What kind of catalyst is needed for the dull bull market of Bitcoin?

Author: BitpushNews Mary Liu

Bitcoin’s downturn continues, falling below the psychologically important $30,000 level over the past 24 hours, at $29,333 at press time. Ethereum, the second-largest cryptocurrency outside of bitcoin, fell 0.2 percent to $1,840. Other altcoins also fell, with Cardano down less than 1 percent and Polygon down more than 1 percent. Memecoin was also in the red, with Dogecoin down 1% and SHIB down 4%.

Unlike the U.S. stock market, where the Dow and S&P 500 continue to drive investor sentiment, the crypto market looks dull and boring, with multiple indicators showing that Bitcoin is currently experiencing the lowest volatility on record.

The impact of the economic cycle on the Bitcoin market

A recent report by research firm Delphi Digital illustrates the predictable consistency of price action and trends within the crypto market. The report delves into the correlation between Bitcoin’s four-year cycle and broader economic trends. This periodicity is evidenced by the time between peak and trough bottoms, the recovery period to the previous cycle high, and the time it takes for prices to rally to the new cycle top.

These 4-year cycles include Bitcoin reaching a new ATH, undergoing a roughly 80% retracement, and then bottoming out about a year later. A recovery to previous highs tends to follow within two years, and finally, prices rise for another year to new all-time highs.

As the US ISM index shows, there is a correlation between Bitcoin price peaks and changes in the business cycle.

The chart above shows that the ISM often shows signs of topping during Bitcoin price peaks, with peaks in active addresses, transaction volume, and fees. Conversely, as the business cycle shows signs of recovery, so will the level of network activity.

Delphi Digital also highlighted the role of Bitcoin halving in these cycles. The last two halvings happened about 18 months after BTC bottomed out, and about 7 months before the new ATH. This historical pattern suggests that Bitcoin is expected to see a new ATH by the fourth quarter of 2024, coinciding with the expected timing of the next halving.

Bitcoin price action looks similar to 2015-2017 pre-bull phase

The report also noted that the current market environment bears striking similarities to the period between 2015 and 2017. The consistency of market behavior, economic indicators, and historical trends suggests that the current phase resembles a period of increased risk exposure and potential growth. As experienced during that period.

The report noted that the market’s trading patterns, especially those of the S&P 500, were very similar to the trajectories observed between 2015 and 2017. These patterns persist even in times of uncertainty, such as an income recession, reflecting the mood of that period.

The consistent pattern of Bitcoin cycles, its synchronicity with broader economic changes, and the upcoming 2024 halving are all relevant.

Delphi highlighted the parallels between the gloomy outlook for global growth in 2015-2016 and near-term economic uncertainty in 2021-2022. Factors such as a stronger dollar and changes in the global liquidity cycle echo the past.

** What are the catalysts for the market? **

“Markets remain dull, looking for the next big catalyst,” Gautam Chhugani, an analyst at top U.S. financial advisory firm Bernstein Research, wrote in a note.

Analysts believe that the first catalyst could be the supply of new stablecoins, such as Tether, USD Coin or PayPal’s recently announced PYUSD, which provide a liquidity backbone for cryptocurrency transactions.

Stablecoins remain an emerging but relatively promising regulatory area, and the U.S. will likely make developing legal clarity for such tokens a national priority, extending the dollar’s dominance to the digital economy.

The current market capitalization of the crypto market is about $1.2 trillion, Chhugani said: “As the market becomes a more regulated onshore stablecoin market, we expect new demand to emerge, and we expect stablecoin growth to be close to $2.8 trillion allocated to digital assets".

Another catalyst is the tokenization of traditional assets, another potential source of capital flowing into the cryptocurrency space. Bernstein predicts that $2 trillion in traditional assets will be tokenized in the next five years, which will provide further entry into the crypto economy. “Despite the longer regulatory timeframe for traditional asset tokenization, the tokenization of money market treasury bills and short-term bonds is already underway,” Chhugani said.

Momentum could also come from crypto itself, with Bernstein citing significant opportunities for “layer 2” blockchains built on top of other networks such as Ethereum, the analyst noting that historically, generations of new market infrastructure Tokenization has always been good for future scalability and new user adoption.

“Native crypto tokenization is a capital multiplier for cryptocurrencies…while many tokens fail, a few create valuable infrastructure and capital,” the analyst said.

Most importantly, spot bitcoin exchange-traded funds (ETFs) have the potential to attract retail and institutional investors collectively into funds that own the cryptocurrency itself, rather than regulated derivatives like futures. Bitcoin got a boost in June after BlackRock filed for such a fund, but the biggest boost is only likely to come if the SEC approves the ETF and investors flock to it .

“We expect the spot bitcoin ETF market to be quite large, accounting for around 10% of bitcoin’s market cap in 2-3 years,” Chhugani said. Cryptocurrency ETFs will benefit from a strong branding push from leading global asset managers and retail brokerages distribution drive for merchants and financial advisors.”

Investors are still awaiting regulators’ decision on a slew of newly filed spot bitcoin ETFs, including BlackRock’s, but the SEC has delayed its decision on the Ark Invest ETF.

As for when these catalysts will appear, only time will tell, with Delphi Digital analysts believing that the current consolidation around $30,000 is similar to the period between 2015 and 2017, with indicators pointing to a near-term decline by the fourth quarter of 2024. A new all-time high is imminent, which is in line with the historical halving pattern.