The Future of Bitcoin: Is a Supercycle on the Horizon?
The cryptocurrency industry is known for its boom-and-bust cycles, largely influenced by Bitcoin, the "King of Cryptos."
Bitcoin's halving cycle, programmed to occur roughly every four years, reduces the reward for mining new coins by half. This supply shock has historically contributed to significant market volatility. Alongside this, factors such as network adoption, new use cases like the Lightning Network and Ordinals, and institutional adoption also play crucial roles.
The Supercycle Theory
In 2020, Dan Held, a Bitcoin educator and marketing adviser for Trust Machines, predicted a “supercycle” for Bitcoin. He argued that as network adoption increases (following Metcalfe’s Law), scarcity due to halving events, and growing institutional adoption, Bitcoin could reach new all-time highs and sustain them.
Crypto Winter of 2021
However, the last cycle didn’t support Held’s theory. Bitcoin fell from its peak of $69,000 at the end of 2021, dragging the market down with it. Despite reduced supply, network growth, and increased institutional support, the anticipated rise didn't materialize.
During this period, institutional interest did grow, with several exchange-traded funds (ETFs) approved globally. Canada launched the first physically-backed BTC ETF in February 2021, followed by others in Germany, Brazil, and Australia. However, these did not bring the expected institutional support. The U.S., which holds 42.5% of global equity markets, remains a key player.
In June 2023, BlackRock, a major asset management firm, applied for a spot Bitcoin ETF, potentially signaling increased institutional involvement.
Adoption Trends
Chainalysis’ “2023 Geography of Cryptocurrency Report” highlighted India, Nigeria, and Vietnam as leading countries in crypto adoption. The U.S. ranked fourth, primarily driven by large institutional transfers rather than peer-to-peer Bitcoin transactions. This indicates that Bitcoin’s market value hinges on widespread perception rather than centralized entities.
The Role of Participants
While institutional adoption is vital, Bitcoin’s value depends on its acceptance by market participants. Historical examples, such as the disruption of the whaling industry by petroleum and the dot-com bubble, show that market value relies on widespread usage and perceived value.
Bitcoin's Current Standing
Despite increased adoption in lower-middle-income (LMI) countries facing high inflation, the U.S. sees Bitcoin more as an investment than a medium of exchange. The trend of dedollarization and declining U.S. credit ratings may push more individuals toward Bitcoin as a safer alternative.
Early Stages of the Supercycle
Dan Held suggests that we are still early in the Bitcoin supercycle. Key elements for the supercycle include:
Institutional Demand: If spot Bitcoin ETFs are approved in the U.S., significant investment from institutions could raise Bitcoin's fiat value.
Supply: The next Bitcoin halving in April 2024 will further reduce supply, potentially increasing prices.
Adoption: Bitcoin’s long-term value will depend on its use as a medium of exchange, a store of wealth, or a hedge against inflation.
Predictions for 2024
Experts like venture capitalist Tim Draper and Relai CEO Julian Liniger believe that the supercycle might not occur until the regulatory environment stabilizes and Bitcoin is more widely used for everyday transactions.
Liniger notes that the upcoming halving and increased interest in Bitcoin could boost demand. However, public perception needs to shift, viewing Bitcoin as a safe haven rather than a speculative asset.
Bitget's managing director Gracy Chen emphasizes the need for integration with traditional finance and official recognition of Bitcoin as an asset class for the supercycle to materialize.
Conclusion
While a Bitcoin supercycle may not be imminent, the groundwork is being laid for future cycles. Increased institutional involvement, reduced supply, and broader adoption could eventually lead to sustained high prices. The true test will be whether Bitcoin can achieve widespread usage and perceived value beyond speculative trading.