Interpretation from the perspective of past bulls and bears and economic cycles: When will the next bull market arrive?

The cryptocurrency 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 cryptocurrency market? When will the bull market arrive? This article will help you interpret the future direction of the cryptocurrency market through data.

• 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 cryptocurrency 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, compare 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 a specified month. The index is based on 18 U.S. industries. Calculated from a survey conducted by representatives of hundreds of companies), it is found that each cycle of the cryptocurrency market is almost exactly consistent with the cyclical changes of the economic cycle.

Source: Delphi Digital

Cryptocurrency cycles also coincide with global liquidity cycles:

next cycle

There are still seven months until the next Bitcoin halving, and Bitcoin has fallen approximately 80% from the highs of the previous cycle. Meanwhile, it took about a year for the market to hit bottom. It has been 10 months since recovery.

If history repeats itself, the all-time high should be breached in about 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 compared with the same period last 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 vs. People’s Bank of China Total Assets:

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 falling, signaling an impending recession (grey line). How to increase taxes? 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 author looked at a number of data 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 six months or so, a more dovish policy from the Federal Reserve may fit perfectly with the Bitcoin halving schedule.

innovation cycle

Although the Crypto Winter continues, it can still be seen that public chains have made significant progress in infrastructure construction. Highlights include:

• Bitcoin is scaling on the Lightning Network and the Ordinals protocol is driving new demand for block space.

Data: Blockworks Research

• As Moore's Law takes effect, Ethereum is also expanding through Layer 2. Note: Moore's Law is the experience of Gordon Moore, one of the founders 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, the performance of processors doubles approximately every two years, while the price drops to half of what it was 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 over each cycle, here is a quick view of some Ethereum data:

I believe 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 were to happen, you would see the following:

For the record, I do not want a major recession in the future. 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 apply for a Bitcoin ETF before this cycle?

Remember, the “stigma” associated with cryptocurrencies is finally starting to disappear. BlackRock was a catalyst. This means that cryptocurrencies are now entering a "turning point" stage in traditional markets - as new technologies become more and more integrated with the traditional financial system, new regulations "bless" new technologies. Recent court victories (Ripple, Grayscale, Uniswap) show 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 briefings. 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 there are the following points to pay attention to:

• 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 it hates to say it, the economy needs to be in real trouble for the Fed to adjust monetary policy. If this does not happen, it is unlikely that my opinion will be confirmed.
• Supervision. There is still a possibility that the SEC will continue to take a tough stance and prevent the BlackRock ETF from being approved. I think this is unlikely, but it's still something to consider.