Conventional wisdom in the crypto world is that there are boom and bust cycles in the blockchain and cryptocurrency industry. This cycle is led by Bitcoin, the “King of Cryptocurrencies”.
Bitcoin (BTC) is scheduled to have its halving approximately every four years, which will reduce the supply of new coins awarded to miners in half. The halving brought a supply shock to the market, and judging from the past three cycles, the market’s undervaluation and overvaluation were part of the reason for the violent fluctuations.
Other factors also play a key role in this cycle, including overall network adoption, the expansion of Bitcoin use cases (such as the Lightning Network for scalability and sequence numbers for non-fungible tokens), and the popularity of “institutions”. use”.
In 2020, Bitcoin educator and Trust Machines marketing consultant Dan Held said: expected Bitcoin will eventually see a “supercycle”, reasoning that as adoption grows, the value of the network will increase (Metcalfe’s Law) and scarcity will increase due to halvings and increased institutional adoption .
In theory, this supercycle will see Bitcoin rise to new all-time highs from which there will be no further declines, as there will be enough adoption and institutional support to continue to support the price.
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Such support did not materialize in the previous cycle, with Bitcoin falling from its all-time high of $69,000 in late 2021, taking the rest of the market lower with it. Reduced supply, accelerated network growth, and increased commercial and institutional support were all insufficient to support its meteoric rise.
In the final stages of the cycle, institutional support grew so much that exchange-traded funds (ETFs) were approved around the world. The first physically-backed BTC ETF was launched in Canada in February 2021 by Purpose Investments.
Since then, Canada has also approved the CI Galaxy Bitcoin ETF and the Evolve Bitcoin ETF. Germany has an ETC Group physical Bitcoin ETF, while Brazil and Australia have also launched spot Bitcoin ETFs in 2021 and 2022. However, these products do not offer the institutional support that many thought would come from ETFs.
However, no stock market in the world can compare with the United States.
European Union make up It accounts for 11.1% of the global stock market, while Australia and Canada account for 1.5% and 2.7% respectively. All these markets combined are dwarfed by the United States, which accounts for 42.5% of the global stock market.
This does provide some evidence that this cycle may fulfill Held’s promise of a “Bitcoin Super Cycle,” as the largest country in the global stock market may soon allow trading of spot Bitcoin ETFs.
BlackRock, one of the biggest names in the asset management and investment world, filed for its own spot Bitcoin ETF in June 2023, giving the green light for other intuitives to start getting involved. However, institutions are only one factor.
Adoption may be an emerging market trend
According to Chainaanalysis’ recently released Cryptocurrency Geography Report 2023, India, Nigeria and Vietnam yes Top 3 Countries for Cryptocurrency Adoption in 2023. The ranking is based on an index score that examines centralized services, retail services, peer-to-peer (P2P) exchange trading volume, decentralized finance (DeFi) and retail DeFi value.
The United States accounts for the largest share of North American transaction volume and ranks fourth overall. As shown in the chart below, North America has the highest proportion of large institutional transfers, but the lowest proportions of small and large retail transfers.
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This distinction is important because the market value of a good comes not from a centralized entity but from decentralized independent actors who perceive the value of the good. As the Chainaanalysis report and Cointelegraph Research’s recent “Investing in DeFi” report illustrate, investing in Bitcoin and other cryptocurrencies is similar to investing in emerging markets at this stage of the adoption cycle.
Participants bring value, not institutions
While institutional adoption will undoubtedly be an important factor if a Bitcoin supercycle occurs, Bitcoin itself needs to gain perceived value among market participants or it will not have staying power. History is full of examples of booming industries being replaced by new technologies that the market deemed useful, toppling giants almost overnight.
The introduction of petroleum products revolutionized the whaling industry in the mid-1800s. Behind global whaling interests is a vast industry and institutions, including ships, trade and infrastructure. Still, no matter how much money is behind it, the market sees better uses for new products.
More recently, the dot-com bubble of the mid-1990s and early 2000s resulted in many companies being overvalued, as technological innovations led by the blockchain revolution took hold. Part of the reason for the lofty valuations is the assumption that adoption will happen faster than it actually happens.
Signs such as the Internet browser Netscape reaching 3 million downloads in three months have investors excited about the performance of other companies in the industry.
In 1995, Netscape successfully conducted an initial public offering with the support of Morgan Stanley and other institutions. push Shares rose from $14 to $28 – valuing the 16-month-old company at more than $1 billion.
Investors are constantly looking for the next Netscape among the many Silicon Valley companies, and money is pouring into this field. In economics, the peak of a boom cycle, the period when valuations peak before a bust, is known as the “Minsky moment.”
The Minsky moment of the dot-com bubble occurred in 2002. There was a lot of investor sentiment and institutional money flowing at the time, but many companies that saw investment didn’t see fundamental adoption. Ultimately there is nothing to support these companies and their values.
The Nasdaq stock market rose sharply between 1995 and 2000, peak In March 2000, the company’s share price was 5,048.62, before falling 76.81% to 1,139.90 in October 2002. Without customers and actual usage of these companies’ services in the market, there is nothing to sustain the high valuations.
