Is this the cycle to end all?

The conventional wisdom of the cryptoverse is that there is a boom-and-bust cycle to the blockchain and cryptocurrency industry. This cycle is led by the “King of Cryptos” Bitcoin.

Bitcoin (BTC) is programmed to halve roughly every four years, cutting the supply of new coins to miners in half. A halving sends a supply shock into the market, and as seen over the past three cycles, this undervaluation and overpricing in the market is partly responsible for the dramatic swings.

Other factors also play an important role in this cycle, including general network adoption, widespread use cases for Bitcoin – such as the Lightning Network for its flexibility and informal tokens – and the ever popular “institutional adoption”.

In the year In 2020, BTC instructor and Trust Machines marketing consultant Dan Held predicts that Bitcoin will finally see a “supercycle,” citing the increase in network value (Metcalfe's Law) as adoption grows, halvings, and increased scarcity. Institutional adoption.

This supercycle would, in theory, see Bitcoin run up to new all-time highs, from which there would be no further losses, as there would be enough adoption and institutional support to drive the price higher.

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This support did not occur in the last cycle, and Bitcoin fell from the all-time high of $69,000 at the end of 2021, bringing the rest of the market with it. All those supply cuts, network growth and additional commercial and institutional support were not enough to support the meteoric rise.

During the last cycle, exchange-traded funds (ETFs) gained worldwide acceptance as institutional support grew so much. The first physically backed BTC ETF was launched in Canada in February 2021 by Objective Investments.

Since then, Canada has approved the CI Galaxy Bitcoin ETF and the Evolve Bitcoin ETF. In Germany, there is ETC Group Physical Bitcoin ETF, while Brazil and Australia also launched Bitcoin ETFs in 2021 and 2022 respectively. However, these products did not provide the institutional support that many believed would come from the EFF.

However, various stock markets around the world do not compete with the US.

The EU accounts for 11.1% of the global equity market, while Australia and Canada account for 1.5% and 2.7% respectively. All these markets combined are dominated by the United States, which comprises 42.5% of all global equity markets.

This cycle lends some weight to the idea that Held's “Bitcoin supercycle” may hold promise.

BlackRock, one of the most prominent names in asset management and investment circles, filed for its own Bitcoin ETF in June 2023, giving the green light for other institutions to start participating. However, institutions are only one factor here.

Adoption may be an emerging market trend.

According to Chinalysis' latest “2023 Geography of Cryptocurrency Report”, India, Nigeria and Vietnam were the top three countries for crypto adoption in 2023. The rankings were based on index scores for centralized services, retail services, peer-to-peer. Peer-to-peer (P2P) exchange trading volume, decentralized finance (DeFi) and retail DeFi have received value.

The US has the highest percentage of transactions in North America, while the country ranks fourth overall. As the chart below shows, North America had the highest percentage of large institutional transfers but some of the lowest small and large retail volumes.

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This distinction is important because the market value of goods is determined by decentralized independent actors rather than by centralized entities. According to the recent “Investing in DeFi” report by Chainalysis and Cointelegraph, investing in Bitcoin and other cryptocurrencies at this stage of the adoption cycle is similar to investing in emerging markets.

Participants, not institutions, bring value.

While institutional adoption will no doubt be a critical factor in Bitcoin's supercycle, Bitcoin itself must be valued by market participants, or it will not have staying power. History is full of examples of thriving industries that were replaced by new technology that the market found helpful and that destroyed giants overnight.

The introduction of petroleum products completely upended the whaling industry in the mid-1800s. Behind the global whaling interests were vast industry and institutions in boats, trade and infrastructure. Still, no matter how much money is behind it, the market is better served with new products.

The dot-com bubble of the mid-1990s and early 2000s saw the valuation of various companies at the tipping point of recent and technological innovation led by the blockchain revolution. Part of the assessment is based on the assumption that adoption will be faster than it actually is.

Brands like Internet browser Netscape saw 3 million downloads in three months, leaving investors excited about what the rest of the industry could do.

In the year In 1995, Netscape had a successful initial public offering backed by institutions like Morgan Stanley, which pushed the stock price from $14 to $28 – valuing the not-yet-profitable 16-month-old company at more than $1 billion.

Investors continued to look for the next Netscape among the slew of Silicon Valley companies, and money poured into the space. In economics, the height of the boom cycle, just before the nipple of excess prices, is called the “Minsky moment.”

The Minsky moment of the dot-com bubble came in 2002. There was a lot of investor sentiment and institutional money pouring in, but there was no adoption by many companies that saw investments. In the end there was nothing to support these companies and their prices.

The Nasdaq stock market It increased significantly between 1995 and 2000, peaking at 5,048.62 in March 2000. before falling 76.81% to 1,139.90 in October 2002. Without customers and proper use of these companies there was nothing to increase the value in the market. .

