Unraveling the Bitcoin 'Supercycle': Possibilities, Predictions, and the Road Ahead
Summary:
The article discusses the concept of a Bitcoin "supercycle", considered as a potential phenomenon where Bitcoin prices would reach unprecedented levels without experiencing any subsequent downturn. The theory revolves around increased network value as more users adopt the currency, scarcity due to the halving cycle, and widespread institutional adoption. Despite expectations, a supercycle did not occur in the last Bitcoin cycle, with prices plummeting from a high of $69,000 at the end of 2021. The piece also highlights the significance of global crypto adoption, institutional demand, and supply factors for such a supercycle to take place. Finally, the article concludes that while a Bitcoin supercycle in the current adoption cycle is unlikely, the probabilities may change by 2028.
In the world of blockchain and cryptocurrency, a repeating pattern of peaks and troughs is often observed, primarily driven by the undisputed leader of digital currencies, Bitcoin. Automatically programmed to undergo a "halving" every four years, the supply of new bitcoins that miners receive is divided by two, causing ripple effects on the market. The past three rounds have shown that these supply restrictions, in line with bitcoin's over and under market valuations, set off sharp highs and lows in the cryptocurrency world. Factors apart from the halving, such as wider acceptance of the network, new applications for Bitcoin, and the popular trend of "institutional adoption", play significant roles as well.
In 2020, Dan Held, a Bitcoin scholar and marketing advisor for Trust Machines, foresaw a phenomenon he termed a Bitcoin "supercycle", driven by the increasing worth of the network as more users joined in, a surge in scarcity due to the halving, and growing institutional acceptance. It is assumed that this supercycle would push Bitcoin's pricing to uncharted territories and there would be no downturn after that due to persistent adoption and institutional backup.
This however, did not hold true in the last cycle with Bitcoin sliding down from a record high of $69,000 towards the end of 2021, and the entire market commensurately plummeting. Even factors like a drop in supply, an enlarged network, and amplified institutional and business backing, couldn't hold up the colossal price hike.
Global confidence in institutions grew so much during the last phase of the cycle that exchange-traded funds (ETFs) were authorised worldwide. Purpose Investments pioneered the launch of the world's first physically-backed Bitcoin ETF in Canada in February 2021. Post this, Canada sanctioned the CI Galaxy Bitcoin ETF and the Evolve Bitcoin ETF. Similar funds were also rolled out by Germany, Brazil, and Australia in 2021 and 2022. However, these products failed to generate the level of institutional support that was once anticipated from ETFs.
On the other hand, the US market is in a league of its own when compared to the rest of the world. With a 42.5% share in global equity markets, it stands leaps and bounds ahead of the European Union, Australia, and Canada, leading credence to the possibility of Held's proposed Bitcoin supercycle, as the US could soon permit spot Bitcoin ETFs to be traded.
In June 2023, BlackRock, a leading player in the asset management and investment industry, proposed launching its own spot Bitcoin ETF, effectively opening doors for others. However, aside from institutional investors, adoption is key.
According to Chainalysis' "2023 Geography of Cryptocurrency Report", India, Nigeria, and Vietnam topped the list for crypto adoption this year. The findings were based on an index that factored in services provided, retail volumes, peer-to-peer (P2P) exchange trading volume, and retail decentralised finance (DeFi) value received. The US held the largest share of North American transaction volumes and placed fourth overall. Notably, while North America saw the highest percentage of large institution transfers, it recorded one of the lowest amounts for small and large retail.
This is important to note as the market's value doesn't stem from centralised entities alone but rather from decentralised independent participants who find value in the commodity. As the Chainalysis report indicates, the market operates much like emerging markets at this stage in the crypto adoption cycle.
While institutions will undoubtedly have a crucial role if a Bitcoin supercycle is to take place, Bitcoin itself must be deemed worthy by market participants to remain durable. History is full of examples where booming industries have been displaced virtually overnight by new technologies that fulfilled market needs.
The introduction of petroleum products in the mid-19th century practically eradicated the once-flourishing whaling industry. The appeal of more effective alternatives prevailed over financial backing and vast trade networks, sounding the death knell for industries that couldn't compete. A more recent case was the dot-com bubble of the mid-'90s and early 2000s where companies were grossly overvalued based on the presumption of faster-than-actual adoption rates.
Tim Draper, a billionaire venture capitalist, and serial blockchain investor believes that the Bitcoin supercycle might occur in the following cycle, when businesses operate free from regulatory uncertainty and all purchases can be made using Bitcoin.
While the possibility of a Bitcoin supercycle happening in 2024 is taking shape, it will require various elements to align perfectly: institutional demand, supply of bitcoins, and global adoption. BlockRock, along with other financial powerhouses, are betting on Bitcoin ETFs in the US, which could incentivise institutions, wealthy individuals, and sovereign wealth funds to invest in Bitcoin. Meanwhile, the upcoming Bitcoin halving event set to take place in April 2024 will mean 96.9% of all bitcoins would have been mined, ticking the supply box. As for adoption, it remains to be seen if socio-political factors will push people to embrace Bitcoin as a medium of exchange, store of wealth, or a hedge to counter inflation.
However, it is unlikely that the world will witness a Bitcoin supercycle in this ongoing adoption cycle. There is too much speculation about global usage of the asset for it to not experience a significant or minor price correction once the bubble bursts. The narrative could change by 2028. This article should not be interpreted as investment advice or recommendations. Investments and trades in Bitcoin involve risks, and it's recommended that readers carry out their own due diligence before making a decision.
Published At
11/23/2023 2:01:00 PM
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