm?