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Is This The Bitcoin Supercycle?

Is This The Bitcoin Supercycle
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Bitcoin is currently smack dab in the middle of a bull market cycle. 

A 2,000% increase in price over a year certainly qualifies as a bull market. 

However, this cycle feels different than the previous Bitcoin bull market/cycles. It feels like something called a supercycle.

Anyway, this article will cover some reasons why this could be the Bitcoin supercycle. We will also cover some reasons that this might not be the Bitcoin supercycle. Of course, we will first describe what is meant by the term supercycle.

What is a Bitcoin supercycle?

To understand what a Bitcoin supercycle is, you first must understand a standard Bitcoin cycle. Basically, Bitcoin has something called halvings where the block reward is halved. This typically precedes a bull run in Bitcoin.

There have been three halvings (2012, 2016, and 2020) and each one has been followed by a bull run within a year of the halving.

Now, the thing with the first two bull runs is that they typically only last a year and Bitcoin’s price retraced about 80% of the all-time high from the bull run.

A supercycle is a little different, though. It’s a term coined by prominent cryptocurrency bull Dan Held. Basically, a supercycle describes a bitcoin cycle that results in an abnormally large increase in price compared to other bull markets.

In this case, the supercycle could see the price rise as high as $200,000 per coin. Some cryptocurrency experts have even theorized $1 million per coin, but that will likely occur during the next bitcoin cycle rather than the current one.

Why This Might Be a Bitcoin Supercycle

This section will cover some reasons that we might be in a bitcoin supercycle. We would like to note that this is all speculation, but the evidence does look convincing that we might be in the middle of a bitcoin supercycle. 

Quantitative Easing

As we are sure you are aware, 2020 was a very unique year with the COVID pandemic that essentially shutdown the entire world and brought the world economy to a standstill. COVID actually took the price of bitcoin under $4,000 as holders sold off assets, including bitcoin, for extra cash. 

The Fed saw this asset selloff occurring and mitigated by an unprecedented level of quantitative easing (read: money printing) and basement interest rates. Of course, this led to money flowing back into assets as bond rates kept decreasing.

There simply was nowhere to put money with interest rates being so low. 

And this lined up perfectly with the halving the Bitcoin mining reward that occurred in May 2020. There was going to be a bull run in Bitcoin anyway because of the halving, and the QE that occurred because of COVID was essentially rocket fuel for the bull run. 

Bitcoin Replaces Gold?

A common sentiment in this bull cycle is that bitcoin will replace gold. Many have likened it to digital gold. 

For those that have been following bitcoin for a long time, this is not news. However, the “bitcoin as a gold killer” narrative has never received this much attention in the mainstream media. 

In our opinion, this narrative makes sense from an economic standpoint. Bitcoin does function very similarly to gold with a limited supply and an ever increasing value. But we will say that Bitcoin is even better than gold. Why is bitcoin better than gold?

Unlike gold, bitcoin has a decreasing supply as time passes – it’s quite literally hardcoded into the code. Gold miners, on the other hand, could discover new gold reserves at any point or scientists could discover a way to profitably produce gold. 

Institutional Money Flows Into Bitcoin

This point builds on the previous point about bitcoin being touted as a replacement for gold. Institutions and high net worth individuals (HNW) have finally started viewing bitcoin as a viable alternative to gold. 

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This is evidenced by big corporations such as MicroStrategy and Tesla placing bitcoin on their balance sheet. 

Now, this ties into the bitcoin supercycle because it has created massive demand for bitcoin. MicroStrategy, for instance, holds over $4 billion worth of bitcoin. 

These corporations are doing this because, well, they don’t have anywhere else to place the cash they are essentially getting for free from the Federal Reserve. Sure, some could go into R&D, but bitcoin is a good bet for any excess cash. Corporations certainly don’t want to hold cash with the amount of money printing that has occurred since COVID began.

Why This Might Not Be The Bitcoin Supercycle

As you may have inferred, this current bitcoin bull run has much more institutional money in it than previous bull runs. And that has led many to believe that this could be a supercycle.

And it very well could be.

However, the flip side to this is that institutional money will not hold bitcoin indefinitely. Remember, these publicly traded companies like Tesla and MicroStrategy are beholden to their shareholders. So far, the shareholders have been ecstatic at the increasing price of the bitcoin that publicly held companies hold on their balance sheet. 

The problem begins when these institutions decide that it’s time to turn that bitcoin into cash by selling it. We could see a massive selloff that craters the price. 

But why would these corporations sell bitcoin?

Again, they have shareholders. It seems that the only reason they hold bitcoin at the moment is that they do not have anywhere better to put the cash with the interest rate on Treasury bonds being at an all time low. 

All it would take is the Fed raising the interest rate on bonds and the institutional money that flowed into bitcoin might flow back into safer investments. 

Will that happen?

We say it’s inevitable, but there does not appear to be any end in sight with the amount of QE. It will have to stop eventually, though. 

The price of bitcoin could be $200,000 when the crash occurs, and that would qualify this as a bitcoin supercycle. 

The Price of Bitcoin in a Supercycle

A supercycle implies that the price of bitcoin will explode upwards. Estimates by various banks and crypto experts have placed this price somewhere between $100,000 on the conservative end to north of $500,000 on the high end. 

In our opinion, $100,000 would barely qualify as a supercycle because it’s only 5x the previous all-time high. A $200,000+ price per bitcoin would likely qualify as a supercycle, though.

We would say that $200,000 is within the range of possibility for this bull run, so it appears that we are in some sort of bitcoin supercycle.

Final Thoughts

That about sums it up for the argument for and the argument against why this could be a bitcoin supercycle. It really comes down to this:

When will central banks raise interest rates and stop excess money printing? 

If they raise interest rates tomorrow, then we would expect money to flow out of bitcoin into bonds. 

Fortunately, that does not appear to be the plan as the world economy is still operating at a standstill, so it’s reasonable to assume that this could actually be a bitcoin supercycle. 

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