Future market trends may be consistent with the U.S. economic cycle, global liquidity cycle, public chain innovation cycle, and Bitcoin halving cycle.
原标题：The Setup for the next Crypto Cycle
Author: Michael Nadeau
Source:substack
Compiled by: Felix, PANews
The crypto market has been in a bearish state for a long time. What is the relationship between the economic cycle of the general environment and the crypto market? When will the bull market arrive? This article will give you a data interpretation of the future direction of the encryption market.
Data-driven review of past cycles
Looking ahead: Preparing for the next cycle
Current on-chain market signals
risk
Bitcoin Rainbow Price Chart, Source: Look Into Bitcoin
Review of past cycles
To an outsider, cryptocurrency prices may appear to follow no rhyme or reason. However, the crypto market is actually very cyclical. Using Bitcoin as a benchmark, significant consistency was found over the past three cycles:
Retracement percentage from peak per cycle: approximately 80%
Time for cycle bottom: 1 year from peak
Time to regain all-time highs from cycle bottom: 2 years
Source: Glassnode
In addition, comparing the U.S. ISM Manufacturing PMI Index (Note: The U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) shows the business environment of the U.S. manufacturing industry in the specified month. The index is based on 18 industries in the U.S. Calculated from a survey conducted by representatives of hundreds of companies), it is found that each cycle of the crypto market is almost exactly consistent with the cyclical changes of the economic cycle.
Source: Delphi Digital
Crypto cycles also coincide with global liquidity cycles:
next cycle
With seven months to go before the next Bitcoin halving, Bitcoin is already down roughly 80% from its previous cycle highs. Meanwhile, it took about a year for the market to hit bottom. It has now been 10 months of recovery.
If history repeats itself, the all-time high should be breached in approximately 14 months (Q4 to 2024) and peak in Q4 2025.
Of course, this is a big assumption.
In order to understand future price trends, the following are potential influencing factors:
Shifts in the economic cycle (driven by monetary policy and global liquidity)
A strong market narrative
The continuation of the innovation cycle
New market entrants and new speculation (leverage)
So far everything is going well. Let’s explore why.
Business cycles and liquidity
The author believes that global liquidity has bottomed out in October 2022. Since then, the Fed has been seen implementing a round of stealth quantitative easing (related to the banking crisis in March). Now China is fighting deflation.
China's PPI and CPI turned negative year-on-year:
Data: Delphi Digital, Bloomberg
This has led to the People's Bank of China recently starting to cut interest rates. This bodes well for global assets like Bitcoin – as you can see in the chart below.
China: Bitcoin and Total Assets of the People’s Bank of China
Source: Delphi Digital, Bloomberg
Meanwhile, the People's Bank of China has been buying gold, causing spot prices in China to be more than $120 an ounce higher than global prices. Will the People's Bank of China take action before the yuan depreciates?
Looking at the United States, more than $7 trillion in debt will mature next year. The Fed may have to buy a lot of this debt because it needs to be refinanced. Additionally, debt interest payments now account for more than 31% of tax revenue (red line)—tax revenue is declining, indicating an impending recession (grey line). How to increase tax revenue? Lower interest rates (green line).
Data: Federal Reserve FRED database
43 million Americans will have their student loans reinstated in October at an average monthly interest rate of $503.
The commercial real estate industry has more than $1.5 trillion in debt that will need to be refinanced in the coming years.
U.S. commercial bank lending is currently at recessionary levels (grey line = recession):
Data: Federal Reserve FRED database
Continuing claims for unemployment benefits begin to increase:
Data: Federal Reserve FRED database
Economic cycle/liquidity summary
The authors looked at a number of data points in the FRED database, and most pointed to a recession. Given that liquidity appears to have bottomed out in October 2022, it is more likely to see monetary policy easing in the coming months and into 2024 - but only if the economy really starts to slow.
