Original title: “Where are we in the current crypto cycle and where do we go from here?”
Author: Tom Dunleavy
Compiled by: Joyce, BlockBeats
Editor’s note: The impact of the US and German governments selling coins and the Mt. Gox case on the market is gradually coming to an end, and community sentiment has hit rock bottom. What direction will the encryption market take next? There are many factors to consider in this process. The author of this article, Tom Dunleavy, remains optimistic about the future market, believing that the current encryption market is at a historical turning point, and BTC has tremendous potential, and market fluctuations are only temporary adjustments.
Unlike the usual simple bullish voice, Tom Dunleavy gives specific reasons for being bullish from aspects such as technical indicator, macro Liquidity, and market structure, and provides his analysis of potential new crises in the encryption market. Readers with either bullish or bearish attitudes can gain some inspiration from the sorting out in this article.
In this article, I will discuss:
Current Market Status: We are at a historical turning point, BTC has tremendous potential, and the market Fluctuation is a temporary adjustment.
Outlook for the Next 18 Months: The continued increase in global Liquidity and inflow of institutional funds will continue to drive the market, with promising prospects.
Investment Advice: Choosing promising sectors and early-stage projects is crucial, so focus and invest cautiously.
In short, you are not optimistic enough.
After the large-scale deleveraging, the market is about to start
First, let’s review the current market situation. The expected approval of BTC ETF in the fourth quarter of 2023 in the United States has triggered a wave of enthusiasm, marking the beginning of this cycle. In the first half of 2024, the market attracted approximately $15 billion in new capital inflows. In particular, the release of the ETH ETF on May 23 caused prices to soar by more than 30% at one point, although there has been a recent pullback in the past few weeks, this is just normal fluctuation within the cycle, so there is no need to worry too much.
At the same time, we also experienced a large-scale deleveraging event. At the end of the second quarter, nearly 1 billion dollars in assets were liquidated over a weekend. Although this may seem scary, it actually helps the market relieve the burden of excessive leverage and make it healthier and more stable.
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Key Metrics: MVRV
Let’s take a look at a very important market indicator - MVRV, which is the ratio of market value to realized value. This ratio is an important reference for judging whether the market is overvalued or undervalued, and it is also the most reliable indicator for indicating BTC oversold or oversold situations. Currently, BTC’s MVRV ratio is 1.5, indicating that the market is relatively undervalued.
As a large amount of leverage in the market is cleared, the current low MVRV value implies that the market has further potential for rise. Historical data shows that when the ratio exceeds 4, it is often a sell signal; while when it is below 1, it is a good time to buy. Therefore, from this perspective, BTC still has a lot of room to rise in the future.
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Global Liquidity’s Favourable Information Stimulus
Global Liquidity is an important driver of market cycles. As we all know, the stimulus policies of global Central Banks and governments have a profound impact on the market, especially in the United States. As the world’s largest economy, policy changes in the United States are crucial to the market. Currently, the market expects the Fed to cut interest rates twice this year, while Citibank even predicts up to 8 rate cuts in the next 12 months. This will significantly increase market Liquidity, undoubtedly favorable information for the Crypto market.
crossbordercap, an institution focused on Liquidity, has called for an increase in the Liquidity growth rate in the second half of 2024 to 20%. In addition, the Central Bank of Sweden and Europe have also indicated that they will begin to relax monetary policy. Such policy changes will inject more long-term funding into the market and drive up the prices of risk assets pump.
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Impact of Election Cycles
The impact of the election cycle on the market should not be underestimated. During election years, government spending often increases, which is also a positive signal for the market. Especially during the campaign period, the incumbent government usually increases direct and indirect spending, which often leads to strong market performance in the beginning of the year, a relatively calm summer, and a rebound in the second half of the year. The 2024 election cycle is no exception, and it is expected that the market will perform well in the second half of the year.
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Additional Buying Power from FTX
We also have additional bullish catalysts, with the expected influx of 12-14 billion USD in October and November 2024 from FTX compensation claims. This will inject a large amount of new funds into the cryptocurrency market, further driving up market prices. Undoubtedly, this is very favourable information for investors.
