Author: Daniel Ramirez-Escudero, CoinTelegraph; Translated by: Deng Tong, Jinse Finance
As speculation grows that incoming President Donald Trump may sign an executive order declaring Bitcoin reserves on his first day or establish reserves through legislation during his term, many wonder if this move will lead to a cryptocurrency super cycle.
Since Senator Cynthia Lummis of Wyoming proposed the Bitcoin reserve bill earlier this year, states such as Texas and Pennsylvania have also introduced similar proposals. Reports indicate that Russia, Thailand, and Germany are considering their own proposals, further increasing the pressure.
If governments are competing to protect their Bitcoin inventories, will we say goodbye to the four-year boom-bust cycles of cryptocurrency prices?
Iliya Kalchev, an analyst at cryptocurrency lending firm Nexo, believes that "the Bitcoin reserve bill could be a milestone moment for Bitcoin, marking its 'recognition as a legitimate global financial instrument.'"
"Every Bitcoin cycle has a narrative trying to push the idea that 'this is different.' The conditions have never been so ideal. The cryptocurrency space has never had a U.S. president who supports cryptocurrency controlling the Senate and Congress."
The bill proposed by Lummis (the 2024 Bitcoin bill) would allow the U.S. government to incorporate Bitcoin as a reserve asset in its treasury, purchasing 200,000 Bitcoins annually for five years, accumulating 1 million Bitcoins, and holding them for at least 20 years.
Jack Mallers, founder and CEO of Strike, believes that Trump "could potentially use an executive order on the first day to buy Bitcoin," although he warns that this does not equate to purchasing 1 million Bitcoins.
Dennis Porter, co-founder of the non-profit Satoshi Act Fund advocating for pro-Bitcoin legislation in the U.S., also believes that Trump is exploring activating Bitcoin's strategic reserves via executive order.
Dennis Porter announced that Trump is researching an executive order for a strategic Bitcoin reserve. Source: Dennis Porter
So far, Trump's team has not directly confirmed reports regarding the executive order, but Trump was asked on CNBC whether the U.S. would establish a BTC reserve similar to the oil reserve (which could imply legislation).
However, executive orders lack stability, as subsequent presidents often overturn such orders. The only way to ensure the long-term future of Bitcoin's strategic reserves is through legislation that gains majority support.
With the Republican Party dominating Congress and holding a slim majority in the Senate, Bitcoin advocates within the Trump team have a solid foundation to push for Loomis's bill. However, only a few Republican defectors may be swayed by gradual anger over handing government wealth to Bitcoin supporters, potentially derailing the bill.
Results of the U.S. Senate and Congress after the 2024 elections. Source: AP
"Stop comparing this cycle with previous cycles"
Earlier this month, economist and founder of macro digital asset consulting firm Asgard Markets Alex Krüger stated that the election results led him to believe that "Bitcoin is very likely in a super cycle."
He believes that Bitcoin's unique position can be compared to gold, when former U.S. President Richard Nixon took the U.S. off the gold standard, ending the Bretton Woods system, causing gold prices to soar from $35 per ounce in 1971 to $850 in 1981.
Krüger does not rule out the possibility that Bitcoin could experience a bear market like in previous cycles. However, he urges cryptocurrency investors to "stop comparing this cycle with previous cycles" because this time could be different.
Trump's actions so far have undoubtedly indicated a government favorable to the future. After Gary Gensler's resignation, he nominated Paul Atkins, a cryptocurrency supporter and advocate for deregulation, as SEC chairman.
He also nominated Scott Bessent, a supporter of cryptocurrencies, as Secretary of the Treasury and appointed former PayPal COO David Sacks as the czar for AI and cryptocurrencies, responsible for establishing a clear legal framework for the cryptocurrency industry.
The super cycle theory has never had super results.
However, the concept of 'this cycle is different' has emerged in every past Bitcoin bull market, each time supported by narratives around mainstream and institutional adoption.
During the 2013-2014 bull market, the super cycle theory was supported by the idea that Bitcoin would gain international attention as an alternative asset to fiat currency.
During the 2017-2018 cycle, the rapid appreciation of prices was considered a sign of mainstream financial adoption and the beginning of Bitcoin's mainstream acceptance, with institutional interest poised to thrive.
During the 2020-2021 cycle, when tech companies like MicroStrategy, Square, and Tesla entered the Bitcoin market, they believed that many tech-related companies would follow suit.
Bitcoin's price has shown peaks and troughs in previous cycles. Source: Caleb & Brown
However, in each cycle, the narrative of the super cycle has not materialized, ultimately leading to price crashes and wiping out supporters as it entered a prolonged bear market.
