Poland – 21/03/2024: In this photo illustration, the Bitcoin logo is displayed on a smartphone with … (+) stock market percentages in the background. Photo illustration: Omar Marquez
SOPA Image/LightRocket (via Getty Images)
As the market enters the fourth quarter of 2024, investors will be keenly watching the current Bitcoin market cycle and wondering if it reflects a historical pattern. Typically, halving events every four years determine these cycles, and each cycle is characterized by a sharp reduction in supply. However, today’s supply and demand forces, regulatory changes, and external market shocks suggest this cycle could be different.
Main background
Available supply chart
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Historically, Bitcoin’s bull market price spikes were primarily driven by dwindling liquid supplies, with coins increasingly held long-term or presumed lost. The circulating supply of Bitcoin is currently approximately 19.7 million coins, with an estimated 5 million coins permanently out of circulation.
This leaves approximately 14.6 million BTC characterized as illiquid and held in wallets with little or no intent to sell. More than 73% of the total supply is currently illiquid, with fewer coins available for active trading, indicating market liquidity is tight, similar to the period preceding historic bull markets. Suggests.
Supply trends and market trends
global liquidity
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This cycle is different as large holders like Grayscale sell their Bitcoin assets in response to competition from low-fee ETFs.
Despite this increase in short-term liquid supply, the overall trend is that entities like MicroStrategy and various new ETFs are accumulating large amounts of Bitcoin, potentially causing a supply shortage. Bitcoin’s liquidity ratio is below 0.25, indicating that most coins in circulation are effectively being removed from the trading pool as institutional and long-term investors increase their holdings.
M2 Money supply and the big picture
Long-term holder base
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The broader economic environment, and in particular movements in the M2 money supply, have historically been correlated with Bitcoin price cycles. Some analysts see the recent expansion in M2 after a period of contraction as a potential catalyst for Bitcoin growth in the coming months.
The possibility that central banks turn to more aggressive quantitative easing to ease the economic slowdown could increase Bitcoin’s appeal as an inflation hedge and accelerate price appreciation. Additionally, the US dollar index, also known as DXY, remains a key focus. A significant drop could further boost Bitcoin’s growth.
New factors in global adoption
Another factor making this cycle different is global adoption and increased interest from nation-states. Countries like El Salvador and regions with unstable economies are increasingly turning to Bitcoin as a fiat currency and reserve asset. Although still in its early stages, this adoption could lead to increased stability and reliability for Bitcoin, changing the market perception of Bitcoin from a speculative asset to a legitimate store of value.
Along with geopolitical tensions and financial sanctions, Bitcoin is becoming a hedge against inflation and sovereign risk, which could further accelerate institutional and government accumulation of Bitcoin. This macro shift to Bitcoin as a global, non-sovereign currency is a fascinating development that signals stronger and more resilient market dynamics, setting this cycle apart from previous cycles. I’m making it a thing.
Outlook and impact
Some experts predict Q2 2025 to be the cycle’s peak, but the unique circumstances of this cycle warrant a cautious outlook.
Days from cycle bottom
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Cycles from previous ATH (scaled by Realsied Price)
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Continued increases in illiquidity supply support long-term holding strategies, but absent catalysts such as increased institutional buying or favorable macroeconomic conditions, the duration of this accumulation phase remains uncertain. . Regulations and potential changes in U.S. monetary policy could further increase market volatility.
Additional insights
Global liquidity has increased by $10 trillion since the beginning of the year, a development strong enough to buy all of Bitcoin by more than 10 times. This global influx of liquidity is not immediately reflected in the price of Bitcoin, with the typical lag seen as these large sums trickle into various asset classes.
The FTX scandal ironically ended the last bull market and prevented Bitcoin from reaching $100,000. Currently, FTX-related payments could act as a bullish catalyst for the next cycle, possibly propelling Bitcoin towards its $100,000 milestone.
strategic key points
For investors, decision-making points include weighing the current modest market momentum against the prospect of a clearer uptrend. Timing and strategic positioning will be important as large companies like Grayscale reduce their holdings and other companies like ETFs and MicroStrategy increase their holdings.
The fundamental tenets of Bitcoin’s deflationary model and growing interest from institutional investors suggest that Bitcoin’s underlying strengths remain strong despite potential deviations from historical patterns. Time will tell how this market cycle will play out, but current indicators point to a clearer and more pronounced bull market.
