The Breakdown - So, Is This a Bitcoin Supercycle or What?

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.combe. And produced and distributed by CoinDesk. What's going on, guys? It is Saturday, April 10th, and that means it's time for the weekly recap. First, however, do me a favor, guys. Go spam at Jesse Prey on Twitter.

Starting point is 00:00:34 that's spelled J-E-S-S-I-E-P-R-A-Y. That's my lovely wife. It's her birthday today, and she's the goddamn best. I would love it if you absolutely buried her mention saying happy birthday. Okay, now that you've all done that, let's talk super cycle theory. I've been observing a lot of back-and-forth conversation this week about this being a super cycle on the one hand or people pointing to top signals on the other, and I want to try to break it down just a little bit for a fun Saturday episode. So what's the idea? Well, first let's talk about the regular cycle. Because if there's a super cycle,

Starting point is 00:01:10 there's got to be a regular one, right? The regular cycle is a very loose, widely held conception of the crypto market cycle as one great bull year followed by three down and sideways years. People point to 2013 to 2017 to 2021. Now, what you might ask would cause a four-year cycle like that. Ding, ding, ding, of course, the four-year halving schedule. There is a sense that the halving creates a context for a larger cyclical affair, where the new supply reduction creates more awareness, more demand, and ultimately that happens in the context of less supply. This is, of course, best expressed in Plan B's Stock to Flow or S2F model, which has both its share of adherence and plenty of doubters. But we're not here to debate Plan B or Stock to Flow. Instead, what I want to

Starting point is 00:01:54 focus on is a newer theory. It has been most fully articulated by Dan Held, but is certainly widely felt. This is a theory that Bitcoin is moving into a new super cycle, where the supply reduction around the halving isn't any longer the dominant force in shaping the Bitcoin market cycle, and where, indeed, roughly speaking, Bitcoin can just keep going up. The theory is predicated on the idea that some critical mass of participants has been reached that breaks us out of the standard crypto buy and sell cycles. What's more, the type of participants matter. The big institutions represent the driving force in this.

Starting point is 00:02:31 super cycle. They are acquiring Bitcoin right now finally, and for more than speculative reasons. Or maybe a better way to put it is that their speculation is driven by a much larger macro sensibility. They are, in other words, investing on the basis of not the internal supply-driven Bitcoin cycle, but on the basis of the larger debt super cycle playing out at the highest macro levels. That cycle that they are investing around has a very different type of time scale than Bitcoin. In short, it has a much longer duration. Because of that, it will take longer for their theses around Bitcoin to play out. Is Bitcoin a hedge against inflation or other long-term unknown fallouts of massively expansionary monetary policy and a growing debt burden?

Starting point is 00:03:16 Is Bitcoin the native settlement currency of the internet? Does a non-sovereign final settlement currency have massive benefits for the long-term of even non-internet international trade? these are the types of motivations and theses that are driving institutions to finally get into Bitcoin. And keep in mind, they already have longer investment time horizons than the previous type of participants in this market, just by the very nature of their mandates. Layer onto that these very different feces that are driving their investments, and you have potentially much stronger hands that want to acquire more and hold it longer. Looking for the best way to unlock your crypto's liquidity?

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Starting point is 00:04:52 download Exodus today. Visit the App Store or Google Play to download. Or visit Exodus.com for more information. Certainly, when one looks for evidence of the institutional thesis, it is plentiful. I went through a half dozen announcements yesterday that it becomes so commonplace that they barely made Bitcoin Twitter's radar. Liberty Mutual and Star Insurance investing in Nidig. BNY Mellon being the ETF servicer for Scaramucci's proposal. Massive property developer Rick Caruso accepting Bitcoin at all his properties and moving 1% of their treasury into Bitcoin, and so on and so forth. Now, the thing to ponder is how strong these institutions' theses actually are and what sort of duration they can handle, because much of the supercycle idea rests on these institutions not just

Starting point is 00:05:41 getting in, but staying in. Now, in this conversation about supercycles, I've been speaking largely about Bitcoin, but might a Bitcoin supercycle translate to or be the speartip of a larger crypto supercycle, where it is not just Bitcoin, but other aspects of the crypto market that remake the world as well. Defy has had less than a year since its breakout, so it feels hard to put it in a category of ascendance as a disruptive force. That said, there are certainly some powerful inroads in that direction. For example, recently, U.S.D.C. becoming accepted as a native currency in the Visa network. NFTs also feel like a potentially massive disrupting force. I've discussed this particularly in the context of creating new markets around music. New markets which I have

Starting point is 00:06:28 believe could put power back in the hands of the musician relative to the record companies, the radio companies, etc. At the same time, it is undeniably massively frothy and bubbly, right? Everyone, every celebrity is trying to get into the NFT game and it feels kind of inevitable that we're going to see some amount of supply demand mismatch here in the months ahead. The question will be what resolves on the other side. All of this hasn't stopped some from seeing a supercycle in these other aspects of crypto as well. Suu tweeted, Cryptoesthetics storming the hollowed halls of centuries-old arthouses, ascending from low to high culture, is a great example of how froth and adoption are indistinguishable during the process

Starting point is 00:07:13 of super cycle that we find ourselves in. Sue is of course referring to the fact that Christie's not only sold a Beeple a few months ago, and Sotheby's is doing their own collaborations as well, but that a crypto punk is about to show up at Christie's in the coming weeks. I have to say that even if you don't agree with Sue's statement, you can't deny that it's beautifully put. Froth and adoption are indistinguishable. That said, there is some serious froth this week. I think most notably in these 2017-2018 vintage zombie change pumping 50% plus this week. There is no way to describe that to me other than froth.

Starting point is 00:07:49 So, are we in a super cycle? I asked Twitter exactly that question, and I've had about 1,400 votes so far. 25% say absolutely, this is a new super cycle, we're in it. 25% say, I wish, but no. But a full 50% say that it's too early to tell. Too early you say, but if you're in the super cycle camp, there are a bajillion institutions coming in. It's got to be this, right? If you're in the top signal camp, every B-less celebrity and their mother and their manager is announcing some new NFT drop. Perhaps it is that those two things are fighting each other to shape the narrative in some way. Whatever the case, from a technical perspective, it's very hard to see this as a top.

Starting point is 00:08:30 Let's look at some previous cycles. John Street Capital looked at the number of days where the Bitcoin closed was within 10% of the ultimate high. In 2013, it was 7. In 2018, it was 3. In 2019, it was 6. That means that in 2019, there were only 6 days within 10% of the close of the ultimate high.

Starting point is 00:08:50 The average across all these years was 4.3 days. close to the top. And the point, of course, is that when a new high is reached historically, money tends to peel out pretty quickly. There's a large and shared sense of hitting that top and taking profit. We're currently on day 27 of closing within 10% of the all-time high of 61,000. That looks like a consolidation, not a top. So is this a new super cycle? Frankly, I'm in that too early to tell camp. There's a lot to explore here, though, so I think I'm going to do a full series on it. If that would be interesting to you, let me know on Twitter. In the meantime, I appreciate you listening. I hope you're having a great day. If you haven't yet, go hit up at Jesse Prey on

Starting point is 00:09:34 Twitter and say happy birthday. And until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - So, Is This a Bitcoin Supercycle or What?

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