What stage are we in the new bull market? When can BTC outperform the market?

What stage are we currently in within the new bull market? When can we expect BTC to outperform the market?

Author: Kevin Kelly, CoinDesk; Translation: Song Xue, LianGuai

For many people, the cryptocurrency market may seem like a strange world with no real patterns or reasons for trading.

However, just like traditional markets, cryptocurrencies also go through their own cycles – and these price cycles are very consistent, including the timing from peak to trough, price recovery, and subsequent rebound to new cycle highs.

We believe we are in the early stages of a new cycle. Using Bitcoin (BTC) as our benchmark, here is the typical structure of the cryptocurrency market cycle:

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• Bitcoin reaches an all-time high.

• Subsequently, BTC experiences a painful retracement of about 80%.

• The price eventually bottoms out almost a year after the previous cycle high.

• Bitcoin begins to recover and takes about two years to reach a new all-time high.

• Bitcoin continues to rise for a year and then hits the peak of the next cycle.

• Then the cycle repeats.

Several past cycles have followed this script.

The consistency of these cycles is not a coincidence. It is driven by stronger macro trends – which is also the core of Bitcoin’s value proposition.

Bitcoin is not a hedge against inflation as many people think. Bitcoin is not a hedge against the Consumer Price Index (CPI). It is a hedge against currency devaluation.

This distinction is important because currency devaluation is driven by currency inflation and central bank balance sheet expansion. Essentially, Bitcoin is one of the highest leverage bets in an expansionary liquidity environment.

Bitcoin halving is not the main catalyst for a bull market – the rising trend in liquidity cycles is. Coincidentally, each halving is accompanied by an expansionary liquidity environment. The next halving is expected to occur in April 2024, which appears to be well-timed again.

This is not to say that halving is not important – it is a strong narrative that will definitely give momentum to a bullish trend, especially if we see the approval of a spot BTC ETF in advance, as upward liquidity cycles tend to accelerate capital flows.

The Promising Future of BTC

The price of Bitcoin hit bottom in November 2022 – almost exactly one year since the last cycle peak. If BTC follows its historical pattern, this would mean that it will reach a new all-time high by the fourth quarter of 2024 and then peak again in roughly a year.

We noticed as early as the fourth quarter of 2022 that the downward trend in global liquidity seemed to have bottomed out, making the bottoming of Bitcoin’s price historical. Subsequently, the rebound in central bank liquidity has been a key support for this year’s risk asset recovery – especially cryptocurrencies.

We expect these trends to continue. Looking ahead 12 to 18 months, we expect central bank balance sheets to continue expanding – mainly because they have to.

Many of the world’s largest economies carry massive debt burdens, and in the United States, the fiscal deficit is expected to worsen (even without an economic recession). A larger deficit means more debt issuance, ultimately implying more support from the Federal Reserve.

Unless the relationship in this chart (showing the relationship between total US public debt and Federal Reserve total assets) completely decouples.

If we are in the early stages of a new global liquidity uptrend, then BTC and other digital assets should significantly outperform the overall market in the next 12 to 18 months.

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