Most investors, particularly those who have endured multiple crypto winters, now understand that Bitcoin operates in approximately four-year cycles. Until 2022, many believed that Bitcoin would consistently stay above its prior highs.
This scenario unfolded in 2011, 2014, and 2018. However, in 2022, Bitcoin’s price plummeted to $15,000 due to the FTX collapse, falling below the critical threshold of $20,000 briefly reached in December 2017.
As everyone speculates about Bitcoin’s peak value in this cycle, expected to conclude around late October 2025, Diaman Partners’ research department has aimed to estimate what Bitcoin’s minimum value could be in 2026 if a crypto winter occurs in the upcoming months. Many experts theorize that Bitcoin’s cyclical phase may be over as we transition into a new, steadier phase of growth.
Various factors support this theory, including significant fund inflows from American ETFs, rising institutional demand, and increasing participation from treasury companies and pension funds now able to invest in Bitcoin (at least in the U.S.).
Maintaining a critical engineering perspective, it’s reasonable to believe that Bitcoin cycles will persist, albeit with reduced intensity, for years to come. From a risk management standpoint, the potential for another crypto winter cannot be dismissed.
It’s worth noting the concept of utilizing the robust 200-week average model, well-regarded in the field, originates from Adam Back.
The chart illustrates that, except for 2022, where prices dropped unexpectedly due to the FTX effect, the 200-week moving average has historically offered solid support during price declines. The red line on the chart represents the percentage difference between Bitcoin’s price and the moving average, suggesting that the 200-week average indicates resistance levels, marking potential maximum drawdowns during a crypto winter.
A keen observer may note that the transition from highs to lows takes time. During this period, the average continues to rise, which may lead to an overestimation of potential losses. Today’s average exceeds $51,000, making a 60% loss appear exaggerated—an observation that holds merit.
To project the 200-week average for late 2026, the estimated conclusion of a potential crypto winter (if it occurs) and in line with prior cycles’ amplitude, Diaman Partners conducted a Monte Carlo simulation. This simulation aims to determine the likelihood of historical series achieving a certain price while estimating a range of values for the 200-week average during the period when the price is most likely to find support.
For those interested in Monte Carlo simulations, there is a model featuring diminishing returns and volatility (as opposed to traditional static mean and variance models) based on power law functions regarding annualized returns in 200-week rolling windows, ensuring consistency, as displayed in the chart below.
This precaution is essential given the technical characteristics of Bitcoin’s returns and volatility, which have significantly diminished over the years. This trend supports the belief that Bitcoin is unlikely to experience exponential growth based on average historical returns.
This graph demonstrates that Bitcoin returns are not exponential, suggesting that as Bitcoin’s market capitalization increases, one can expect a decrease in annual returns and volatility over time. A larger asset requires more energy to move it.
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Nonetheless, assuming that there will be no further drawdowns exceeding -50% under the current volatility is overly optimistic. Thus, assessing the possible drawdown for this fourth cycle in Bitcoin’s history is crucial.
Based on the simulation, which analyzed 1,000 random historical series, it shows that Bitcoin has only a 5% chance of falling below $41,000 in December 2026. This would indicate that the price has surpassed the moving average, projected to be around $60,000 despite potential declines. The 5th percentile (represented by the red line in the chart) suggests that the anticipated price at the end of the crypto winter cycle, indicated by the 200-week average, would be approximately $60,000.
Conversely, if Bitcoin’s price continues to rise and only experiences a decline in 2026 (or stays consistent with the Monte Carlo projections), the potential low support value at the end of 2026 could exceed $80,000.
To envision such a scenario, from the 1,000 simulations, we selected one that indicates strong growth for Bitcoin in the months ahead, followed by a notable decline nearing the end of 2026.
If we reverse engineer from the potential bottom of 2026 set at $80,000, the following table outlines the maximum possible loss during the next crypto winter based on Bitcoin’s peak price in the coming months. Noting that drawdowns during past cycles have declined (-91%, -82%, -81%, -75%), expecting a -69% drawdown may be feasible, making the target price of $260,000 by 2025 seem achievable.
On another note, examining the logarithmic chart, such a trend appears consistent with previous cycles. This analysis does not constitute investment advice but represents an intellectual attempt to forecast an uncertain future, where maximum and minimum values are based solely on models that may not necessarily materialize.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
