With speculation mounting that incoming President Donald Trump may sign an executive order declaring a Bitcoin Reserve on day one, or pass legislation to establish a Reserve during his term, many wonder if the move could lead to a crypto supercycle.
Since Wyoming Senator Cynthia Lummis introduced the Bitcoin Reserve Act earlier this year, states like Texas and Pennsylvania have filed similar proposals. Russia, Thailand and Germany are reportedly considering proposals of their own, further ramping up pressure.
If governments are competing to secure their own stockpiles of Bitcoin, would we say goodbye to the four year boom-bust cycle in crypto prices that many attribute to Bitcoin’s halving?
Iliya Kalchev, dispatch analyst from crypto lender Nexo, believes “the Bitcoin Reserve Act could be a landmark moment for Bitcoin signaling its “recognition as a legitimate global financial instrument.”
“Every Bitcoin cycle has a narrative trying to push the idea that ‘this one is different.' The conditions have never been so ideal. Crypto has never had a pro-crypto US President who controls the Senate and the Congress.”
Lummis’ proposed Bitcoin Act 2024 would enable the US government to insert Bitcoin (BTC) into its treasury as a reserve asset by buying 200,000 BTC annually over five years, accumulating 1 million Bitcoin, which it would hold it for at least 20 years.
Jack Mallers, founder and CEO of Strike, believes Trump has the “potential to use a day-one executive order to purchase Bitcoin” although he cautioned that it would not equate to a 1 million Bitcoin purchase.
Dennis Porter, co-founder of nonprofit organization Satoshi Act Fund which supports pro-Bitcoin US policy bills, also believes Trump is exploring enabling a strategic Bitcoin reserve through an executive order.
Announcement from Dennis Porter that Trump is studying an Executive Order for a Strategic Bitcoin Reserve. Source: Dennis Porter
So far, Trump’s team has not directly confirmed the claims about an Executive Order, but Trump was asked on CNBC if the US would create a BTC Reserve similar to its oil reserve (which could mean legislation) and he answered, “Yes, I think so.”
An Executive Order however would lack stability, as subsequent presidents often reverse such orders. The only way to ensure the long term future of a strategic Bitcoin reserve would be with legislation with majority support.
Bitcoin advocates on Trump’s team have solid ground to push Lummis’ bill as Republicans dominate Congress and have a slim majority in the Senate. However just a few Republican defectors, swayed by progressive outrage over supposedly handing the government’s wealth to Bitcoiners, could derail the bill.
US Senate and Congress results post-election 2024. Source: The Associated Press
‘Stop comparing this cycle to prior cycles'
Earlier this month, Alex Krüger, economist and founder of macro digital assets advisory firm Asgard Markets, said the election result made him believe that “Bitcoin is highly likely in a supercycle.”
He believes that Bitcoin’s unique situation could be compared to gold when it surged from $35 per ounce in 1971 to $850 in 1981 as former US President Richard Nixon ended the gold standard and Bretton Woods.
Krüger did not rule out the possibility of Bitcoin going through a bear market as in past cycles. However, he urged the crypto investors to “stop comparing this cycle to prior cycles” as it may be different this time.
Trump’s actions to date certainly suggest a favorable administration going ahead. He’s nominated pro-crypto and pro-deregulation Paul Atkins as a nominee for the Securities and Exchange Commission (SEC) Chair after Gary Gensler stepped down.
He’s also nominated pro-crypto Scott Bessent as Treasury Secretary and designated former PayPal chief operating officer David Sacks as AI and Crypto Czar tasked with developing a clear legal framework for the crypto industry.
Supercycle theory has never had super results
However, the concept of “this cycle being different” has surfaced in every past Bitcoin bull market, each time backed by narratives surrounding mainstream and institutional adoption.
During the 2013-2014 bull run, the supercycle theory was supported by the theory that Bitcoin would gain international interest as an alternative asset to fiat currencies.
In the 2017-2018 cycle, the rapid price appreciation was thought to be a sign of mainstream financial adoption and the beginning of Bitcoin’s mainstream acceptance, where institutional interest would thrive.
In the 2020-2021 cycle, when tech companies such as MicroStrategy, Square and Tesla entered the Bitcoin market, they believed many tech-related companies would follow suit.
Bitcoin’s price performance peaks and lows from prior cycles. Source: Caleb & Brown
However, in each cycle, the supercycle narrative was not fulfilled ending in a price crash that wiped out proponents as it entered a prolonged bear market.
Su Zhu, co-founder of Three Arrows Capital, was the most notable proponent of the Supercycle Thesis from 2021, and argued that crypto markets would remain in a bull market without a sustained bear market with Bitcoin eventually peaking at $5M.
