With increasing speculation that newly elected President Donald Trump may sign an executive order declaring a Bitcoin Reserve on his first day or enact legislation to establish a reserve fund during his term, many wonder if this move could lead to a cryptocurrency supercycle.
Since Senator Cynthia Lummis introduced the Bitcoin Reserve Act earlier this year, states like Texas and Pennsylvania have submitted similar proposals. Russia, Thailand, and Germany are reportedly considering their own proposals, adding further pressure.
If governments are competing to secure their own Bitcoin reserves, are we saying goodbye to the four-year boom-bust cycle of cryptocurrency prices that many believe is due to Bitcoin halving?
Iliya Kalchev, an analyst at cryptocurrency lending company Nexo, believes that "the Bitcoin Reserve Act could be a pivotal moment for Bitcoin, signaling its 'recognition as a legitimate global financial instrument.'"
"Every Bitcoin cycle has a story trying to promote the idea that 'this cycle is different.' Conditions have never been so ideal. Crypto has never had a U.S. President supporting cryptocurrency controlling the Senate and Congress."
The 2024 Bitcoin Act proposed by Lummis would allow the U.S. government to incorporate Bitcoin into its treasury as a reserve asset by purchasing 200,000 BTC annually over five years, accumulating 1 million Bitcoin, which they could hold for at least 20 years.
Jack Mallers, founder and CEO of Strike, believes that Trump has 'the ability to use an executive order on day one to buy Bitcoin,' although he warns that this would not equate to buying 1 million Bitcoin.
Dennis Porter, co-founder of the nonprofit Satoshi Act Fund, which advocates for U.S. Bitcoin-friendly policy bills, also believes that Trump is looking to allow a strategic Bitcoin reserve fund through an executive order.
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 create a BTC reserve fund similar to its oil reserves (which could imply legislation) and he responded, "Yes, I think so."
However, an executive order would lack stability as subsequent presidents often reverse such orders. The only way to ensure the long-term future of a strategic Bitcoin reserve fund is through legislation with bipartisan support.
Bitcoin advocates in Trump's circle have a solid foundation to push for Lummis's bill as Republicans dominate Congress and hold a slim majority in the Senate. However, a few defectors from the Republican party, influenced by the progressive backlash against allegedly handing government assets to Bitcoin supporters, could derail the bill.
'Don't Compare This Cycle With Previous Cycles'
Earlier this month, Alex Krüger, an economist and founder of macro digital asset consulting firm Asgard Markets, stated that the election results make him believe that 'Bitcoin is very likely to enter a supercycle.'
He believes that Bitcoin's unique situation can be compared to gold when its price rose from $35 an ounce in 1971 to $850 in 1981 when former U.S. President Richard Nixon took the U.S. off the gold standard, ending the Bretton Woods system.
Krüger does not rule out the possibility that Bitcoin will experience bear markets like previous cycles. However, he urges cryptocurrency investors to "stop comparing this cycle to previous cycles" as this time may be different.
Trump's actions so far certainly indicate a favorable administration ahead. He has nominated Paul Atkins, a cryptocurrency supporter and deregulator, as chairman of the Securities and Exchange Commission after Gary Gensler's resignation.
He also nominates cryptocurrency supporter Scott Bessent as Secretary of the Treasury and appoints former PayPal CEO David Sacks as AI and cryptocurrency expert, tasked with developing a clear legal framework for the cryptocurrency industry.
The Supercycle Theory Has Never Delivered Exceptional Results
However, the concept of 'this cycle is different' has emerged in every previous Bitcoin bull run, each time supported by stories surrounding widespread and institutional adoption.
During the 2013-2014 bull run, the supercycle theory was supported by the notion that Bitcoin would attract international interest as an alternative asset to fiat currency.
In the 2017-2018 cycle, the rapid price surge was seen as a sign of mainstream financial acceptance and the beginning of mainstream adoption of Bitcoin, where institutional interest would thrive.
In 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.
However, in every cycle, the story of the supercycle has not materialized, ending with a price drop that wipes out its advocates as it enters a prolonged bear market.
Su Zhu, co-founder of Three Arrows Capital, is the most notable supporter of the Supercycle theory since 2021, arguing that the cryptocurrency market will remain in a bull market without prolonged bear markets, with Bitcoin eventually peaking at $5 million.
