Is this the cycle to end them all?

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.”

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.

Crypto winter sets in at the end of 2021

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. The first physically-backed BTC ETF was launched in Canada in February 2021 by Purpose Investments.

Since then, Canada has also approved the CI Galaxy Bitcoin ETF and Evolve Bitcoin ETF. In Germany, there is the ETC Group Physical Bitcoin ETF, while Brazil and Australia also launched spot Bitcoin ETFs in 2021 and 2022. Yet these products did not provide the institutional support many believe will come from ETFs.

However, 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 intuitions to start getting involved. However, institutions are only one factor here.

Adoption may be an emerging market trend 

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.

The U.S. makes up North America’s largest percentage of transaction volume, and the country ranked fourth overall. As the chart below shows, North America had the largest percentage of large institutional transfers but some of the lowest amounts of small and large retail.

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This differentiation is important, as the market value of a commodity is not derived from centralized entities but rather from decentralized independent actors perceiving value in the commodity. As the Chainalysis report and Cointelegraph Research’s recent “Investing in DeFi” report suggest, investing in Bitcoin and other cryptocurrencies is akin to emerging markets investing at this stage in the adoption cycle.

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. 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. There was a vast industry and institutions behind global whaling interests with boats, trade and infrastructure. Still, no matter how much money was behind it, the market saw better use with the new products.

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