The crypto market has been in a deep bearish state for a long time. What is the relationship between the economic cycle and the crypto market in the overall environment? When will the bull market arrive? This article will take you through the data interpretation of the future direction of the crypto market.

PANews Note: The views expressed in this article are solely the author’s personal views and should not be considered as investment or legal advice. DYOR (Do Your Own Research).

• Reviewing past cycles based on data
• Looking ahead: preparing for the next cycle
• Current on-chain market signals
• Risks

Bitcoin Rainbow Price Chart Indicator，Source：Look Into Bitcoin

Review of Past Cycles

To outsiders, the price of cryptocurrencies may seem to have no discernible pattern. However, the crypto market actually exhibits strong cyclicality. Taking Bitcoin as a benchmark, significant consistencies have been observed in the past three cycles:

• Percentage retracement from each cycle peak: approximately 80%
• Time from cycle bottom to peak: 1 year
• Time to reclaim a new all-time high from the cycle bottom: 2 years

Data Source：Glassnode

In addition, comparing the US ISM Manufacturing PMI index (Note: The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) for the manufacturing sector in the United States, which indicates the business environment of the US manufacturing sector for a specified month. This index is calculated based on surveys conducted with representatives from hundreds of companies in 18 industries in the United States), it can be observed that each cycle in the cryptocurrency market closely aligns with the cyclical changes in the economy.

Data Source：Delphi Digital

The crypto cycle also coincides with the global liquidity cycle:

Next Cycle

There are 7 months left until the next Bitcoin halving, and Bitcoin has already dropped by about 80% from the previous cycle’s peak. Meanwhile, it took the market about a year to hit rock bottom. It has now been recovering for 10 months.

If history repeats itself, we should break the previous high within approximately 14 months (from the fourth quarter of 2023 to 2024) and reach a peak in the fourth quarter of 2025.

Of course, this is a big assumption.

To understand the future price trend, the following are potential influencing factors:

• Shifts in economic cycles (driven by monetary policy and global liquidity)
• Strong narratives in the market
• Continuation of the innovation cycle
• New market entrants and speculation (leverage)

So far, all factors have been progressing smoothly. Let’s explore the reasons below.

• Economic cycles and liquidity

The author believes that global liquidity reached its lowest point in October 2022. Since then, it can be observed that the Federal Reserve has implemented a round of stealth quantitative easing (related to the banking crisis in March). Currently, China is fighting against deflation.

China’s PPI and CPI both turned negative YoY:

Data Source：Delphi Digital, Bloomberg

This has led to the recent interest rate cuts by the People’s Bank of China. This is a positive sign for global assets like Bitcoin, as shown in the chart below.

China：Bitcoin and the total assets of the People’s Bank of China

Data Source：Delphi Digital, Bloomberg

Meanwhile, the People’s Bank of China has been buying gold, causing the spot price of gold in China to be more than $120 per ounce higher than the global price. Did the People’s Bank of China take action before the devaluation of the Chinese Yuan?

Looking at the United States, over $70 trillion in debt is due next year. The Federal Reserve may have to purchase a large amount of such debt as they need refinancing. Additionally, debt interest payments currently account for more than 31% of tax revenue (red line) - tax revenue is decreasing, indicating an impending economic recession (gray line). How to increase tax revenue? Lower interest rates (green line).。

Data Source: Federal Reserve FRED Database

43 million Americans will resume student loan payments in October, with an average monthly interest of $503.

The commercial real estate industry has over $1.5 trillion in debt that needs to be refinanced in the coming years.

Commercial bank lending in the United States is currently at recessionary levels (gray line = recession).

Data Source: Federal Reserve FRED Database

The number of ongoing applications for unemployment benefits is starting to increase:

Data Source: Federal Reserve FRED Database

• Summary of Economic Cycle/Liquidity

The author has examined multiple data from the FRED database, most of which indicate an economic downturn. Given that liquidity appears to have bottomed out in October 2022, it is more likely that we will see a loosening of monetary policy in the coming months, until 2024 - but this is contingent on the economy actually starting to slow down.

Assuming an economic downturn in the next six months or so, a more dovish policy by the Federal Reserve may align perfectly with the Bitcoin halving schedule.