3AC certainly borrowed money as if the supercycle theory were real, and when it was eventually liquidated, the cryptocurrency market cap dropped nearly 50% when the news broke, leading to bankruptcies and financial difficulties for lenders including Voyager Digital, Genesis Trading, and BlockFi.
Thus, the supercycle is a dangerous theory to bet your life savings on.
For Chris Burniske, a partner at venture capital firm Placeholder and former blockchain product director at ARK Invest, the Bitcoin supercycle is a myth.
"Supercycle is definitely a collective illusion."
However, the U.S. election results have given Bitcoin unprecedented and extremely optimistic conditions considering the backing of a U.S. President who seems to be fulfilling his promises to support cryptocurrencies, including the promise to never sell Bitcoin from the U.S. Bitcoin reserve.
Potential Global Domino Effect
If the Bitcoin Reserve Act is passed, it could trigger a global holding race as other nations follow suit to avoid falling behind.
George S. Georgiades, a lawyer who transitioned from consulting Wall Street firms on fundraising to working with the cryptocurrency industry in 2016, told Cointelegraph that the passage of the Bitcoin Reserve Act 'would mark a turning point for global Bitcoin adoption' and could 'encourage other countries and private organizations to follow suit, promoting wider adoption and enhancing market liquidity.'
Basel Ismail, CEO of the cryptocurrency investment analysis platform Blockcircle, agrees and says that approval would be "one of the most bullish events in cryptocurrency history" because "it would drive the race to accumulate as much Bitcoin as possible."
"Other countries will not have a say, they will be forced to act. Pivot and compete, or perish."
He believes that 'most G20 countries, the most powerful and advanced economies in the world, will follow suit and create their own reserves.'
Veteran cryptocurrency investor and Bitcoin educator Chris Dunn shared with Cointelegraph that a competitive buying frenzy based on FOMO psychology among countries could completely change the current cryptocurrency market cycle.
"If the U.S. or another major economic power starts accumulating, Bitcoin could trigger FOMO, creating a market cycle and supply-demand dynamics unlike anything we've seen before."
Hong Fang, President of the OKX exchange, told Cointelegraph that other countries may already be prepared for such a race.
"Game theory has probably been applied silently."
However, Ismail states that most Bitcoin purchases will be made through over-the-counter trading brokers and settled in blocks, thus 'there may not be a direct, immediate impact on BTC prices,' but instead will create long-term demand, ultimately pushing Bitcoin prices higher.
The New Wave of Cryptocurrency Investors Could Change the Dynamics of the Cryptocurrency Market
The Bitcoin market could change significantly if countries become market buyers. A new wave of investors from global financial centers could flood into the cryptocurrency market, changing market dynamics, sentiment, and reactions to certain events.
Nexo analyst Kalchev states that while it remains speculative to suggest that this law could break Bitcoin's four-year halving cycle, some dynamics may indeed change.
Bitcoin is a unique market, driven by retail buying and selling with prices reacting strongly to market sentiment. The emergence of new types of investors could change market dynamics, altering historical cycles.
Ismail believes that 'investors from the stock market will behave differently' compared to retail investors who overreact. Institutional investors carry large amounts of capital and advanced risk management strategies, allowing them to approach Bitcoin differently than retail investors.
"Over time, Wall Street's involvement could contribute to a more stable market environment, less reactive."
Stability is another way to say less volatility, which logically means that bear markets will be less aggressive compared to previous cycles.
Georgiades believes that 'the price cycle will continue,' but 'sustained demand from large-scale buyers like the U.S. could reduce volatility and the fluctuations we've witnessed in previous cycles.'
Meanwhile, Ismail points out that the Bitcoin market has behaved differently than previous four-year cycles. The price of Bitcoin in the current cycle has fallen below the all-time high (ATH) of the previous cycle, 'which everyone believed was impossible,' and then Bitcoin reached a new ATH before the official Halving occurred.
"The four-year cycle has been exposed and broken many times already."
Bitcoin has only undergone four halvings so far, with nearly thirty halving events yet to occur. Kalchev states, "It's hard to imagine that all these halvings will follow the same predictable four-year model," especially as broader macroeconomic and political factors – such as central bank policies and legal developments – have a more significant impact on Bitcoin's market trajectory.
Kalchev believes that Bitcoin price volatility will depend less on internal mechanisms like Halving and more on external factors, such as institutional acceptance and geopolitical events.
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