Su Zhu, co-founder of Three Arrows Capital and the most famous supporter of the super cycle theory since 2021, believes that the crypto market will remain in a bull market without a sustained bear market, and that Bitcoin will eventually peak at $5 million.
Three Arrows certainly borrowed money as if the super cycle theory were real, and when it was eventually liquidated, news of the aftermath caused the cryptocurrency market cap to drop nearly 50%, leading to the bankruptcies and financial difficulties of lenders including Voyager Digital, Genesis Trading, and BlockFi.
Therefore, the super cycle is a dangerous theory that makes you bet your life savings on it.
For Chris Brunsike, partner at venture capital firm Placeholder and former head of blockchain products at ARK Invest, the Bitcoin super cycle is merely a myth.
"The super cycle is undoubtedly a collective illusion."
However, considering the support of the U.S. president, the election results overwhelmingly provide Bitcoin with unprecedented, extremely bullish conditions, as the U.S. president seems to be fulfilling his promise to support cryptocurrencies, including never selling Bitcoin from the U.S. Bitcoin inventory.
Potential global domino effect
If the (Bitcoin reserve bill) is passed, it could trigger a global hoarding competition, with other countries following suit to avoid falling behind.
Lawyer George S. Georgiades transitioned from providing financing consulting for Wall Street firms to collaborating with the cryptocurrency industry in 2016. He told Cointelegraph that enacting a Bitcoin reserve bill "could mark a turning point for global Bitcoin adoption" and may "trigger other events" where countries and private institutions follow suit, driving broader adoption and enhancing market liquidity.
Basel Ismail, CEO of cryptocurrency investment analysis platform Blockcircle, agrees and states that approval would be "one of the most optimistic events in cryptocurrency history," as "it will trigger a race to acquire as much Bitcoin as possible."
"Other countries will have no say; they will be forced to act. Either pivot and compete, or die."
He believes that "most G20 countries will follow suit and establish their own reserves."
2024 G20 map. Red: G20, Purple: EU representative countries, Green: African Union representative countries. Yellow: Permanently invited countries. Source: Wikipedia
Veteran crypto investor and Bitcoin educator Chris Dunn points out that this FOMO-based competitive buying frenzy among nations could fundamentally change the current crypto market cycle.
"If the U.S. or other major economic powers start accumulating Bitcoin, it could trigger FOMO, leading to market cycles and supply-demand dynamics unlike anything we've seen so far."
The president of the OKX exchange pointed out that other countries may already be prepared for such a competition.
"Game theory has likely already quietly come into play."
However, Ismail states that most Bitcoin purchases will be made through over-the-counter brokers and settled in bulk transactions, so "it may not have an immediate direct impact on the price of Bitcoin," but will create long-term effects. Persistent demand forces will ultimately drive Bitcoin's price up.
A new wave of cryptocurrency investors may change the dynamics of the cryptocurrency market.
If nations become market buyers, the Bitcoin market could undergo a fundamental transformation. A new wave of investors from global financial centers will flood into the cryptocurrency market, changing market dynamics, psychology, and reactions to certain events.
Nexo analyst Kalchev stated that while it is speculative to assume that this legislation could disrupt Bitcoin's well-known four-year halving cycle, some dynamics may change.
Bitcoin is a unique market driven by retail buying and selling so far, with prices highly sensitive to market psychology. The emergence of new types of investors may change market dynamics and alter historical cycles.
Ismail believes that "the behavior of stock market investors will differ from that of overreactive retail investors." Institutional investors have significant capital and advanced risk management strategies that allow them to treat Bitcoin differently than retail investors.
"Over time, the involvement of Wall Street may help establish a more stable, less reactive market environment."
Stability is another way of saying less volatility, which logically implies that bear markets will not be as aggressive as in previous cycles.
Georgiades believes that "price cycles will persist," but "the continued demand from large buyers like the U.S. may reduce volatility and the fluctuations we witnessed in previous cycles."
Ismail also points out that the performance of the Bitcoin market has been different from the previous four-year cycles. The price of Bitcoin in the current cycle has fallen below the historical high (ATH) of the previous cycle, which "everyone thought was impossible," and then Bitcoin reached a new ATH before the official halving.
"The four-year cycle has now been debunked and broken multiple times."
Bitcoin has only experienced four halvings so far, with nearly thirty more halving events yet to occur. Kalchev states, "It's hard to imagine that all these halvings will follow the same predictable four-year pattern," especially when broader macroeconomic and political factors (such as central bank policies and regulatory developments) have a more significant impact on Bitcoin's market trajectory.
Kalchev believes that the price of Bitcoin will no longer be influenced by internal mechanisms such as halving, but more by external factors such as institutional adoption and geopolitical events.
