The typical market cycle of bitcoin is around 4 years, commonly understood as revolving around pre-programmed halving events. The logic follows the age-old rule that a reduction in supply and increase in demand puts upwards pressure on the price of bitcoin. The effect of the viral marketing loop that follows has put bitcoin on a path to exponential growth both in terms of price and users – or owners rather.
Satoshi wrote about this in the original whitepaper saying: as the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.” You’ve probably noticed this every time BTC makes another huge leap and people from all over start asking whether they should buy bitcoin or if it’s too late.
While bitcoin has gone through intense bull cycles before in 2011, 2014 and 2017, Kraken’s Director of Business Development Dan Held thinks the current rally may be the start of what he calls the Super Cycle. This time, bitcoin is set to reach stratospheric heights far beyond anything we’ve seen before.
What makes this cycle different?
Bitcoin has gone through significant growth cycles before, and long winters as well, but taking a macro view we can see the asset has largely operated against the backdrop of a long bull run in the traditional markets. It’s true that BTC dropped amidst the global financial crisis, but financial markets have by and large been on a bull run from 2009 until 2020 when COVID hit.
Every single market across the world plunged when COVID graduated from outbreak to global pandemic. Equities sank, commodities vaporized, gold melted, and even bitcoin compressed reach lows not seen in a long time. With the world on fire, it was the first real test for bitcoin. Would it fail Satoshi’s vision and go to $0, or would it step up and seize the moment?
We now know bitcoin did exactly what it was created for: it provided a store of value in a world where you can’t trust your government or bank, and monetary policies flush the value of fiat currency down the drain. As governments across the world printed record-levels of money printing, bitcoin recovered its value quickly only to reach new highs at a relentless pace clocking in over 1250% growth over the last 12 months.
The 2008 GFC made a few people realize the need for an asset like bitcoin, and COVID brought bitcoin’s value into focus for the entire world.
New buyers, new tops
Before, bitcoin had several different narratives that aimed to define its utility as narrowly as possible – from micro-payments, to a global currency to being the new gold. Today, the narrative has somewhat settled on bitcoin being the next generation gold, serving as a hedge against inflation and preserving wealth as an asset uncorrelated (somewhat) to global financial markets. Double digit monthly growth certainly helps establishing the narrative.
That has brought in waves of new retail BTC traders, but more importantly, a long list of financial institutions and large global corporations. Some names that have either recognized BTC as the new gold, made it available to customers, or have actually bought coins themselves include JP Morgan, Fidelity, Citibank, Blackrock, Ark Investment, PayPal, Square, MicroStrategy, Tesla, MassMutual, Paul Tudor Jones, Bill Miller, and many more.
In stark contract from denouncing bitcoin as a sham that will do nothing but implode, JP Morgan now says “bitcoin has considerable upside as it better competes with gold as an alternative currency with the potential to surge 10x from current levels.”
Institutional money is often cited as the main driver of the intense rally we’ve seen over the last year. Whenever we see corrections, there seem to be strong support levels that simply don’t sway, washing out the weaker hands. That dynamic will only get more and more people into bitcoin as the fear of burning down to $0 weakens, and the belief in exponential growth strengthens.
What will happen when bitcoin ownership increases 100-fold? We would blow past the 100K mark and reach the realm of millions. As of today, reaching 100K is only a quick 2x after all, and bitcoin has doubled quite often.
But of course, not everyone believes in the super cycle and have actually pointed to the current doubling rate of bitcoin as a cause for concern.
New tops, new dangers
Based on historical analysis, the amount of time it takes for bitcoin to double in price might be an indication of a meltdown in the making. More specifically, with the current doubling rate accelerating, some analysts question whether the market is approaching severe over-extension.
Back in 2013, the doubling rate for BTC went down to just 4 days within one week of the bull season’s peak. In the 2017 bull market, the fastest doubling-time was 12 days, just a week before the 3 year-long all-time high. In the current market cycle, the fastest doubling-time is 22 days (On Jan 7th with BTC doubling from $21K to $42K), which is similar to middle period of the 2017 bull market when bitcoin doubled in 26 days.
This generally means there is more room to grow, but with that comes the prospect of a real crash as well.
Analyst Mark Helfman has reached the same conclusion looking at different datasets. Based on data and patterns from the entirety of bitcoin’s history, he says we are now seeing the same things we have always seen as bitcoin approaches a market cycle peak or a very significant crash. Long-time HODLers, crypto veterans, and whales are shipping off their bitcoin at an accelerating rate. Miners are selling at an elevated pace. HODL waves show bitcoins moving from strong hands to newcomers. In other words, it looks like the biggest bitcoin believers are giving up their bitcoin.
There is no way to say what the reason is with absolute certainty, but it is highly likely they see the Great Correction coming (self-fulfilling prophecy perhaps) and are positioning themselves to snap up much cheaper bitcoin after the meltdown burns through the new paper hands.
The same could be said for the institutions that are allegedly diving head-first into bitcoin. Yes, we have seen some announcements about institutions actually buying bitcoin and that has led to price jumps, but it hasn’t yet reached the levels you’d expect from Big Money getting in on the action. They too might be waiting to scoop up discounted bitcoin.
Long-term, this would just be an interruption until we reach new dizzying heights again. Crypto winter was certainly uncomfortable, but spring has sprung, and this summer is mostly just a long heat wave.
Real Bitcoiners know that if winter comes again, so too will the first blossom the season after.
About the author
Joe Caselin is on a mission to Save Great Ideas from Obscurity. He has worked with several startups including crypto exchanges, DeFi projects, digital banks, and trading platforms helping to build brands rooted in purpose. When he’s not writing, he’s reading what he just wrote.