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Halving「传统」
Speaking of this, we can’t ignore past lessons. Historically, the Cryptocurrency market has often followed a four-year cycle centered around the BTCHalving. In the first year after the Halving, the market pumps quickly; in the second year, the growth rate starts to slow down; in the third year, the price remains roughly the same; in the fourth year, the price sharply declines. The price usually reaches its peak around 500 days after the Halving. If this cycle follows the same pattern, the market may reach its peak around October 2025.
If we follow this ‘tradition’, we are still in the early stages of the cycle, and it is expected that the market will remain relatively calm in July and August before a rapid pump in the next 12 months.
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How to Navigate This Bull Market without Chasing After Last Cycle’s Wins?
Although we expect the market to follow the previous pump cycle, there are indeed some subtle differences in this cycle’s market.
Market Variables That Cannot Be Ignored
The Impact of Institutional Entry
In this cycle, we have seen some new factors. First, the influence of institutional products is growing. Since the approval of Bitcoin ETF, the market has attracted over 15 billion dollars in capital inflows. Moreover, currently only about 25% of US financial advisors can recommend these products to clients, which means there is still significant rise potential in the future.
After the approval of the gold ETF, there was a net inflow for five consecutive years. Therefore, we can expect that BTC ETF will also continue to attract capital inflows. This will help reduce market volatility and prolong the duration of the cycle.
More longToken and bigger hairstyle backlog
Secondly, the number of tokens available for purchase has increased significantly. In 2021, there were about 400,000 tokens in the market, but now this number has exceeded 3 million, with 100,000 new tokens added every day. In addition, there are a large number of tokens unlocked from previous issuances. In just July alone, tokens worth $350 million were unlocked. Such an increase in supply will undoubtedly have an impact on the market.
There are still a large number of private projects preparing to go public in the market. These projects are expected to conduct Token generation activities in the fall. 1000 long-term projects funded in early 2023 and 2024 have not yet issued Tokens, and the total supply is expected to reach billions of dollars. The issuance of these new Tokens may have a significant impact on the market.
Macro-economic conditions
The macroeconomic conditions of the United States also have a significant impact on the market. Currently, the country’s unemployment rate remains low, inflation continues to decline, unemployment benefits remain steady, and wages have stagnated. These factors provide a reason for the Fed to lower interest rates. It is expected that we will see a drop in interest rates in 2024 and 2025, which will lower the capital cost of enterprises, drop debt interest rates for consumers, and provide longer funds for risky assets.
VC Reserve Fund
In 2021 and 2022, over 10 billion dollars of long-focused Cryptocurrency funds were successfully raised. These funds typically have a 3-4 year capital deployment timeline. Due to the influence of FTX, many long funds are cautious in their investments at the end of 2022 and the beginning of 2023. However, the recent market pump has caught many long venture capital firms off guard, resulting in a significant amount of reserves remaining on the sidelines in this round of the cycle. Many reserves will be actively deployed in the first and second quarters of 2024.
A more explicit regulatory environment
Finally, changes in the regulatory environment have also had a significant impact on the market. Although upcoming regulations may be controversial, clear rules can drop market uncertainty. The EU’s MiCA has already been launched, and the US has long-term bills on market structure, banking services, and stablecoins. If the Republican Party wins the presidency and the Senate, these bills will be quickly enacted in the first quarter of 2024.
How to view this round of cycle?
Longer and with lower volatility
Overall, we believe that this cycle is likely to be longer and less volatile than previous cycles. Large assets will lead the way, and the large reserve funds of venture capital firms will support a range of new projects, but we still need new net buyers to support longer assets. Although we have gained many buyers through ETFs, these buyers are unlikely to be on-chain users who support the valuation of other tokens.
Market assets lead the rise, ‘altcoin season’ no longer
We expect that in this round of the cycle, large assets will lead the way, while the volatility of long-tail assets will be greater. Many top assets may be included in institutional products. Compared to past cycles, many small or emerging protocols will go to zero as competition for capital intensifies. In this round of the cycle, there will be significant differentiation in the investment and performance of long-tail protocols.
Choosing and focusing are crucial
In this cycle, asset selection is more important than ever. The old method of “casting a wide net” no longer works. Due to the increase in supply, attention is almost as important as fundamentals (even more important in some verticals). Investors should focus on following seed and A rounds in verticals and protocols.
