The crypto market may seem like an alien world to many, with no real rhyme or reason to the way it is traded.
However, just like traditional markets, crypto goes through its own cycles – and these price cycles are remarkably consistent, including their timing between peaks and troughs, price rallies, and subsequent rallies to new cycle highs.
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We believe we are at the beginning of a new cycle. If we use Bitcoin (BTC) as a benchmark, here is the typical structure of a crypto market cycle:
The last few cycles have followed this playbook to a T.
The consistency of these cycles is no coincidence. It's driven by bigger, stronger macro trends – and one that lies at the core of Bitcoin's value proposition.
Bitcoin is not an inflation hedge as many believe. Bitcoin is not a hedge of the Consumer Price Index (CPI). It is a hedge against currency devaluation.
This distinction is important because currency devaluation is driven by monetary inflation and the expansion of central bank balance sheets. Essentially, BTC is one of the most leveraged bets on an expansive liquidity environment.
Bitcoin halvings are not the main catalyst for BTC bull markets – uptrends in the liquidity cycle are. It just so happens that every halving has been accompanied by an expansionary liquidity environment. The next halving is expected to take place in April 2024, which once again seems to be right on track.
That's not to say the halving isn't important – it's a powerful narrative that can certainly fuel an uptrend, especially if we see a spot BTC ETF get early approval as liquidity surges tend to accelerate fund flows.
Bitcoin price bottomed in November 2022 – almost exactly a year after its last cycle high. If BTC follows its historical plan, this would mean a new all-time high in the fourth quarter of 2024 – and its next cycle peak about a year later.
We noted as early as Q4 2022 that the downward trend in global liquidity appeared to have bottomed out over the last year, eclipsing the bottom in BTC price. The subsequent recovery in central bank liquidity has been a key support for the recovery of risk assets this year – particularly cryptocurrencies.
And we expect these trends to continue. Looking ahead to the next 12 to 18 months, we expect central bank balance sheets to continue to grow – primarily because they will have to.
Many of the world's largest economies are carrying enormous debt burdens – and here in the US, budget deficits are only expected to get worse (and that's without a recession). Larger deficits mean more debt issuance, which ultimately means greater support from the Federal Reserve.
Unless the relationship in this graph – which shows total US government debt versus total Fed assets – decouples dramatically.
And if we are in the early stages of a new global liquidity uptrend, BTC and crypto assets should outperform significantly over the next 12 to 18 months.
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