Bitcoin
Insights from past cycles and future predictions
While the history of cryptocurrencies is short, with Bitcoin celebrating its 15th anniversary this year, we have already experienced three major cycles: 2011-2013, 2015-2017, and 2019-2021. The short cycle time is not surprising given that the crypto market trades 24/7, about five times more than the stock market. The 2011-2013 cycle was predominantly about BTC, as ETH was launched in 2015. Analyzing the last two cycles reveals patterns that help us understand the anatomy of a crypto bull market. With the market warming up for the US election and the prospect of improved liquidity, history could rhyme again.
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BTC Leads Altcoins to Rally
In the 2015-2017 and 2019-2021 cycles, Bitcoin initially led the market rally, establishing confidence and setting the stage for a broader rally. As investor optimism grew, capital flowed into altcoins, fueling a broad-based market rally. Altcoin market cap peaks often coincided with BTC market cap dominance bottoms, indicating capital rotation from BTC to alts. Currently, BTC dominance is still rising from the post-FTX low, suggesting more room for BTC to run before alts catch up.
Altcoins significantly outperform in the later half of the cycle
In both major cycles, altcoins significantly outperformed Bitcoin after an initial phase where their returns were comparable. This trend reflects investors’ increased risk appetite and how reflective the alt market can be of rising venture capital. In the second half of the 2015-2017 cycle, alts returned 344x versus BTC’s 26x. Similarly, in the second half of the 2019-2021 cycle, alts returned 16x versus BTC’s 5x. We are nearly halfway through the current post-FTX cycle, with alts slightly lagging BTC. This trend suggests potential altcoin outperformance in the second half.
Cryptocurrencies, like other risk assets, are highly correlated with global liquidity conditions. Over the past two cycles, global liquidity has increased by 30-50%. The recent Q2 sell-off was partly driven by tighter liquidity conditions. However, as Q2 data confirmed a slowdown in inflation and growth, the trajectory for a Fed rate cut looks favorable.
The market is now pricing in a more than 95% chance of a September rate cut, up from 50% at the start of Q3. Additionally, crypto policy is becoming central to the US election, with Trump endorsing crypto, which could influence the new Democratic candidate. The last two cycles have also overlapped with the US election and BTC halving events, increasing the rally potential.
Could this time be different?
While history doesn’t exactly repeat itself, the rhyming nature of past cycles—initial Bitcoin dominance, subsequent altcoin outperformance, and macroeconomic influences—sets up an altcoin rally. However, this time may be different. On the plus side, BTC and ETH have achieved mainstream adoption through ETFs, with record inflows from both retail and institutional investors.
On the cautious side, a larger and more diverse set of altcoins compete for investor capital, and many new projects have limited circulating supply due to airdrops, leading to future dilution. Only ecosystems with solid technology and the ability to attract builders and users can thrive in this cycle.