Author: Daniel Ramirez-Escudero, CoinTelegraph
Compiled by: Tong Deng, Jinse Finance
As more and more people speculate that the incoming President Donald Trump may sign an executive order declaring a Bitcoin reserve on his first day, or pass legislation to establish a reserve during his term, many are wondering if this move could lead to a crypto super-cycle.
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 reportedly considering their own proposals, further increasing the pressure.
If governments around the world compete to protect their Bitcoin holdings, will we say goodbye to the four-year boom-bust cycle of cryptocurrency prices?
Iliya Kalchev, an analyst at crypto 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 a narrative trying to push the idea that 'this time is different'. The conditions have never been more ideal. The crypto space has never had a US president who supports crypto controlling the Senate and Congress."
Lummis' 'Bitcoin for 2024 Act' would allow the US government to include Bitcoin as a reserve asset in its treasury, purchasing 200,000 Bitcoin per year over five years to accumulate 1 million Bitcoin, and holding it for at least 20 years.
Strike founder and CEO Jack Mallers believes Trump "could potentially issue an executive order to buy Bitcoin on day one", although he warned this does not equate to purchasing 1 million Bitcoin.
Dennis Porter, co-founder of the non-profit Satoshi Act Fund that supports pro-Bitcoin policy legislation in the US, also believes Trump is exploring enabling a strategic Bitcoin reserve through an executive order.
Dennis Porter announces that Trump is exploring an executive order for a strategic Bitcoin reserve. Source: Dennis Porter
So far, Trump's team has not directly confirmed the claims about an executive order, but Trump was asked on CNBC whether the US would establish a BTC reserve similar to the strategic oil reserve (which could imply legislation).
However, an executive order lacks stability, as subsequent presidents often overturn such orders. The only way to ensure the long-term future of a Bitcoin strategic reserve is through legislation with broad support.
With the Republicans dominating Congress and holding a slim majority in the Senate, the Bitcoin advocates in Trump's team have a solid foundation to push Lummis' bill. However, only a few Republican defectors may be affected by progressive outrage for entrusting government wealth to Bitcoin supporters, derailing the bill.
US Senate and Congress results after the 2024 election. Source: Associated Press
"Stop Comparing This Cycle to Previous Cycles"
Earlier this month, economist and founder of macro digital asset advisory firm Asgard Markets, Alex Krüger, said the election results make him believe "Bitcoin is very likely in a super-cycle".
He sees Bitcoin's unique position as comparable to gold when former US President Richard Nixon took the US off the gold standard, ending the Bretton Woods system, and gold prices skyrocketed from $35 per ounce in 1971 to $850 in 1981.
Krüger does not rule out the possibility of Bitcoin experiencing a bear market like past cycles. However, he urges crypto investors to "stop comparing this cycle to previous cycles" as it may be different this time.
Trump's actions so far have undoubtedly shown a government favorable to the future. After Gary Gensler's resignation, he nominated Paul Atkins, who supports crypto and deregulation, to chair the Securities and Exchange Commission.
He also nominated Scott Bessent, a crypto supporter, as Treasury Secretary, and appointed David Sacks, the former COO of PayPal, as the AI and Crypto Czar to develop a clear legal framework for the crypto industry.
Super-Cycle Theories Have Never Delivered Super Results
However, the concept of "this cycle is different" has emerged in every previous Bitcoin bull market, each time supported by narratives around mainstream and institutional adoption.
During the 2013-2014 bull run, the super-cycle theory was backed by the idea that Bitcoin as an alternative asset to fiat would gain international attention.
In the 2017-2018 cycle, the rapid price appreciation was seen as a sign of mainstream financial adoption, the beginning of Bitcoin's mainstream acceptance, and that institutional interest would flourish.
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 has shown peaks and troughs in previous cycles. Source: Caleb & Brown
However, in each cycle, the super-cycle narrative has not materialized, ultimately leading to price crashes and wiping out supporters as the market entered a prolonged bear market.
Su Zhu, co-founder of Three Arrows Capital, has been one of the most prominent supporters of the super-cycle theory since 2021, believing the crypto market will remain in a bull market without a sustained bear market, and that Bitcoin will ultimately reach a peak of $500,000.
