What stage of the new bull market are we in?

To many, the cryptocurrency market may seem like a strange world with no real rules or reasons for how it is traded.

However, just like traditional markets, cryptocurrencies go through their own cycles – and these price cycles are remarkably consistent, including the timing between peak to trough, price recovery, and subsequent rally to new cycle highs.

We believe we are in the early stages of a new cycle. Using Bitcoin (BTC) as our benchmark, here is the typical structure of a cryptocurrency market cycle:

• The price of Bitcoin hit an all-time high.

• BTC subsequently suffered a painful retracement of around 80%.

• Prices finally bottomed almost exactly one year after the previous cycle high.

• Bitcoin began to recover and it took about two years to reach new all-time highs.

• Bitcoin continues to rise for a year before topping out at the next cycle high.

• Then repeat the cycle.

The past few cycles have followed this script.

The consistency of these cycles is no coincidence. It is driven by a much more powerful macro trend — which is at the core of Bitcoin’s value proposition.

Bitcoin is not an inflation hedge as many believe. Bitcoin is not a hedge against the Consumer Price Index (CPI). It is a hedge against currency debasement.

This distinction is important because currency debasement is driven by monetary inflation and central bank balance sheet expansion. Bitcoin is, by its very nature, one of the most leveraged bets in an expansionary liquidity environment.

The Bitcoin halving is not the main catalyst for the Bitcoin bull run — the upward trend in the liquidity cycle is. As it happens, each halving is accompanied by an expansionary liquidity environment. The next halving is expected to occur in April 2024, which looks to be perfectly timed again.

This is not to say that the halving is unimportant — it is a powerful narrative that will certainly add momentum to the bullish uptrend, especially if we see a spot BTC ETF approved ahead of schedule, as liquidity upcycles tend to accelerate capital flows.

BTC’s promising future

The price of Bitcoin bottomed in November 2022 — almost exactly one year after the previous cycle peak. If BTC follows its historical strategy, this would mean a new all-time high by Q4 2024 and the next cycle peak about a year later.

We noted as early as the fourth quarter of 2022 that the downward trend in global liquidity last year seemed to have bottomed out, and the bottoming out of Bitcoin's price has become history. The subsequent rebound in central bank liquidity has been a key support for the recovery of risk assets this year - especially cryptocurrencies.

We expect these trends to continue. Looking ahead to the next 12 to 18 months, we expect central bank balance sheets to continue to expand – largely because they have to.

Many of the world’s largest economies are carrying large debt burdens, and in the U.S., fiscal deficits are only expected to get worse (and that’s without a recession). Bigger deficits mean more debt issuance, which ultimately means more support from the Fed.

Unless the relationship in this chart (showing total U.S. public debt versus total Federal Reserve assets) completely decouples.

If we are in the early stages of a new global liquidity uptrend, then BTC and crypto assets should significantly outperform over the next 12 to 18 months.