Title: A Bitcoin Reserve Act may end crypto's 4-year boom-bust cycle
Author: DANIEL RAMIREZ-ESCUDERO, Cointelegraph
Translator: Lawrence, MarsBit
A Bitcoin Reserve Act may break the halving cycle. Will this four-year cycle unfold differently? Will we enter a mythical supercycle?
There is growing speculation that the incoming president, Donald Trump, may sign an executive order to establish a Bitcoin reserve on his first day in office, or pass legislation to establish a reserve during his term, and many wonder if this move could lead to a cryptocurrency supercycle.
Since Wyoming Senator Cynthia Lummis proposed the Bitcoin Reserve Act earlier this year, states like Texas and Pennsylvania have also put forward similar proposals. Russia, Thailand, and Germany are also reportedly considering their own proposals, further increasing the pressure.
If governments around the world are competing to secure their own Bitcoin reserves, will we bid farewell to the four-year boom-bust cycle in cryptocurrency prices that many believe is caused by Bitcoin's halving?
Iliya Kalchev, an analyst at the cryptocurrency lending platform Nexo, believes that "the Bitcoin Reserve Act could be a landmark moment for Bitcoin, signaling its 'recognition as a legitimate global financial instrument'."
"Every Bitcoin cycle has had this narrative, trying to push the idea that 'this time is different'. The conditions have never been so ideal. Cryptocurrencies have never had a pro-crypto US president controlling the Senate and Congress."
Lummis' 2024 Bitcoin bill would allow the US government to introduce Bitcoin by purchasing 200,000 BTC per year over five years to build a 1 million BTC reserve asset held in its vaults, and hold it for at least 20 years.
Strike founder and CEO Jack Mallers believes Trump "could potentially use an executive order to purchase Bitcoin", but warns that this does not equate to purchasing 1 million BTC.
Dennis Porter, co-founder of the non-profit organization Satoshi Act Fund that supports pro-Bitcoin policy legislation in the US, also believes Trump is exploring establishing a strategic Bitcoin reserve through an executive order.
Dennis Porter announces that Trump is researching an executive order on a strategic Bitcoin reserve. Source: Dennis Porter
So far, Trump's team has not directly confirmed the claims about the executive order, but when asked on CNBC whether the US would establish a BTC reserve similar to its oil reserve (which could imply legislation), Trump replied: "I think so, yes."
However, executive orders lack stability, as subsequent presidents often overturn such orders. The only way to ensure the long-term future of a strategic Bitcoin reserve is through legislation with broad support.
With the Republicans dominating Congress and holding a slim majority in the Senate, Trump's Bitcoin-friendly team has ample reason to push Lummis' bill. However, as long as there are a few Republican defectors swayed by the progressives' outrage, they may block the bill's passage, as they see it as handing wealth to Bitcoin holders.
US Senate and House election results after the 2024 election. Source: Associated Press
Don't compare this cycle to previous ones
Earlier this month, Alex Krüger, founder of the macrodigital asset consulting firm Asgard Markets and an economist, said the election results make him believe "Bitcoin is very likely to enter a supercycle".
He believes Bitcoin's unique situation can be compared to gold. After former US President Richard Nixon announced the US abandoning the gold standard and the end of the Bretton Woods system, Bitcoin's price skyrocketed from $35 per ounce in 1971 to $850 in 1981.
Krüger does not rule out the possibility of Bitcoin experiencing bear markets like in the past. However, he urges cryptocurrency investors "not to compare this cycle to previous ones", as this one may be different.
Trump's actions so far clearly indicate that government policy will move in a favorable direction. After Gary's departure, he nominated pro-crypto and deregulation advocate Paul Atkins to chair the US Securities and Exchange Commission.
He also nominated crypto supporter Scott Bessent as Treasury Secretary and appointed former PayPal COO David Sacks as the AI and Crypto Czar to develop a clear legal framework for the crypto industry.
Supercycle theory has never achieved super results
However, the "this cycle is different" concept has appeared in every previous Bitcoin bull market, each time with narratives around mainstream and institutional adoption as support.
During the 2013-2014 bull market, the supercycle theory was supported by the idea that Bitcoin would become an alternative asset to fiat currencies gaining international attention.
In the 2017-2018 cycle, the rapid price increase was seen as a sign of mainstream financial adoption and Bitcoin's beginning of mainstream acceptance, with the expectation of burgeoning institutional interest.
In the 2020-2021 cycle, when tech companies like MicroStrategy, Square, and Tesla entered the Bitcoin market, they believed many tech-related companies would follow suit.
