Is a Bitcoin Supercycle on the Horizon?
The Boom-and-Bust Cycle of the Cryptocurrency Industry
The conventional wisdom of the cryptoverse is that there is a boom-and-bust cycle to the blockchain and cryptocurrency industry. This cycle is led by the “King of Cryptos,” Bitcoin. Bitcoin (BTC) is programmatically set to have a halving cycle roughly every four years, which cuts the supply of new coins awarded to miners in half. The halving sends a supply shock to the market, and as seen in the past three cycles, this under- and overvaluation in the market is partially responsible for the dramatic ups and downs.
Other factors also play critical roles in this cycle, including overall network adoption, expanded use cases for Bitcoin — like the Lightning Network for scalability and Ordinals for nonfungible tokens — and the ever-popular “institutional adoption.”
The Concept of a Bitcoin Supercycle
In 2020, Dan Held, a Bitcoin educator and marketing adviser for Trust Machines, predicted that Bitcoin would eventually see a “supercycle,” citing the increased value of the network as adoption grows (Metcalfe’s law), increased scarcity due to the halving, and increased institutional adoption.
This supercycle will, theoretically, see Bitcoin run up to new all-time highs, from which there will be no further downside, as there will be enough adoption and institutional support to continue to prop up the price.
The Failure of Institutional Support in the Last Cycle
This support did not occur in the last cycle, and Bitcoin fell from its all-time high of $69,000 at the end of 2021, bringing the rest of the market down with it. All those factors of reduced supply, greater network growth, and more business and institutional support were not enough to support the meteoric rise.
Institutional support was growing so much during the last leg of the cycle that exchange-traded funds (ETFs) were approved around the world. Yet these products did not provide the institutional support many believe will come from ETFs.
The Potential Impact of Spot Bitcoin ETFs in the United States
The various stock markets worldwide do not compare to the United States. The European Union makes up 11.1% of global equity markets, while Australia and Canada make up 1.5% and 2.7%, respectively. All these markets combined are dwarfed by the United States, which comprises 42.5% of all global equity markets. This does lend some weight to the idea that this cycle may hold the promise of Held’s “Bitcoin supercycle,” as the largest country in all global equity markets may soon allow spot Bitcoin ETFs to trade.
BlackRock, one of the most prominent names in asset management and investment circles, applied for its own spot Bitcoin ETF in June 2023, providing a kind of green light for other institutions to start getting involved.
The Role of Adoption in the Bitcoin Superccycle
According to Chainalysis’ recent “2023 Geography of Cryptocurrency Report,” India, Nigeria, and Vietnam were the top three countries for crypto adoption in 2023. The rankings were based on an index score that looked at centralized services, retail services, peer-to-peer (P2P) exchange trade volume, decentralized finance (DeFi), and retail DeFi value received.
While institutional adoption will undoubtedly be an essential factor if and when the Bitcoin supercycle takes hold, Bitcoin itself needs to have perceived value from market participants, or it will not have the staying power.
Lessons from Past Technological Revolutions
History is replete with examples of thriving industries that were superseded by a new technology the market found helpful and that toppled giants practically overnight. The introduction of petroleum products completely overturned the whaling industry in the mid-1800s. More recently, the dot-com bubble of the mid-1990s and early 2000s saw various companies overvalued based on the assumption that adoption would be more rapid than what actually happened.
Participants, not institutions, bring value. While institutional adoption will undoubtedly be an essential factor if and when the Bitcoin supercycle takes hold, Bitcoin itself needs to have perceived value from market participants, or it will not have the staying power.
The Future of Bitcoin
According to Chainalysis, worldwide grassroots crypto adoption is down. However, lower-middle-income (LMI) countries — like India, Nigeria, and Ukraine — have seen increased adoption. LMI countries are seeing greater adoption due to high inflationary monetary issues within their respective countries, and Bitcoin, as much as it fluctuates, can be a better alternative than holding domestic currency.
If hyperinflation starts to rear its head in the U.S., it is possible that alternatives will be used instead of holding onto cash.
While the concept of a Bitcoin supercycle holds promise, it is still early in the adoption cycle. Increased institutional adoption and grassroots adoption in developing countries may contribute to the rise of a Bitcoin supercycle, but time will tell if this prediction becomes a reality.