The cryptocurrency market, known for its volatility, has experienced several bull and bear cycles over the past decade. We approach the next potential crypto bull cycle centered around the 4th Bitcoin halving in April 2024, where block rewards will reduce from 6.25 BTC to 3.125 BTC per block. However, several macroeconomic and industry-specific factors could influence its trajectory. Here’s an analysis of these factors.
The Crypto Bull Cycle Environment
- Interest Rates, Inflation and Easy Money:
- 3rd Crypto Bull Cycle: Low interest rates have historically driven investors to seek higher returns in alternative assets, including cryptocurrencies. The influx of easy money in the market at low to zero interest rates has driven the last bull cycle around the 3rd bitcoin halving. In the COVID-19 pandemic around the 3rd Bitcoin halving, countries around the world have pursued easy money policies and pumped money into the economy via central banks. A significant portion of this money has fed the bull cycle….
- 4th Crypto Bull Cycle: However, before the 4th bitcoin halving, we face a high-interest environment due to inflation; there is no easy money. As interest rates continue to rise, the start of the next crypto bull cycle seems unlikely. The U.S. FED recently hinted at another rate hike. So, a drop in interest rates can probably not be expected until early 2024, and this would mean that the start of the next bull cycle for the crypto industry would also have to be set for Q1.
- The ETF Situation:
- Latest Developments: BlackRock, Fidelity, and Ark Investments have filed for Bitcoin spot ETFs, paving the way for institutional capital to flood into the digital asset. Crypto exchanges like Binance or Coinbase (who will be BlackRock’s surveillance-sharing partner for the ETF) may be at bad terms with regulators but the traditional Wall Street giants are completely different beasts.
- Impact: The entry of high-profile Wall Street firms into the crypto market could signal a broader institutional acceptance of cryptocurrencies and fuel the 4th crypto bull run. The U.S. regulator SEC is not expected to grant approval for crypto ETFs until early 2024. This would mean the start of the 4th bull cycle in Q1 2024.
- The Regulatory Scrutiny:
- Latest Developments: Currently, the U.S. regulators CFTC and SEC are taking massive action against Binance, Coinbase, and other crypto exchanges and issuers. They claim that a number of tokens traded on the exchanges are, in fact, securities and require regulatory approval for both their issuance and trading. The crypto exchanges Binance and Coinbase are defending themselves against this claim and will defend themselves in court.
- Impact: There is currently no regulatory clarity on the criteria for classifying tokens as securities. This uncertainty is weighing on the entire market. In addition, there is a special situation with the world’s largest crypto exchange, Binance, which Western regulators are systematically pursuing (see the SEC lawsuit here). The next bull cycle will not start before these major regulatory issues are clarified. A clarification can be expected in Q1 2024 at the earliest.
At present, the macroeconomic environment and the regulatory situation do not point to the start of the next bull cycle before early 2024. The peak of the next bull cycle and thus the next all-time high of the Bitcoin price would thus be expected for Q3 or Q4 2025.
The 3rd Bitcoin halving took place in May 2020 and the subsequent all-time high of the BTC with over $66,000 we saw in October 2021.