Predicting Market Cycles with Bitcoin: A Crypto Analysis

• Understanding the Crypto Market Cyclical Nature
• Identifying a New Cycle
• Key Stages of a Crypto Market Cycle
• Bitcoin as a Hedge Against Currency Debasement
• Bitcoin Halvings & Liquidity Cycles
• Bitcoin's Future Prospects
• Global Liquidity Trends
• Increasing Fiscal Deficits and Federal Reserve Support

Understanding the Crypto Market Cyclical Nature

The crypto market, seemingly complex and alien to many, follows a similar pattern of cycles as traditional markets. These crypto price cycles exhibit a high level of consistency, particularly in terms of their timing between peak-to-trough bottoms, price recoveries, and subsequent rallies to new cycle highs.

Identifying a New Cycle

There is a belief that we are now witnessing the early stages of a new cycle. Using Bitcoin$42,260 -0.64% (BTC) as a benchmark, here is the typical structure of a crypto market cycle:

Key Stages of a Crypto Market Cycle

• Bitcoin's price reaches a new all-time high.
• There is a steep 80% drawdown in BTC price.
• The price eventually bottoms, typically one year after the high of the prior cycle.
• Bitcoin begins a recovery period, taking about two years to achieve a new all-time high.
• Bitcoin continues to rally for another year before reaching its next cycle high, after which the cycle repeats.

The past cycles have indeed followed this pattern. The consistency of these cycles wasn't a matter of chance, instead, it's driven by more significant macro trends, with one of the most critical being Bitcoin's value proposition.

Bitcoin as a Hedge Against Currency Debasement

Contrary to popular belief, Bitcoin isn't an inflation hedge in the conventional sense. It doesn't hedge against the Consumer Price Index, or CPI. It's a hedge against currency debasement. This differentiation is crucial as currency debasement is driven by monetary inflation and the expansion of central bank balance sheets. Essentially, BTC is one of the most leveraged bets on an expansionary liquidity environment.

Bitcoin Halvings & Liquidity Cycles

Bitcoin halvings don't primarily fuel Bitcoin bull markets, liquidity cycle uptrends do. Interestingly, each halving has coincided with an expansionary liquidity environment. The next halving is predicted to take place in April 2024, which seems to be perfectly timed. That's not to undermine the importance of Halving. It's a potent narrative that can significantly amplify a bullish uptrend, especially if we see a spot BTC ETF approved ahead of time, considering liquidity upcycles tend to accelerate fund flows.

Bitcoin's Future Prospects

Bitcoin's price hit the bottom in November 2022, almost exactly a year after its last cycle peak. If Bitcoin follows its historical trend, this would suggest a new all-time high by the fourth quarter of 2024 and a next cycle peak roughly a year after that.

Global Liquidity Trends

In the fourth quarter of 2022, a downtrend in global liquidity seemed to be bottoming out, signalling Bitcoin's price bottom to be in the past. The rebound in central bank liquidity since then has been a significant support for the recovery in risk assets this year, particularly crypto. These trends are expected to continue. In the coming 12 to 18 months, central bank balance sheets are projected to keep expanding, largely out of necessity.

Increasing Fiscal Deficits and Federal Reserve Support

Many of the world's largest economies are burdened with enormous debt, and in the U.S., fiscal deficits are expected to worsen. Larger deficits imply more debt issuance, which eventually results in increased Federal Reserve support, unless a significant decoupling occurs between the total U.S. public debt and Federal Reserve total assets.

If we are indeed in the early stages of a new global liquidity uptrend, Bitcoin and crypto assets could considerably outperform over the next 12 to 18 months.

Edited by Jonathan Stoker