Bitcoin's price performance reaching peaks and troughs in the previous cycles. Source: Caleb & Brown
However, in each cycle, the supercycle narrative has not materialized, ultimately leading to price crashes and the collapse of supporters, entering prolonged bear markets. Su Zhu, co-founder of Three Arrows Capital, was one of the most prominent supporters of the 2021 supercycle theory, believing the crypto market would remain bullish even without a sustained bear market, with Bitcoin ultimately reaching a peak of $500,000.
3AC indeed borrowed money as if the supercycle theory was real, and when it was finally liquidated, the crypto market capitalization plummeted nearly 50% due to the news, leading to the bankruptcy and financial distress of lenders including Voyager Digital, Genesis Trading, and BlockFi.
Therefore, the supercycle is a dangerous theory that you should not bet your life savings on.
For Chris Burniske, partner at venture capital firm Placeholder and former blockchain product lead at ARK Invest, the Bitcoin supercycle is just a myth.
The supercycle is undoubtedly a collective delusion. Nevertheless, considering the support of the US president, the US election results have provided Bitcoin with unprecedented, highly bullish conditions, and the US president appears to be fulfilling his commitment to support cryptocurrencies, including never selling the US's Bitcoin reserves.
Potential global domino effect
If the Bitcoin Reserve Act is passed, it could trigger a global race to hold Bitcoin, with other countries following suit to avoid falling behind.
George S. Georgiades, a lawyer who shifted from advising Wall Street firms on financing to serving the cryptocurrency industry in 2016, told Cointelegraph that the enactment of the Bitcoin Reserve Act "would mark a turning point in global Bitcoin adoption" and could "trigger emulation by other nations and private institutions, driving broader adoption and enhancing market liquidity."
Basel Ismail, the CEO of the cryptocurrency investment analysis platform Blockcircle, agreed with this and said that the approval would be "one of the most exciting events in the history of cryptocurrency" because "it will catalyze a race to acquire as much Bitcoin as possible."
Other countries will have no say, they will be forced to take action. Either pivot, compete, or perish. He believes that "most of the countries in the G20, which are the most powerful and economically advanced countries in the world, will emulate and establish their own reserves."
Veteran cryptocurrency investor and Bitcoin educator Chris Dunn told Cointelegraph that this FOMO-driven buying frenzy between countries could fundamentally change the current cryptocurrency market cycle.
If the US or other major economic powers start accumulating, Bitcoin could trigger FOMO, which could create a market cycle and supply-demand dynamic that we have never seen before.
OKX exchange president Hong Fang told Cointelegraph that other countries may have already prepared for such a race.
Game theory has likely already come into play.
However, Ismail said that most Bitcoin purchases will be made through over-the-counter brokers and settled in block trades, so "it may not have a direct impact on the price of Bitcoin," but will create a persistent demand force that will ultimately drive up the price of Bitcoin.
A new wave of cryptocurrency investors may change the dynamics of the cryptocurrency market
If countries become market buyers, the Bitcoin market could undergo a fundamental change. A new wave of investors from global financial centers will flood the cryptocurrency market, changing market dynamics, psychology, and reactions to certain events.
Nexo analyst Kalchev said that while this legislation may disrupt Bitcoin's well-known four-year halving cycle is still speculation, there may be several dynamic changes.
Bitcoin is a unique market, driven by retail buying and selling so far, with prices highly reactive to market sentiment. The emergence of new types of investors may change market dynamics and alter historical cycles.
Ismail believes that "the behavior of stock market investors will be different from" the overreacting retail investors. Institutional investors have deep pockets and sophisticated risk management strategies, allowing them to treat Bitcoin differently than retail investors.
Over time, Wall Street's involvement will help create a more stable and less reactive market environment. Stability is another way of saying lower volatility, and logically, this means that bear markets will not be as severe as in past cycles.
Georgiadis believes that "price cycles will continue," but "sustained demand from large-scale buyers like the US can reduce volatility and the swings we've seen in past cycles."
At the same time, Ismail pointed out that the performance of the Bitcoin market has already deviated from the previous four-year cycle. Bitcoin's price has fallen below the all-time high (ATH) of the previous cycle in the current cycle, which "everyone thought was impossible," and then set a new ATH before the official halving.
The four-year cycle has been repeatedly exposed and broken
So far, Bitcoin has only experienced four halvings, with nearly thirty more halvings yet to occur. "It's hard to imagine that all these halvings will follow the same predictable four-year pattern," Kalchev said, especially as broader macroeconomic and political factors (such as central bank policies and regulatory developments) have a greater impact on Bitcoin's market trends.
Kalchev believes that Bitcoin's price performance will be less influenced by internal mechanisms like halvings and more influenced by external factors like institutional adoption and geopolitical events.