Three Arrows, of course, borrowed money as if the super-cycle theory was real, and when it was finally liquidated, the news caused the crypto market cap to drop nearly 50%, leading to the bankruptcies and financial difficulties of lenders like Voyager Digital, Genesis Trading, and BlockFi.
Therefore, the super-cycle is a dangerous theory that can make you bet your life savings on it.
For Chris Brunsike, partner at venture capital firm Placeholder and former blockchain product lead at ARK Invest, the Bitcoin super-cycle is just a myth.
"The super-cycle is undoubtedly a collective delusion."
However, considering the support of the US President, the overwhelming US election results provide Bitcoin with unprecedented, extremely bullish conditions, and the US President appears to be delivering on his promises to support cryptocurrencies, including never selling the Bitcoin in the US's reserves.
Potential Global Domino Effect
If the Bitcoin Reserve Act is passed, it could trigger a global hoarding race, with other countries following suit to avoid falling behind.
Lawyer George S. Georgiades, who shifted from providing financing advisory to Wall Street firms to working with the crypto industry in 2016, told Cointelegraph that the enactment of a Bitcoin reserve act "could mark a turning point in global Bitcoin adoption" and could "trigger other events" as countries and private institutions follow suit, driving wider adoption and enhancing market liquidity.
Blockcircle CEO Basel Ismail agrees, stating that the approval would be "one of the most optimistic events in crypto history" because "it will trigger a race to accumulate as much Bitcoin as possible".
"Other countries won't have a say, they will be forced to act. Either they pivot and compete, or they die."
He believes "most G20 countries will follow suit and establish their own reserve pools."
2024 G20 map. Red: G20, Purple: EU representative countries, Green: African Union representative countries. Yellow: Permanently invited countries. Source: Wikipedia
Veteran cryptocurrency investor and Bitcoin educator Chris Dunn points out that this kind of competitive buying frenzy based on FOMO between countries may fundamentally change the current cryptocurrency market cycle.
"If the US or other major economic powers start accumulating Bitcoin, it could trigger FOMO in Bitcoin, which could create market cycles and supply-demand dynamics that are unlike anything we've seen so far."
The president of the OKX exchange pointed out that other countries may have already prepared for such a race.
"Game theory is likely already at play."
However, Ismail said that most Bitcoin purchases will be done through over-the-counter brokers and settled in block trades, so "it may not have an immediate direct impact on the price of Bitcoin," but will create long-term impacts. The persistent force of demand 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 fundamental changes. A new wave of investors from global financial centers will flood into the cryptocurrency market, changing market dynamics, psychology, and reactions to certain events.
Nexo analyst Kalchev said that while the assumption that this legislation could disrupt Bitcoin's well-known four-year halving cycle is still speculative, some dynamics may change.
Bitcoin is a unique market, driven by retail buying and selling so far, with prices highly sensitive to market psychology. 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 strong capital and advanced risk management strategies, allowing them to treat Bitcoin differently than retail investors.
"Over time, Wall Street's involvement may help establish a more stable, less reactive market environment."
Stability is another way of saying lower volatility, which logically implies that bear markets will not be as extreme as in past cycles.
Georgiades believes that "price cycles will continue to exist," but "the sustained demand from large buyers like the US may reduce the volatility and the swings we've witnessed in past cycles."
Ismail also pointed out that Bitcoin's performance has already deviated from the previous four-year cycle. In the current cycle, Bitcoin's price has fallen below the all-time high (ATH) of the previous cycle, "which everyone thought was impossible," and then reached a new ATH before the official halving.
"The four-year cycle has now been debunked and broken multiple times."
Bitcoin has only experienced four halvings so far, with nearly thirty more halvings yet to occur. Kalchev said, "It's hard to imagine all these halvings will follow the same predictable four-year pattern," especially as broader macroeconomic and political factors (such as central bank policies and regulatory developments) have a more significant impact on Bitcoin's market trajectory.
Kalchev believes that Bitcoin's price performance will be less influenced by internal mechanisms like halvings and more by external factors such as institutional adoption and geopolitical events.