What does this mean for Bitcoin?
According to Chainaanalysis, “There’s no sugarcoating it: grassroots cryptocurrency adoption is declining globally.” However, as mentioned earlier, adoption has increased in low- and middle-income (LMI) countries such as India, Nigeria, and Ukraine. Increase.
“Low- and middle-income countries are the only ones where total grassroots adoption rates are still higher than in the third quarter of 2020, before the most recent bull run,” the report states.
While the United States may be ranked fourth in cryptocurrency adoption, it is not driven by P2P Bitcoin transactions as the United States ranks 12th in this category.
Instead, stablecoin trading accounts for the lion’s share of transactions, while Bitcoin’s trading volume is generally lower than that of altcoins. Bitcoin is not yet a widespread medium of exchange in the United States.
This is not because Bitcoin lacks perceived value in the market, but because Americans have no need to use it for payments.
Low- and middle-income countries are increasingly adopting Bitcoin due to high-inflation currency issues within their respective countries, and Bitcoin, despite being highly volatile, may be a better option than holding national currencies.
As the world continues its de-dollarization trend, the safe-haven asset may be Bitcoin.
Will this happen in the United States too?
The three major credit rating companies – Standard & Poor’s (S&P), Moody’s Investors Service and Fitch Ratings – have all downgraded the United States’ credit rating.
August 2011, Standard & Poor’s reduce The U.S. credit rating rose from AAA to AA+.Fitch Secondly suitable August 2023.after November October 2023 Moody’s reduce It lowered the outlook for the U.S. credit rating to “negative” from “stable”, citing growing deficits and declining ability to repay the national debt.
The decline in credit ratings shows that people’s confidence in the United States has declined, which in turn shows that the dollar’s status as the core unit of global settlement has declined.
If hyperinflation begins to rear its head in the United States, alternatives may be used instead of holding cash.
It’s probably still early in the cycle
While Holder floated the idea of a Bitcoin supercycle, he often explain It’s still early days for people to get into stacking satellites. While increased institutional adoption will likely lead to a rise in Bitcoin’s fiat value and more investment avenues, for the supercycle to fully unfold, all of the following elements must come into play:
Institutional needs: Assuming that BlockRock and other financial giants obtain a spot Bitcoin ETF in the United States, the amount of investment from institutions, family offices, sovereign wealth funds, and high-net-worth individuals may support Bitcoin to increase the value of fiat currencies to a certain level. Galaxy Digital, for example, predicts that this will push Bitcoin to levels around $59,000.
supply: The next Bitcoin 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 part of the hyperloop equation is checked. Even if grassroots demand remains the same, this will indicate higher fiat prices. Nonetheless, as seen in previous cycles, price increases (“digital up” techniques) are likely to increase demand, at least in the short term, due to fear of missing out.
use: While some may buy Bitcoin for “volume growth” reasons, its actual use will give it a long-term value proposition. It is unclear whether the U.S. economic and sociopolitical climate will drive the adoption of Bitcoin as a medium of exchange, a store of wealth, or a means of hedging against further inflationary pressures on the U.S. dollar.
How likely is a 2024 Bitcoin supercycle?
Cointelegraph asked billionaire venture capitalist and serial blockchain investor Tim Draper what he thinks is the likelihood of a 2024 Bitcoin supercycle. “I think this will be the next cycle where we can run our businesses independent of regulatory uncertainty and we can use Bitcoin to buy food, clothes, housing and taxes,” he said.
Julian Liniger, CEO of pure-play Bitcoin exchange Relai, told Cointelegraph that the market “will see a significant reduction in supply due to the upcoming halving, while Bitcoin ETFs and general interest in Bitcoin assets An increase means a significant increase in demand.”
Liniger added that factors such as a loss of confidence in fiat currencies, increased banking regulations and the collapse of exchanges such as FTX “strengthen the Bitcoin narrative.”
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“With BlackRock and other major players coming on board, I also think we’re unlikely to see a complete 180-degree shift in public opinion about Bitcoin. Bitcoin is no longer a currency that consumes as much electricity as an entire country. of speculative assets, but could soon be seen as a safe haven to facilitate the transition to renewable energy.”
Bitget CEO Gracy Chen told Cointelegraph that in order for the super cycle to occur, “the market needs sufficient funds to deal with negative sentiment. First, re-establish easy access between traditional finance and crypto markets, especially after three crypto-friendly banks were After the crackdown. Second, governments around the world, including the United States, must formally recognize the Bitcoin asset as equal to gold and stocks. This involves removing restrictions on the public trading and holding Bitcoin. This integration with traditional finance provides the basis for Bitcoin’s widespread Adoption lays the foundation and creates favorable conditions for Bitcoin Super to become a reality.”
During this ongoing adoption cycle, a Bitcoin supercycle may not happen in the world. Globally, there is so much speculation about the adoption and day-to-day use of this asset that there is no or only a soft correction to cushion the decline once Minsky bursts the bubble. On the other hand, 2028 could be a completely different story.
This article does not contain investment advice or recommendations. Every investment and trading activity involves risks, and readers should do their own research when making decisions.
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