The cryptocurrency market is witnessing a shift in its long-standing four-year cycle narrative, challenging many investors’ expectations. The anticipated drop at the beginning of the year did not occur, suggesting a transformation in the market dynamics. Bitcoin is currently experiencing volatility, falling below the $90,000 mark, while trading volumes are showing signs of rebound, although spot prices continue to decrease. The absence of the peaks observed in 2013, 2017, and 2021 raises pertinent questions about the future trajectory of cryptocurrencies.
Has the Era of Bull Markets Ended?
Markus Thielen from 10x Research contests the notion that the “four-year cycle” is a thing of the past. He asserts that Bitcoin’s halving continues to hold significance, albeit with a shift in the emphasis towards political developments and liquidity conditions. Bitcoin has finally established itself as a unique asset class, undergoing a significant evolution.
What Could Drive the Next Market Rally?
The new cryptocurrency cycle seems to revolve around three crucial factors: the US electoral calendar, central bank policies, and the movement of capital into riskier assets. Thielen connects previous bull markets (2013, 2017, and 2021) to electoral cycles, pointing out that the rise seen last year was election-driven but influenced by unpredictable actions from political figures.
“There’s uncertainty over whether the incumbent president’s party will lose many seats. This could parallel Trump or the Republicans losing many House seats. Therefore, perhaps he won’t push many contentious issues on his agenda.” – Markus
If geopolitical tensions ease, and aggressive political tactics are toned down, the crypto market may see favorable conditions next year, potentially marking the rise of a true bull market phase. With the M2 money supply on the rise, strengthening liquidity could become a reality with further interest rate cuts and election-related economic measures.
Currently, three recent interest rate reductions have concluded QT this month, marking a significant financial policy change. Although not fully embracing quantitative easing, the Fed has started purchasing short-term bonds to maintain liquidity, albeit facing challenges from institutional investors reacting to mixed signals. Interestingly, Bitcoin holdings in ETFs now surpass those on all cryptocurrency exchanges.
Key conclusions include:
- The influence of the US election cycle on market movements is clear.
- Institutional investments now play a pivotal role in price behaviors.
- The Fed’s actions significantly affect market liquidity and reactions.
Observing ETF flows and institutional engagement will be crucial to anticipating future market trends. Recent assessments suggest liquidity in the US dollar and Chinese yuan is slowing down, though a potential reversal could inject genuine capital into risk-prone markets, setting the stage for a possible cryptocurrency rally. While a significant crash akin to previous years appears unlikely, the market remains on alert for unforeseen shifts.
