As markets enter Q4 2024, investors keenly observe the current bitcoin market cycle, questioning whether it will reflect historical patterns. Typically, halving events every four years dictate these cycles, each marked by sharp supply cuts. However, today’s demand and supply forces, regulatory changes, and external market shocks suggest this cycle could be different.
Key Background
Historically, bitcoin bull market price surges were mostly fueled by a diminishing liquid supply, with coins increasingly held long-term or presumed lost. Bitcoin’s circulating supply currently stands at approximately 19.7 million coins, with an estimated 5 million permanently out of circulation.
This leaves about 14.6 million BTC characterized as illiquid—held in wallets with little to no selling intent. Over 73% of the total supply is now illiquid, reducing the coins available for active trading and hinting at tightening market liquidity similar to periods preceding historic bull runs.
Supply Dynamics And Market Trends
This cycle differs as major holders like Grayscale sell off their bitcoin assets, reacting to competition from lower-fee ETFs.
Despite this increase in short-term liquid supply, the overarching trend sees entities like MicroStrategy and various new ETFs accumulating vast amounts of bitcoin, potentially triggering a supply crunch. The liquidity ratio of bitcoin has dropped below 0.25, signaling that most circulating coins are effectively being removed from the trading pool as institutional and long-term investors increase their holdings.
M2 Money Supply And The Bigger Picture
The wider economic environment, especially movements in the M2 money supply, has historically correlated with bitcoin’s price cycles. Recent expansions in M2, following a contraction phase, are perceived by some analysts as potential catalysts for bitcoin’s growth in the upcoming months.
Central banks’ potentially moving towards more aggressive quantitative easing to mitigate economic slowdowns could enhance bitcoin’s appeal as an inflation hedge, potentially accelerating its price appreciation. In addition, the U.S. dollar index’s, also known as the DXY, remain a key focus; a large drop could further boost bitcoins growth.
Emerging Factors In Global Adoption
Another factor making this cycle different is the rise in global adoption and interest from nation-states. Countries like El Salvador and regions with economic instability increasingly turn to bitcoin as legal tender or reserve asset. While still in its infancy, this adoption could lead to greater stability and credibility for bitcoin, shifting its market perception from a speculative asset to a legitimate store of value.
Together with geopolitical tensions and financial sanctions, bitcoin is becoming a hedge for inflation and sovereign risk, which may further accelerate its institutional and governmental accumulation. This macro transition towards bitcoin as a global, non-sovereign currency is a fascinating development that suggests a stronger, more resilient market dynamic, making this cycle stand apart from those before it.
Outlook and Implications
Although some experts forecast Q2 2025 as the cycle’s peak, the unique conditions of this cycle warrant a cautious outlook.
The continuous increase in illiquid supply supports long-term holding strategies, without a catalyst like increased institutional buying or favorable macroeconomic conditions, the duration of this accumulation phase remains uncertain. Regulation and potential changes in U.S. monetary policy could inject further volatility into the market.
Additional Insights
Global liquidity has increased by $10 trillion since the beginning of the year, a development potent enough to purchase all of bitcoin ten times over. This influx in global liquidity has not immediately been reflected in bitcoin’s price, which shows the typical lag as these vast sums trickle into various asset classes.
The FTX scandal ironically cut short the last bull run and prevented bitcoin from reaching $100,000. Now, FTX-related payouts could serve as a bullish catalyst for the next cycle, possibly driving bitcoin toward that $100,000 milestone.
Strategic Takeaways
For investors, the decision points involve weighing the slow momentum of the current market against the prospects of a more defined uptrend. With big players like Grayscale reducing their holdings and others like ETFs and MicroStrategy increasing their stakes, the timing and strategic positioning will be important.
The fundamental principles of bitcoin’s deflationary model and growing institutional interest suggest that despite potential deviations from past patterns, the underlying strengths of bitcoin remain strong. Only time will reveal how this market cycle unfolds, but current indicators suggest a distinct and more pronounced bull run.