Gold – this little word (from the old English geolo, or yellow) means big things to many people. By Dave Phillips....
By Matteo Pecar, our resident Bitcoin supremo.
When referring to a crypto “mega” or “super” cycle, we are talking about a price expansion of the whole cryptocurrency market that would make the previous bull runs look like a tiny rise. It may be the case that despite the exponential growth witnessed in 2020, the big move may yet have to come. Several reliable public figures in the macro investment domain, well connected to Wall Street, speak of a “wall of money” ready to hit the crypto market… so, is Bitcoin going to 100.000$ and beyond any soon?
Let’s start by trying to frame this peculiar moment:
On one hand, macro and general conditions for cryptocurrencies seem extremely bullish, with a lot of new capital entering (and about to enter) the market, and new useful services being implemented and actually adopted on different blockchain networks.
For instance, there are currently over 40 billion $ locked in Financial services on the Ethereum platform only (Vs 10 billion $ 6 months ago). DeFi (decentralized finance) has been the main use case for Ethereum so far. Due to high fees, and the very low scalability of the network (waiting for the upcoming implementations), other applications not based on a pure mathematical computation still struggle.
We are also witnessing the explosion of the NFTs (Non-Fungible Tokens: Unique tokens representing a unique asset, either from the real or digital world). In other words, digital collectibles and assets of any type:
– tradeable cards (the NBA is making hundreds of millions $ selling those);
– items in the gaming industry with digital value that can be transferred from one game to another in a futuristic digital world (something similar to a Steven Spielberg’s “Ready Player One” reality, but decentralized rather than controlled by one evil company);
– paintings, or digital art pieces (Banksy recently auctioned one of his paintings on blockchain);
– and surely more use cases will be coming in the future (Music & Entertainment industry, property right, monetization for content creators…)
All with a flexible structure, no funds locked, available and exchangeable every day of the year (obviously also with greater risks, since it’s a new, more volatile industry).
On the other hand, the market is showing clear signs of euphoria that wise investors should always be wary of:
– every new project feels destined to be a game changer (almost every pre-sale makes at least 50x return);
– every token, no matter how big already, offers huge performances and seems unstoppable (a cap of 3.5 billion $ can double over a weekend);
– so many celebrities are Tweeting about cryptocurrencies;
– hordes of new improvised investors are joining the market;
– and everyone is making money.
Having seen what happened in 2017 when the bull cycle ended, I cannot ignore the many similarities despite all the good macro news.
Is it then really possible that the super cycle may coincide with this cycle?
With way too many variables in place, external and internal to the crypto market; as well as, very few reference points, it is no easy task to fully understand the probabilities of all possible scenarios.
If using 2017 as a reference to understand the general behavior of the market cycle can be useful, trying to frame the situation of today comparing it to the status quo of 2017 would be very misleading. It is evident from a macro level (where the interest around cryptocurrencies keeps growing) down to the on-chain metrics (that show a constantly increasing activity), that the whole industry is on a totally different level, and there is a concrete possibility that the current cycle may go well further. Up to where is really hard to tell. To grasp the concept of that, you may want to go and check the article “Bigger than Visa”.
Will the bubble burst?
Most certainly yes. Bitcoin has had a steep parabolic move like nothing before; also due to the fact that historically people have never been able to invest at such an early stage in new technologies, simply because there was no market to trade them. This time, anyone can do it 24/7 across global markets. In this journey Bitcoin lost 80% of its price value from the peaks of its cycles 3 different times; and then always came back.
Price bubbles are a dynamic that affect every asset; even more so if new assets. The difference between something valuable and a Ponzi scheme is when the cycle repeats several times, constantly dwarfing the previous ones. That means a substantial growing value is recognized in the underlying asset over time.
When will it burst?
That is absolutely impossible to say. It will likely hit very hard, when least expected; but few arguments may suggest that the burst is not as much around the corner as some may think.
We are currently witnessing a supply shock of Bitcoin, which means that all the so called “virgin Bitcoin” (the BTC that miners receive from the network for their work as block producers) that are usually sold in the market, are scooped out by buyers as soon as they are available. To give an idea of the magnitude of this pressure: in 2017 the demand was high enough to deplete 5 months’ worth of miners’ BTC inventory. Today the demand is up to the equivalent of 12 months’ inventory.
The significant difference this time is that these Bitcoin are being bought by strong hands who are accumulating, without a history of selling, who move their assets from exchanges into cold storage (that suggests there is no intention to sell anytime soon), and the type of buying pressure that is currently on the market is NOT one that pushes and chases the FOMO (fear of missing out) of the market, typical to the end of a bubble; it is a buying pressure that slowly accumulates and sees price dips as chances for buying.
Who’s behind this buying pressure?
Already known investing in BTC are Funds, publicly traded companies, private companies, pension funds, family offices, macro & retail investors, even some Cities. ETFs have been approved in Europe, more recently in Canada and Brazil, waiting for a US ETF approval (Fidelity, Goldman Sachs, Morgan Stanley are among the pending proposals), which will allow more institutional investors to join the party.
Next, sovereign wealth funds that represent 9 to 10 trillion $ globally (UAE 1.2 trillion, Norway 1.1 trillion, Singapore 700bil $) may be the new players, and it is very likely that one of these actors may make the first move, and ignite a new transition of value from the traditional to the digital world.
The final ingredient that would certify a super cycle would be more Governments and Central banks moving parts of their reserves into Bitcoin, but that is probably a long shot to predict.
With many variables at stake: from fiscal policies, to Marco Economics, to the situations and potential black swans exclusively related to the Crypto industry, the future of cryptocurrencies remains very uncertain. That uncertainty represents the risk.
It is also clear that many dynamics around the world are aligning to push forward this new technology, probably in new future forms that we cannot even imagine today. In addition, over time, the more parties get involved in crypto, the lesser the risk of Governments intervention against this industry. This represents the potential parabolic return.
In a global financial scenario with trillions of $ expected to enter the market in the form of various stimulus packages, it is very possible that the bull run may continue. If it will turn into a Super cycle, or it will be just the continuation of a soon-to-end bubble of everything, only time will tell. Surely, the uptrend will finish at some point. Likely to come back few years later stronger than before.
To get in touch with Matteo, visit his site: https://matteopecar.wixsite.com/cryptompinfo
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