Author: Daniel Ramirez-Escudero, CoinTelegraph
Compiled by: Deng Tong, Golden Finance
As speculation grows that incoming President Donald Trump could sign an executive order declaring a Bitcoin reserve on day one or establish a reserve through legislation during his term, many wonder whether this move could lead to a cryptocurrency super cycle.
Since Senator Cynthia Lummis of Wyoming introduced the Bitcoin reserve bill earlier this year, similar proposals have emerged from states like Texas and Pennsylvania. Reports suggest that Russia, Thailand, and Germany are considering their own proposals, adding further pressure.
If governments are competing to protect their Bitcoin reserves, will we bid farewell to the four-year boom-bust cycle 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 time is different.' Conditions have never been so ideal. The cryptocurrency space has never had a U.S. president who supports cryptocurrencies controlling the Senate and Congress.'
The (2024 Bitcoin bill) proposed by Lummis would enable the U.S. government to include Bitcoin as a reserve asset in its treasury, purchasing 200,000 Bitcoins annually over five years, accumulating one million Bitcoins, and holding them for at least 20 years.
Jack Mallers, founder and CEO of Strike, believes Trump 'could issue an executive order to buy Bitcoin on day one,' though he warns that this does not equate to purchasing a million Bitcoins.
Dennis Porter, co-founder of the nonprofit Satoshi Act Fund supporting Bitcoin-friendly U.S. policy legislation, also believes Trump is exploring enabling Bitcoin's strategic reserve through executive order.
Dennis Porter announced 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 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 mean 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 reserve is through legislation that gains majority support.
With the Republicans dominating Congress and holding a narrow majority in the Senate, Bitcoin advocates within Trump's team have a solid foundation to push for Lummis's bill. However, only a few Republican defectors might be influenced by progressive outrage over handing government wealth to Bitcoin supporters, potentially derailing the bill.
Results of the U.S. Senate and Congress after the 2024 election. Source: AP
'Stop comparing this cycle to previous ones.'
Earlier this month, economist and founder of macro digital asset consulting firm Asgard Markets Alex Krüger stated that the election results made him believe that 'Bitcoin is likely in a super cycle.'
He believes Bitcoin's unique situation can be compared to gold, which was affected 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 of Bitcoin experiencing a bear market like in previous cycles. However, he urges cryptocurrency investors to 'stop comparing this cycle to previous ones,' as this time could be different.
Trump's actions thus far undoubtedly indicate a government favorable to the future. After Gary Gensler's resignation, he nominated Paul Atkins, a cryptocurrency supporter and proponent of regulatory relief, to head the SEC.
He also nominated cryptocurrency supporter Scott Bessent as Treasury Secretary and appointed former PayPal COO David Sacks as the AI and cryptocurrency czar to develop a clear legal framework for the cryptocurrency industry.
The super cycle theory has never produced super results.
However, the concept of 'this cycle is different' has appeared in every Bitcoin bull market in the past, each time supported by narratives surrounding 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 for legal tender.
During the 2017-2018 cycle, rapid price appreciation was seen as a sign of mainstream financial adoption and the beginning of Bitcoin's acceptance by the mainstream, with institutional interest set to thrive.
In the 2020-2021 cycle, when tech companies like MicroStrategy, Square, and Tesla entered the Bitcoin market, they believed many tech-related companies would follow suit.
The price of Bitcoin has reflected peaks and troughs in previous cycles. Source: Caleb & Brown
However, in every cycle, the narrative of the super cycle has not materialized, ultimately leading to price crashes and wiping out supporters as we enter prolonged bear markets.
Su Zhu, co-founder of Three Arrows Capital and the most prominent supporter of the super cycle theory since 2021, believes the crypto market will remain in a bull phase without a sustained bear market, with Bitcoin ultimately reaching a peak of $5 million.
Three Arrows certainly borrowed money as if the super cycle theory were true. When it was ultimately liquidated, news broke, and the cryptocurrency market cap fell nearly 50%, leading to the bankruptcy and financial difficulties of lenders including Voyager Digital, Genesis Trading, and BlockFi.
Thus, the super cycle is a dangerous theory that encourages you to bet your life's savings on it.
For Chris Brunsike, a partner at venture capital firm Placeholder and former head of blockchain products at ARK Invest, the Bitcoin super cycle is just a myth.
The 'super cycle is undoubtedly a collective illusion.'
However, given the support of the U.S. President, the election results overwhelmingly provide Bitcoin with unprecedented, extremely bullish conditions, and the U.S. President seems to be fulfilling his promise to support cryptocurrencies, including never selling the Bitcoins in the U.S. Bitcoin inventory.
Potential global domino effect
If the Bitcoin reserve bill is passed, it could trigger a global race to hoard Bitcoin, with other countries following suit to avoid falling behind.
Lawyer George S. Georgiades shifted from providing financing consulting for Wall Street firms to collaborating with the cryptocurrency industry in 2016. He told Cointelegraph that the enactment of the Bitcoin reserve bill 'could mark a turning point for global Bitcoin adoption' and could 'trigger other events' where countries and private entities follow suit, promoting 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 would 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-driven competitive buying frenzy among countries could dramatically alter the current crypto market cycle.
'If the U.S. or other major economies start accumulating Bitcoin, it could trigger FOMO, potentially creating market cycles and supply-demand dynamics that are unlike anything we've seen so far.'
OKX exchange president pointed out that other countries may already be prepared for such a race.
'Game theory has likely quietly come into play.'
However, Ismail stated that most Bitcoin purchases will be conducted through over-the-counter brokers and settled in bulk transactions, so 'it may not have an immediate direct impact on Bitcoin's price,' but it will create long-term effects. The enduring demand force will ultimately drive Bitcoin's price up.
A new wave of cryptocurrency investors could change the dynamics of the cryptocurrency market.
If countries become market buyers, the Bitcoin market could undergo a fundamental transformation. A new wave of investors from global financial centers will flock to the cryptocurrency market, altering market dynamics, psychology, and responses to certain events.
Nexo analyst Kalchev stated that while it is speculative to assume this legislation could disrupt Bitcoin's well-known four-year halving cycle, some dynamics may change.
Bitcoin is a unique market, driven so far by retail buying and selling, with prices highly sensitive to market psychology. The emergence of new types of investors could change market dynamics and alter historical cycles.
Ismail believes that 'the behavior of stock market investors will differ from that of overreacting retail investors.' Institutional investors have substantial capital and advanced risk management strategies, allowing them to treat Bitcoin differently than retail investors.
'Over time, Wall Street's involvement may help establish a more stable, less reactive market environment.'
Stability is another way of saying lower volatility, which logically implies that bear markets will not be as aggressive as in past cycles.
Georgiades believes that 'price cycles will continue to exist,' but 'the sustained demand from large buyers like the U.S. may reduce volatility and the extremes we have witnessed in past cycles.'
Ismail also pointed out that Bitcoin's market performance has been different from previous four-year cycles. In the current cycle, Bitcoin's price breached the previous cycle's all-time high (ATH), which 'everyone thought was impossible,' only for Bitcoin to reach a new ATH before the formal halving.
'The four-year cycle has now been debunked and broken multiple times.'
Bitcoin has so far only experienced four halving events, with nearly thirty halving events yet to occur. Kalchev stated, "It's hard to imagine all these halvings will follow the same predictable four-year pattern," especially as broader macroeconomic and political factors (like central bank policies and regulatory developments) have a more significant impact on Bitcoin's market trajectory.
Kalchev believes that Bitcoin's price movements will no longer be influenced by internal mechanisms like halving but more by external factors such as institutional adoption and geopolitical events.
