The Bitcoin Adoption Trend: Bitcoin Could Increase by 375% or More in Two Years

They say a picture is worth a thousand words, and the adoption of Bitcoin, gaining broader acceptance as a long-term savings vehicle over time, is illustrated in the following chart:

The dark purple area represents the secular long-term trend of mainstream institutions and individual investors increasingly adopting Bitcoin as they become more aware of its status as the most robust and secure global savings network in the world.

As we can see, the purple shaded area is on a long-term overall downward trend, indicating that holders are increasingly hoarding their coins and the circulating supply has become extremely illiquid over time. In stock market terms, this is similar to a situation where very few shares are available for trading when insiders are reluctant to sell their holdings.

Currently, almost 80% of Bitcoin is considered illiquid, as savers increasingly choose to hold onto their coins. This illiquid percentage is trending higher over time!

These long-term on-chain analytics of Bitcoin are extremely bullish. With a decreasing supply available for trading, which is at a record low percentage of all circulating supply, it will require less increased demand to drive up the price.

Bitcoin’s Unique Position in Portfolio Rebalancing

Due to Bitcoin’s tendency to experience bull and bear markets in short 4-year cycles (consisting of 2-year bear markets and 2-year bull markets completing a 4-year cycle), and its inherent volatility, it is an ideal asset to rebalance in portfolios based on its halving events. Halving events occur every 4 years, resulting in a reduction of supply by half. This typically triggers supply and demand imbalances and sparks price increases.

Bear Markets in Bitcoin

Bear markets in Bitcoin usually begin when new adoption (represented by young supply) peaks in the 4-year cycle.
It’s worth noting the spikes in the purple areas in the chart above. These spikes are when liquid supply periodically does reenter exchanges, and more Bitcoin becomes available. The purple area includes all holders: old supply and young supply. These spikes coincide with Bitcoin’s all-time highs, which have occurred approximately a year and a half after each halving event (the next halving is expected in April 2024).

If Bitcoin’s 4-year cycle trends continue as they have in the past (which seems likely), Bitcoin should experience a minimum increase of 375%+ from today’s price by the second half of 2025, and young supply (representing new adoption) should begin to peak at that time, indicating that another 4-year cycle is nearing its end.

Approximately a year and a half after each halving event, as Bitcoin reaches its all-time highs, long-term holders (referred to as “old supply” or seasoned holders) start selling some of their Bitcoin at these local 4-year tops. This is likely done to make personal purchases or take profits. Meanwhile, while old supply is net selling, young supply (recently transacted Bitcoin or Bitcoin held for less than 6 months) is net buying (which indicates the local 4-year top is close).

It’s an interesting phenomenon.

The following chart visually represents this dynamic of old and new supply, with the reddish area indicating spikes in young supply (new buyers) as Bitcoin approaches its record all-time highs. On the other hand, the blue area represents old supply, which tends to become net sellers near Bitcoin tops around a year and a half after each halving event.

As the price of Bitcoin stabilizes and reaches its bottom, old supply becomes steady hands and starts accumulating again. These are the seasoned Bitcoin holders who understand the power of the digital savings network. Meanwhile, young supply capitulates and remains in a lower range until a new wave of adoption begins.

Analyzing the behavior of young supply provides insights into short-term market sentiment and indicates where we are in Bitcoin’s 4-year cycle. Rapid accumulation of young supply suggests increasing buying interest among new adopters, followed by large upward price movements. When young supply goes parabolic, it indicates an overheating market with excessive enthusiasm, signaling a need to lighten up on positions.

As long as these 4-year cycle trends continue, FMT believes that Bitcoin could be the ultimate candidate for portfolio rebalancing, protecting and growing capital over time.

The next halving is expected in April 2024, which means the next bull market could start in the winter. If the United States and the Securities and Exchange Commission approve a spot Bitcoin ETF, it could provide substantial traction for new Bitcoin adoption (young supply).

Approval appears to be on the horizon, with Blackrock (one of the largest ETF managers and globally connected firms) filing for a spot ETF.
Once a spot ETF is approved, it would introduce a significant amount of young supply (adopters) and could lead to one of the largest price moves in Bitcoin’s history over the next couple years.

Rebalancing for Protection and Growth

Given the short 4-year cycles and substantial price fluctuations in Bitcoin (although it has consistently reached new all-time highs over the long term), rebalancing can help protect against downside risks in a portfolio and potentially enhance long-term returns.

To simplify the math, let’s consider an initial Bitcoin core position at an appropriate weighting. If Bitcoin follows its typical halving bull run, the position should be rebalanced by taking profits off the table as the bull market progresses (usually when young supply surges). If Bitcoin also experiences its typical 2-year bear market afterwards, the initial position that wasn’t sold may decrease. However, this is acceptable because significant gains were already realized and taken off the table.

If this cycle no longer follows the historical pattern because of unforeseen events, the overall portfolio risk remains low due to the initial weighting not being outsized, which could easily be compensated by other areas of the portfolio. Alternatively, if Bitcoin deviates from its 4-year cycle and just continues to go up, maintaining an initial core position after rebalancing will help capture the new trend.

In any case, the long-term on-chain analytics and adoption trends of Bitcoin continue to indicate its relentless upward trajectory. It has become an asset that will likely be hard to ignore over the long term, and there are ways to mitigate its volatility.