• Innovation Cycle

Although the crypto winter continues, significant progress can still be seen in the development of public blockchains’ infrastructure. This is evident in:

1. Bitcoin is expanding on the Lightning Network, and the Ordinals protocol is driving new demands for block space.
   
   Data Source：Blockworks Research

2. With the advancement of Moore’s Law, Ethereum is also expanding through Layer2. Note: Moore’s Law is an empirical observation by Gordon Moore, one of the founders of Intel. Its core idea is that the number of transistors that can be integrated on an integrated circuit doubles approximately every 18 to 24 months. In other words, processor performance doubles every two years, while the price is reduced to half of what it was before).
   

EIP 4844 (Extension and Upgrades) is expected to be implemented in the fourth quarter. Significant progress has been made in important improvements, such as Account Abstraction (related to bridging user experience with assets), smart contract wallets, tokenization of real-world assets , stablecoins, liquidity staking protocols, Eigen Layer (heavy staking), data availability (Celestia), and DeFi blue-chip projects.

To highlight the growth of operational and network KPIs in each cycle, the following are some quick views of Ethereum data:：

The author believes that the “broadband moment” of cryptocurrency is approaching, which could usher in the next wave of consumer applications and new users.

Finally, competing L1 public chains like Solana are demonstrating strong resilience.

• Narrative

Below is the speech given by renowned investor Jeff Gundlach at the recent Future Proof conference:

“Overall, I believe that the US dollar will significantly depreciate in the next economic recession. This is because our response to the next economic downturn, relative to our fiscal situation, will be a complete disaster. It will serve as a wake-up call, making us realize that the United States is bankrupt. We are unable to fulfill our debts. The US has nearly $200 trillion in unfunded liabilities - almost 8 times the GDP. In terms of today’s purchasing power, we would have to pay 10% of GDP over the next 80 years. We will not do that. We will completely abandon the US dollar. We will witness a restructuring of the US financial system.”

If this really happens, you will see the following:

The author solemnly declares that he does not wish for a future Great Recession. However, it is important to consider that if certain circumstances arise, such a narrative may prevail.

Narratives are difficult to predict. Did anyone anticipate that Paul Tudor Jones would publicly share his views on Bitcoin in the previous cycle? What about Michael Saylor and Microstrategy? Did anyone predict that Tesla, Square (Block), and Mass Mutual would purchase Bitcoin and include it on their balance sheets? Did anyone foresee BlackRock applying for a Bitcoin ETF before this cycle?

Please note that the “shame” associated with crypto is finally starting to disappear. BlackRock is a catalyst. This means that cryptocurrencies are now entering a “turning point” stage in traditional markets - with the increasing integration of new technologies and the traditional financial system, new regulations “bless” new technologies. Recent victories in court (Ripple, Grayscale, Uniswap) indicate the emergence of significant changes.

Not to mention, the media loves cryptocurrencies. There is a reason why major platforms like CNBC and Bloomberg continue to increase their coverage of cryptocurrencies. Cryptocurrencies are very eye-catching. These media outlets are eager to promote the next narrative.

However, in the end, the future narrative will still be determined by the market. But it seems to align with the economic cycle in the United States, the global liquidity cycle, the innovation cycle of public chains, and the Bitcoin halving cycle.

On-chain signal: Market value and realized value

Below is a quick overview of one on-chain signal: MVRV. The current ratio of market value to realized value is 0.41.

Historically, long-term investors have been able to earn substantial profits by entering the market when the MVRV signal is below 1.

Risks

While the above explanation looks good, nothing is guaranteed. So, where are the problems? The author believes there are several points to consider:

• Inflation. If inflation does not continue to decline (or accelerates), the Federal Reserve will find it difficult to change monetary policy. This could delay or negate the judgment on the economic cycle and the shift in monetary policy.
• No recession. Although reluctant to say so, the economy needs to truly be in trouble for the Federal Reserve to adjust monetary policy. If this situation does not occur, the author’s viewpoint is unlikely to be confirmed.
• Regulation. The SEC may continue to take a tough stance and prevent the approval of the BlackRock ETF. The author believes this is unlikely, but it is still something to consider.

Disclaimer:

1. This article is reproduced from [Panewslab], and the copyright belongs to the original author [Michael Nadeau]. If there are objections to the reproduction, please contact the Gate Learn team, and the team will process it promptly according to relevant procedures.
2. Disclaimer: The views and opinions expressed in this article represent only the personal views of the author and do not constitute any investment advice.
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