1/The traditional four-year cycle is over in crypto.
A thread on what's changing.🧵
A thread on what's changing.🧵
2/ Bitcoin has historically moved in a four-year cycle, with three big up years followed by a pullback. x.com
3/ This cycle has been driven by the same forces that drive broader cycles of growth and recession in the general economy.
4/ The cycle starts with a catalyst that brings new investors and new capital into the market. In 2011, for instance, it was the creation of the first companies that made it possible for individuals to buy bitcoin (Coinbase, Mt. Gox, etc.).
5/ Once the bull market start going, it gains its own momentum. Rising prices attract attention, and more money follows. Eventually, investors get greedy and add leverage. Froth and fraud appears. Sometimes, legacy infrastructure cracks under the strain.
6/ Eventually something breaks. In 2014, it was the collapse of Mt. Gox. In 2018, it was the SEC crackdown on ICOs. Whatever the cause, the pullback is painful. There’s rapid deleveraging. Existential despair. But eventually, a new breakthrough occurs that restarts the cycle.
7/ The current cycle was born out of the massive deleveraging that occurred in the wake of the 2022 scandals: FTX, Three Arrows Capital, Genesis, BlockFi, Celsius and others.
8/ The catalyst that jump-started this cycle occurred on March 10, 2023, when Grayscale convincingly won the opening argument in its legal case against the SEC regarding the bitcoin ETF.
9/ Though the verdict came months later, it was apparent from that moment that a bitcoin ETF was coming, and that it would bring crypto to the masses. Sure enough, the ETFs launched in January 2024 and set records for flows. Prices went up.
10/ In a classic four-year cycle, we'd be gearing up for a pullback in 2026. And to be fair, I do see the early signs of leverage building up, as companies issue debt to buy bitcoin and "bitcoin collateralized loans" ramp up.
11/ But we have something different this cycle: the change in Washington's attitude toward crypto.
12/ Consider the Crypto Executive Order: It called growing crypto a “national priority.". It laid the path for a regulatory framework. It contemplated establishing a “national crypto stockpile.”
13/ The change in Washington paved a path for mainstream institutions to enter crypto in a massive way. But here's the thing: Mainstream institutions don't move on a crypto-native timeframe.
14/ The change in DC is that will be felt over the course of years, not months. In the absolute best-case scenario, it will take a year to align on a new regulatory framework for crypto, and a similar time period for big firms to move from planning to action.
15/ Wall Street and mainstream institutions are like giant tankers, not speedboats. If institutions really start orienting to crypto next year, will we really have a new “crypto winter” in 2026?
16/ I'm not sure; the scale is so big. The ETFs brought hundreds of billions of new investor capital into crypto. The change in DC will bring trillions.
17/ Crypto has moved in four-year cycles since its earliest days. But the change in DC introduces a new wave that will play out over a decade. My guess is that when the "classic deleveraging" starts next year it will get swamped by this new, bigger trend.
18/ What does it mean? It doesn't mean the four-year cycle is quite going away. Leverage will build up. Excess will appear. Bad actors will emerge. And at some point, that could get washed out, which will introduce volatility into the market.
19/ But my guess is that any pullback will be significantly shorter and shallower than in years past. We're in a new mainstream era of crypto. It's going to be interesting.
18/ We've entered a new era in crypto. It's going to be an exciting few years.
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