3AC certainly borrowed money as if the supercycle thesis was real and when it was eventually liquidated, the crypto market cap fell by almost 50% on the news and the collapse led to bankruptcies and financial difficulties for lenders including Voyager Digital, Genesis Trading and BlockFi.
So a supercycle is a dangerous theory to bet your life savings on.
For Chris Brunsike, partner at venture capital firm Placeholder and former blockchain products lead at ARK Invest, the Bitcoin supercycle is a myth.
“Supercycle is without fail a collective delusion.”
Nevertheless, the US election results have overwhelmingly provided Bitcoin with unprecedented and extremely bullish conditions considering the backing of a US President who seems to be following through with his pro-crypto promises, among them to never sell Bitcoin from the US Bitcoin stockpile.
The potential global domino effect
If the Bitcoin Reserve Act is passed, it may kick off a global hodling race as other countries follow suit to avoid being left behind.
George S. Georgiades, a lawyer who transitioned from advising Wall Street firms on capital raising to working with the crypto industry in 2016, told Cointelegraph that enacting the Bitcoin Reserve Act “would mark a turning point for global Bitcoin adoption” and likely “trigger other countries and private institutions to follow suit, driving broader adoption and enhancing market liquidity.”
Basel Ismail, CEO of crypto investment analytics platform Blockcircle, agreed and said approval would be “one of the most bullish events in crypto history” as “it’ll catalyze a race to acquire as much Bitcoin as possible.”
“Those other nations won’t have a voice, their hand will be forced. Pivot and compete, or die.”
He believes “most of the G20 nations, which are the most powerful and most economically advanced countries in the world, would follow suit and create their own reserve stash.”
2024 G20 map. Red: G20, Purple: EU represented countries, Green: African Union represented countries. Yellow: Countries permanently invited. Source: Wikipedia
Veteran crypto investor and Bitcoin educator Chris Dunn said to Cointelegraph that such a FOMO-based competitive buying spree among countries could completely alter the current crypto market cycle.
“If the US or another major economic power started accumulating, Bitcoin could trigger an FOMO, which could create a market cycle and supply-demand dynamics unlike anything we’ve seen so far.”
Hong Fang, OKX exchange President, told Cointelegraph other countries may already be positioning themselves for such a race.
“Game theory is likely already quietly in play.”
However Ismail said much of the Bitcoin purchases will be done via over-the-counter brokers and settled as block trades, so “it may not have an immediate, direct impact on the price of BTC,” but will instead create a long-lasting demand force which will eventually push upward the price of Bitcoin.
The new wave of crypto investors may alter crypto market dynamics
The Bitcoin market would likely change radically if states become market buyers. A new wave of new investors from global financial centers would flood the crypto markets, changing the market dynamics, psychology and reactions to certain events.
While it remains speculative to assume this legislation could disrupt Bitcoin’s well-known four-year halving cycles, several dynamics might evolve, said Nexo analyst Kalchev.
Bitcoin is a unique market, driven so far by retail buying and selling with the price highly reactive to market psychology. The emergence of new types of investors could shift market dynamics, altering historical cycles.
Ismail believes that “investors from the equities market will behave differently” than hyper-reactive retail investors. Institutional players bring deep pockets and advanced risk management strategies, which allow them to approach Bitcoin differently than retail investors.
“Over time, Wall Street’s participation could contribute to a more stable, less reactive market environment.”
Stabilization is another way of saying less volatile, which would logicially mean bear markets would be less aggressive than in past cycles.
Georgiades believes that “price cycles will persist,” but “sustained demand from large-scale buyers like the US could reduce volatility and the swings we’ve witnessed over past cycles.”
Ismail meanwhile pointed out the Bitcoin market is already behaving differently to previous four-year cycles. Bitcoin’s price in the current cycle fell below the last cycle’s all-time high (ATH), “which everyone believed was impossible,” and then Bitcoin reached a new ATH before the formal Halving took place.
“The four-year cycle has already been debunked and broken multiple times now.”
Bitcoin has only seen four halvings so far, with nearly thirty halving events yet to occur. “It’s difficult to imagine that all these halvings will follow the same predictable four-year pattern,” said Kalchev, especially as broader macroeconomic and political factors—such as central bank policies and regulatory developments— exert more significant influence on Bitcoin’s market trajectory.
Kalchev believes Bitcoin’s price movements will become less tied to internal mechanics like the Halving, and more influenced by external factors, such as institutional adoption and geopolitical events.
