A few years ago, 12 years to be specific, it was unimaginable that another asset would threaten the place of fiat currencies and the stock market. Fiat currencies operated such that their supply and value were all controlled by the government through central banks. The central banks would determine the supply of the fiat currencies with inflation and international trade. This stability would transfer to other sectors with gold as the undisputed hedge against inflation.
A few years later, the Satoshi Nakamoto-created digital currency, Bitcoin and other cryptocurrencies are on the verge of achieving what was once unimaginable. They are looking to attain mass adoption.
While some crypto quarters believe digital currencies are the future, others think it is a mere passing fad that would not amount to mass usage. This leads to the question, is crypto in a supercycle?
What is a supercycle?
A supercycle is a sustained crypto market bullish run. It involves crypto increasing in value over an extended period, gaining mass adoption similar to the internet and internet stocks after the dot com bubble.
It works more like positive feedback. This is where an asset comes and people suddenly become interested in it. With this interest the value rises, as the value rises, more people begin to take notice and invest. The more the new people invest, the higher the value rises and the cycle keeps on going.
In the typical world, the supercycle is a rise in value sustained for several years; over a decade. However, crypto is not your typical investment. It is a new asset that has broken various traditional asset features. It is also such a highly volatile industry with massive value changes.
Therefore, supercycle in crypto is all about coins having a sustained market rise and hitting mass adoption in the long run.
What’s going on in the crypto market?
The crypto market has had a changing landscape throughout its existence. In the earlier days, most people didn’t look at crypto as the investment vehicle it is today. Many people believed they were a mere fad that would disappear after some time. It is only the tech-savvy who believed in the power of crypto and would mine it as a pastime from their personal computers.
However, suddenly the crypto boom of 2017 happened and the crypto world exploded. With various crypto projects hitting billion dollar market caps, the world was suddenly taking note of the new crypto possibilities. However, this would only run until early 2018, when the bubble burst and the market corrected.
Even though crypto would gain and decline, the market never seemed to click like it did in 2017. The market was down such that Bitcoin was trading at around $4000 by March 2020. The Coronavirus pandemic happened.
While crypto seemed to struggle in the earlier coronavirus days, they had a resurgence and started gaining market value. It rose so fast that Bitcoin was hitting around $40,000 by the end of the year and hitting $64,000 by mid-2021. With this massive gain, Bitcoin had established itself as an ideal investment and a hedge against inflation. What was once meant to act as a medium of exchange was now also operating as an investment option.
The changes have led to the current crypto market state where various governments have accepted it as both a medium of exchange and a store of value. Various countries like Australia, the UK and the US recognize cryptocurrencies as assets and provide clear regulations for crypto traders. They charge capital gain taxes on crypto trades. Countries like El Salvador have since recognized Bitcoin as a national currency.
Following government crypto regulations, cryptocurrencies have since become more accessible. Crypto exchanges like Coinbase and Coinspot operate like traditional stock exchanges to provide a reliable platform for crypto trading. Investors can develop various trading strategies to make the most out of their investments, using DCA and other trading techniques. The exchanges also operate on Know-Your-Customer (KYC) protocols for better security and to avoid illicit transactions.
The traditional business world has also been attracted to crypto. Various merchants have since accepted Bitcoin, Ethereum and other cryptocurrencies as a method of payment for both online and physical transactions. Even though it took time before happening, institutional investors have also accepted crypto as a viable investment option.
The influence of crypto has surpassed its use as currencies only. It is also looking to impact various other industries. For example, decentralised finances (DeFi) are looking to make it easier to access financial services without the limitations of traditional financial institutions. Non-fungible tokens (NFTs) are revolutionising the media and entertainment industry as it allows for the digital holding of art, collectibles, and other assets.
The current crypto market is on an upward trend and looks to stay active.
Is the crypto market currently in a supercycle?
Even though crypto has been around for relatively few years, the crypto market has already established a market cycle that is easy to follow. The crypto price movement generally relies on Bitcoin, as the other tokens tend to mirror its movements. Bitcoin, on the other hand, depends on the various network activities for its price movements. One of these impactful activities is the Bitcoin halving that occurs every four years.
Bitcoin has led to a clear market cycle divided into four phases;
- Accumulation – this is the first step of any market cycle, where people start investing in the token. It happens after the halving following the market correction. This is the best time to buy the token as it comes at the lowest prices and promises highest returns.
- Continuation – at this point, the market starts to note the increasing token value given investors have been buying more of it. Several more people buy the tokens as they want to take advantage of the growing market value. This leads to an even further value increase.
- Parabolic – this is where the market would have reached its maximum. At this point, most of the investors would start selling off part or all of their assets to make a profit. As more people sell assets, the supply increases more than demand leading to value decline.
- Correction – the market goes to some of the lowest values as it settles. By this point, those who had not exited their positions would be counting losses or hodling. Most of those who never exit positions are the longer-term holders who understand the value would regain even higher in the next cycle. However, there is always the need to discern whether the project has a chance to regain or if it’s going down for good.
The current crypto market is in its parabolic stage. The crypto market is ever-growing as new investors keep joining the crypto network. Still, there is no way to tell when it will reach the correction phase. While the market has had a little setback like the China crypto crackdown, it has since rebounded. Many analysts believe crypto valuations will continue to increase throughout the year. If this is the case, the thesis that this cycle is a supercycle gains more credibility.
Crypto Supercycle FAQs
What is the role of social media in the crypto supercycle?
For a long time, it was mainstream media that would shape conversations around assets and investments. However, social media has made it such that information is no longer centralised. Access to information is one of the keys to sustained crypto growth.
Most investors only put their money on what they understand. Social media has allowed for crypto forums, talks and discussions hence more comfort dealing with digital currencies. At the same, there has been a rise of social media crypto influencers. They have also been crucial in the growing crypto uptake.
How long will the crypto market stay in a supercycle?
How long the crypto market will take to reach or stay in a supercycle is still unclear. In the past, crypto movements have been easier to predict. However, currently, the crypto world has surged. Most people, both institutional and individual investors have since taken up crypto. Therefore, while there are no specific timelines for the supercycle, it will likely last long.
What does crypto being in the Supercycle mean to the Australian investor?
The main reason to look at the current crypto market cycles is most probably when looking to invest. If you are looking to invest in crypto, then it’s probably a good time, if we are truly in a supercycle. Crypto is here to stay and will most likely remain profitable in the upcoming years. However, the volatility concerns remain. Therefore, do not put all your money in crypto. Instead, have what you are willing to lose; an ideal number would be to have 5% to 10% of your investments in crypto.