What does this mean for Bitcoin?

According to Chinalysis, “There's no sugarcoating it: Global adoption of root crypto has slowed.” However, as noted earlier, lower-middle-income (LMI) countries – such as India, Nigeria and Ukraine – have seen an increase in adoption.

“LMI is the only category of countries to remain above the adoption level of Q3 2020 prior to the recent bull market,” the report said.

While the United States may be fourth in terms of crypto adoption, it is not led by P2P Bitcoin transactions, as the US ranks 12th in that category.

Instead, stablecoins took the lion's share of transactions, with bitcoin generally trading less than altcoins. Currently, Bitcoin is not a widely used form of currency in the US.

This is not because Bitcoin has no known value in the market, but because Americans do not need to use it for payments.

LMI countries are seeing high adoption due to high inflation in their respective countries, and Bitcoin may be a better option than holding a local currency at a fluctuating rate.

As the world continues to trend lower in dollars, the flight to safety could be Bitcoin.

Could this also happen in the United States?

The three major credit rating agencies – Standard & Poor's (S&P), Moody's Investors Service and Fitch Ratings – have all downgraded the US's credit rating.

In August 2011, S&P downgraded the US credit rating from AAA to AA+. Fitch It followed in August 2023. And in the year On November 10, 2023, Moody's downgraded its outlook on the US credit rating from “stable” to “negative”, citing growing deficits and a reduced ability to service the national debt.

A downgrade in credit ratings erodes confidence in the U.S. and, furthermore, the position of the U.S. dollar as the central unit of account for global settlement.

If hyperinflation begins to rear its head in the US, options may be used instead of holding cash.

It may be too early in this cycle.

When he introduced the idea of ​​a Bitcoin supercycle, he repeatedly said that people were too early to enter the stack. While increased institutional adoption could increase Bitcoin's fiat value and provide greater avenues for investment, all of the following elements must play out for the supercycle to fully set in motion.

Institutional Interest: Given that BlockRock and other financial powerhouses have issued Bitcoin ETFs in the U.S., investments from institutions, family offices, sovereign wealth funds and high-net-worth individuals could support Bitcoin to boost the fiat's value. A certain level. Galaxy Digital, for example, predicts that this will bring Bitcoin to the $59,000 level.

Supply: Bitcoin's next halving event will occur around April 2024 at block height 840,000, and 96.9% of existing BTC will be mined. This means that the supply side of the supercycle equation is proven. Although the underlying demand is the same, this indicates a higher fiat price. Still, as seen in previous cycles, price increases (“quantity increase” technology) can increase demand, at least in the short term, because of the fear of loss.

Adoption: While some may buy Bitcoin for “number-go-up” reasons, its actual use gives it long-term value. It is not yet known whether the US economic and socio-political climate will lead people to adopt Bitcoin as a means of exchange, a store of wealth or as a hedge against further dollar inflation.

What are the chances of a 2024 Bitcoin supercycle?

Cointelegraph asked billionaire venture capitalist and serial blockchain investor Tim Draper what the chances are for a 2024 Bitcoin supercycle. According to him, “I think it will happen in the next cycle, when we can run our businesses without any restrictions, we can buy all our food, clothing, shelter and taxes with Bitcoin.

Julian Lininger, CEO of Bitcoin-only exchange Relai, told Cointelegraph that the market “is expected to see a significant reduction in supply due to the upcoming halving, increasing demand for Bitcoin ETFs and the asset in general”.

Leininger added that a lack of trust in fiat currencies, increased bank regulation and the failure of exchanges like FTX will “reinforce the Bitcoin narrative.”

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“Along with BlackRock and other major players, I also think it is unlikely that we will see a radical 180-degree turn in the view of Bitcoin. Rather than a speculative asset that consumes electricity like hypothetical countries, Bitcoin can be seen as a safe haven that will soon promote the transition to renewable energies,” he said. .

BitGate Managing Director Gracie Chen told Cointelegraph that for a supercycle to occur, “the market needs enough cash to counter the negative sentiment. First, re-establish easy access channels between traditional finance and the crypto market, especially after the suspension of three crypto-friendly banks. Second, international governments, including the US, must officially recognize Bitcoin assets as equivalent to gold and stocks. This includes removing restrictions on Bitcoin transactions and holdings for the general public. Its integration with traditional finance will provide the basis for widespread Bitcoin adoption and create the right conditions for the Bitcoin supercycle to materialize.

A Bitcoin supercycle may not be in the world for this next cycle of adoption. After the Minsky moment bubble popped, there is so much speculation about global adoption and daily use that the property has no or soft correction. 2028, on the other hand, may be a different story altogether.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.