If you’re new to bitcoin or crypto, this news can seem alarming — but this has all happened before. In late 2018, bitcoin miners were going bankrupt and the hashrate was falling. Many long-term crypto investors still remember this Ethereum World News article from November 2018:
And it’s not just these bitcoin events that have happened every four years. The first major bull market in bitcoin was in 2013. The next one came in 2017, and the most recent one was in 2021. Each bull market has been spaced out by around four years.
Throughout its history, bitcoin has behaved in a mysteriously predictable way, based on a four-year repeating cycle. The cycle consists of three periods:
- A rising period, or “boom,” that lasts around a year and a half.
- A falling period, or “bust,” that lasts about a year.
- A “stabilization” period that lasts about a year and a half, in which the price rises slowly or goes sideways.
At the end of the stabilization period, the process has historically started over.
What accounts for the strange four-year cycle? No one knows for sure, but the most common explanation is that it is caused by the “Bitcoin Halving Event” that occurs every four years. The event causes miners to behave in ways that lead to a four-year cycle for bitcoin’s price.
When Bitcoin was first created, it was programmed to reduce mining output by 50 percent every 210,000 blocks, which is approximately every four years. Each time this happens, the cost of producing a single bitcoin doubles.
The rising period
When the cost of producing a bitcoin doubles, it causes large miners to hoard bitcoins instead of selling them since they would otherwise be selling their coins at a loss. That drives up the price of bitcoin on the open market, which in turn causes mining profits to increase.
This period of rising price and increased mining profits usually goes on for about a year and a half after the halving event. This is the “bitcoin bull market” that keeps repeating every four years.
As mining profits go up, newer, more opportunistic miners enter the market. These new miners use the latest, most efficient mining computers, and they sell a large percentage of their coins.
If enough of these miners enter the market, they will start to seize market share from the older, less efficient miners. That eventually forces the older miners to sell their bitcoin stashes and buy more efficient computers.
The falling period
But these old, dominant mining firms are sitting on huge stashes of bitcoins. When these firms start selling, it causes a tremendous decline in the price of bitcoin. That causes the smaller mining firms (which don’t have access to capital) to go bankrupt, at which point the major miners re-establish their market power.
This period of clearing out the weaker bitcoin miners is called a “crypto winter,” and it’s the period we seem to be going through right now (although we can’t say for certain it’s only a crypto winter and not an ice age).
The stabilizing period
If a crypto winter goes on long enough, all the weak miners get pushed out of the market. At that point, the price of bitcoin stabilizes — until the next halving event, when the whole process starts over again.
FYI: Not all cryptos go up or down based on the same characteristics. Proof-of-stake cryptos such as Avalanche (AVAX) and Fantom (FTM), for example, can be staked to earn a yield, and they behave very differently from proof-of-work cryptos such as bitcoin. You can find out more about what causes a crypto to go up or down in value in our guide, How Does Cryptocurrency Gain Value?
Of course, this is just a theory. It’s the most common way of explaining why we keep seeing these periods of bitcoin mining decline every four years. But it would be very difficult to prove the theory conclusively.
Still, it’s important to recognize that, whatever the reason, it’s normal for bitcoin to have a period when small miners go bankrupt and get gobbled up by larger competitors. It happened in 2014, 2018, and, now, 2022. It may happen in 2026 as well.