Morgan Stanley: Crypto Winter is Over, Bitcoin Halving to Ignite a New Bull Run

By  Noah Washington November 1, 2023

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  • A Morgan Stanley report declares end of crypto winter, cites impending Bitcoin halving as a catalyst for a new bull run
  • Bitcoin halving events occur every 4 years, reducing supply and historically igniting price increases
  • Key indicators like miner capitulation, price retracement, and thermocap marked the end of the prolonged bearish trend and the beginning of a new bull run

A recent report from financial giant Morgan Stanley forecasts positive signs for digital assets. Morgan Stanley's wealth management division has declared that an era of "crypto winter" has likely come to an end, and the forthcoming Bitcoin halving event will catalyze a new bull run, echoing patterns seen in previous market cycles.

This assertion, outlined in their report titled "Will Crypto Spring Ever Come?", provides intriguing insights into the cyclical nature of cryptocurrency markets and the pivotal role of Bitcoin's halving events in shaping these cycles.

A Seasonal Analogy

The ups and downs of the cryptocurrency market follow predictable cycles similar to seasons. In the "crypto spring," optimism sprouts as the market awakens from its slumber before each Bitcoin halving event. Investor excitement gradually blossoms, just like the first signs of spring breathe new life into nature after a cold winter. This cautious hopefulness signals a recovery is underway in the crypto world.

The "crypto summer" starts when a Bitcoin halving occurs, cutting its production in half. This supply shock causes Bitcoin prices to heat up, much like the warmth of summer draws people outdoors. The halving marks a critical turning point, with scarcity now fueling tremendous demand. As Bitcoin reaches new highs, media buzz builds, attracting newcomers to crypto's summer boom. Businesses take notice, investors pour in, and the market enters its peak "crypto fall" season.

This period is like an Indian summer, with crypto basking in the glow of its popularity. But the party ends as "crypto winter" arrives. The bear market sees investors cash out, prices plunge, and crypto consolidates. This protracted phase lasts for months, allowing the industry to reflect and regroup.

The Role of Bitcoin Halving

Central to Morgan Stanley's analysis is the profound influence of Bitcoin's halving events. These events, which occur approximately every four years, have a historical track record of kickstarting bullish trends in the crypto market. As noted by Morgan Stanley analyst Denny Galindo, "Historically, most of Bitcoin's gains come directly after a 'halving' event that occurs every four years."

Bitcoin halving is an event that happens about every 4 years where the mining reward - the amount of bitcoin miners receive for processing transactions - gets cut in half. When Bitcoin first started, miners received 50 bitcoins per block mined.

Bitcoin supply. Source: Global X ETFs

But Satoshi Nakamoto, the anonymous creator/group that created Bitcoin, programmed the rewards to decrease by 50% every 210,000 blocks, which takes around 4 years. This gradual reduction in rewards is part of Bitcoin's design to control the supply over time. During each halving, the mining reward gets slashed by 50%, so it went from 50 to 25 to 12.5 bitcoins and so on.

As the rewards shrink, less new bitcoin enters circulation. With supply going down and demand increasing, past halvings have driven up price. The next halving is expected in April 2024 and could push prices higher again. While halvings lower miners' profits in the short term, they help keep bitcoin scarce and valuable over the long term.

As rewards decrease, transaction fees will eventually become the main mining incentive when the 21 million bitcoin limit is reached.

Signs of Crypto Spring

Determining whether the crypto spring is on the horizon involves evaluating key factors. Historical patterns reveal that the bottom of bitcoin in previous crypto winters typically occurs about 12 to 14 months after the peak, offering a timeline for market cycles. This historical insight provides a crucial context for assessing the current market conditions.

Another pivotal factor to consider is the decline in bitcoin's value from its all-time high. Past crypto winters have witnessed bitcoin prices plummet by approximately 83% from their previous highs. Such significant price retracement is indicative of a bearish phase nearing its end.

Price action itself can signal the end or beginning of a new cycle. A substantial 50% increase in Bitcoin's price from its lowest point typically indicates a bottom, signaling a potential shift toward a bullish phase.

Bitcoin price the past year. Source: CoinGecko

Morgan Stanley's belief in the end of the crypto winter and the advent of a new bull run driven by the upcoming Bitcoin halving is a testament to the cyclical nature of cryptocurrency markets. Investors and enthusiasts alike are encouraged to monitor the identified indicators closely to gauge the crypto market's future direction.

As the community awaits the next Bitcoin halving, it remains poised for what could potentially be a season of renewed growth and opportunity in the digital asset space.