Assuming a recession in the next 6 months or so, a more dovish policy from the Fed might fit perfectly with the Bitcoin halving schedule.
innovation cycle
Although the crypto winter continues, we can still see that public chains have made significant progress in infrastructure construction. Highlights include:
1. Bitcoin is scaling on the Lightning Network and the Ordinals protocol is driving new demand for block space.
Data: Blockworks Research
2. As Moore’s Law takes effect, Ethereum is also expanding through Layer 2. (Note: Moore's Law is the experience of Gordon Moore, co-founder of Intel. Its core content is: the number of transistors that can be accommodated on an integrated circuit will double approximately every 18 to 24 months. In other words, processor performance doubles roughly every two years while prices drop to half what they were before)
EIP 4844 (Extended Upgrade) is expected to be implemented in the fourth quarter. Significant progress can be observed on important improvements such as account abstraction (related to user experience bridging assets), smart contract wallets, tokenization of real world assets, stablecoins, liquid staking protocols, Eigen Layer (heavy staking) , data availability (Celestia), and DeFi blue chips.
To highlight the growth of operational and network KPIs across cycles, here’s a quick view of some Ethereum data:
The author believes that cryptocurrency’s “broadband moment” is coming, which may usher in the next wave of consumer applications and new users.
Finally, competing L1 public chains (such as Solana) are showing strong resilience.
narrative
Here’s what famous investor Jeff Gundlach said at the recent Future Proof conference:
"Overall. I think the dollar is going to depreciate significantly in the next recession. That's because the response to the next recession is going to be a complete disaster relative to our fiscal position. It's going to be a wake-up call, Let's realize that America is bankrupt. We cannot meet our debt. The United States has nearly $200 trillion in unfunded liabilities - almost 8 times GDP. At today's purchasing power, we have to pay GDP over the next 80 years 10%. We will not do that. We will completely abandon the dollar. We will see a restructuring of the U.S. financial system.”
If this actually happens, you will see the following:
For the record, the author does not want a future Great Recession. But it's important to consider that if certain circumstances arise, such a narrative may prevail.
The narrative is difficult to predict. Did anyone foresee Paul Tudor Jones publicly sharing his views on Bitcoin last cycle? What about Michael Saylor and Microstrategy? Did anyone predict that Tesla, Square, and Mass Mutual would buy Bitcoin and put it on their balance sheets? Did anyone predict that BlackRock would file for a Bitcoin ETF before this cycle?
Remember, the “stigma” associated with crypto is finally starting to disappear. BlackRock was a catalyst. This means that cryptocurrencies are now entering a “turning point” phase in traditional markets – with new regulations “blessing” new technologies as they become increasingly integrated into the traditional financial system. Recent court victories (Ripple, Grayscale, Uniswap) illustrate the dramatic changes that are occurring.
Not to mention, the media loves cryptocurrencies. There’s a reason major platforms like CNBC and Bloomberg continue to ramp up cryptocurrency coverage. Cryptocurrencies are very attractive. These outlets can’t wait to start pushing the next narrative.
But ultimately it is the market that determines the future narrative. But it seems to be consistent with the U.S. economic cycle, global liquidity cycle, public chain innovation cycle, and Bitcoin halving cycle.
On-chain signals: market value and realized value
Here’s a quick look at one of the on-chain signals: MVRV. The market value to realized value ratio currently stands at 0.41.
Historically, long-term investors have made huge profits simply by entering the market when the MVRV signal was below 1.
risk
Although the above explanation looks good. But nothing is guaranteed. So what's the problem? The author believes that the following points need to be noted:
inflation. If inflation does not continue to fall (or accelerate), it will be difficult for the Fed to change monetary policy. This may delay or negate judgments about the economic cycle and monetary policy shifts.
There is no recession. As much as we hate to say it, the economy needs to be truly in trouble for the Fed to adjust monetary policy. If this does not happen, the author's point is unlikely to be corroborated.
Supervision. It is still possible that the SEC will continue to take a tough stance and prevent the BlackRock ETF from being approved. The authors think this is unlikely, but is still something to consider.
Recommended reading:
Behind the collapse of the FTX empire
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