Bitcoin and Supercycle Thesis
Front-Running Institutions
The concept of "supercycle" was coined back in January 2021 by Zhu Su, claiming that the digital asset market will grow long-term, without experiencing a major correction. In his thesis, Zhu Su talked about bitcoin's market capitalization being on par with gold.
In our previous reports, we have explored the possible gold parity scenario. Bitcoin's current market capitalization (MCAP) is around 1.31 trillion US dollars, while gold's is at $15.68T, meaning that gold's MCAP is more than tenfold compared to bitcoin's.
At bitcoin's current spot price of $67K, a market capitalization parity with gold would bring bitcoin to $670K per unit, representing a sound long-term price target.
In essence, bitcoin has allowed retail investors to front-run institutions, forming a rare occasion in the human history. As the recently slipping spot ETF flows show, the institutional appetite is still low, and has a huge scaling potential. As for bitcoin, there's no limit how high the valuation can go, the currency is on its way to become the world's favourite alternative asset.
Post-Halving Re-Accumulation
As we forecasted, the halving of 20th April was largely priced in, resulting in a neutral market effect. In a bigger picture bitcoin is now in a distribution cycle, following a long accumulation phase dating back to late 2022, which also acted as a technical inflection point.
So what's coming after the distribution cycle? While we move towards next month and its "sell in May" effect, bitcoin might face a moderate technical correction, bringing it to 50,000 US dollar level. However, the quarter two (Q2) and three (Q3) might be an epoch of elevated spot prices.
In 2025, it's easy to see bitcoin reaching six figures, representing a huge psychological price level. While the existence of many speculative altcoins is temporary, bitcoin is here to stay, continuing its multi-decade supercycle.
Sources: Timo Oinonen, CryptoQuant
The next near term "cycle box" for bitcoin is called post-halving re-accumulation, representing a new price discovery phase in this environment. If the macro factors permit, we're aiming above and beyond $100K price levels in 2024-2025.
Fed and its interest rate cut schedule plays a big role in crypto price discovery, as the "cheap dollar" firstly benefits risk-on assets. During previous cycles, the low (or negative) interest rates have greatly elevated bitcoin and its higher beta low-cap token fellows.
Source: 21metrics
The 21metrics sentiment index still shows a value of 72, dropping -5 percent from the mid-April's 76. Compared to January and and February, the gap between spot and open interest has widened significantly. As Charles Edwards of Capriole Investment said: "Bitcoin price has never been this high with funding this low."
Source: CryptoQuant
Entering the 5th Epoch
After the halving event of April 20th, bitcoin has effectively moved from the 4th epoch into the 5th. The halving (or halvening) literally halved bitcoin's block reward, reducing it from the 6.25 to 3.125, and increasing the asset's scarcity.
While the halving effectively halves miner's revenue, it's currently compensated by the escalating fees, at least momentarily increasing the mining margins.
Source: CryptoQuant
The Puell Multiple indicator reflects how miner revenue has been declining during the post-halving week. However, reduced miner rewards may lead to price stagnation or decline, easing selling pressure.
Source: CryptoQuant
Following the famous mining ban by Chinese government, China's share of the global hash rate has been in decline. The biggest benefactor of China's hash power emigration has been North America, and United States in particular. In contrast to bitcoin, the physical gold mining is still heavily concentrated to China and Russia.
Source: Cambridge Centre for Alternative Finance
Spot ETF Supply Absorption at -0.35%
Approved on January 10th, the new repertoire of US-based spot bitcoin ETFs uplifted the crypto market within the first quarter. The ETF inflows reached their culmination point in mid-March, when the net flow reached 1.045 billion US dollars. The mid-March escalation also ignited a high beta token rally, that lasted until the end of the month.
Since then, the ETF flows have gradually weakened, fueled by the selling pressure of Grayscale Bitcoin Trust (GBTC). Yesterday, BlackRock's iShares Bitcoin Trust (IBIT) recorded no flows, after a 70+ day streak of inflow. IBIT has been the most successful ETF launch in history, collecting $15.5B in a bit over two months.
The ETF inflows correlated with bitcoin's rising spot price, and initially the ETFs represented a huge demand shock, while the ecosystem experienced its supply shock in form of April 20th halving.
Now the supply absorption of ETFs has dropped to -0.35 percent. In the current scenario where the ETFs can't absorb the new supply coming from the miners, the demand for the 450 bitcoins issued daily must come from other sources.
Source: 21metrics
The spot ETF saga is definitely not over, as their addressable market remains immense. In fact ETFs have only scratched the surface, reflected by the retail-heavy owner base, recently published by Bloomberg. We're also looking forward to Hong Kong's ETF launches, as well as the possible spot Ethereum ETF later this year.
Swiss Iniative Wants to Add Bitcoin to National Bank Reserves
Switzerland has profiled itself as the most crypto-friendly nation of Europe, and its cantons are home to many fintech companies. Additionally, cryptocurrencies, or legally speaking "payment tokens", are treated like foreign currencies, and therefore not taxed in the country. However, it's good to remember that digital assets are still subject to Swiss wealth tax.
Now, a local Swiss activist group wants to add bitcoin to the central bank national reserves, carrying an idea of bitcoin as a reserve asset and hedge against geopolitical conflicts. Yves Bennaïm, founder and chair of 2B4CH, a Swiss pro-bitcoin think tank, is proposing to launch a popular consultation to change the constitution and include bitcoin as part of the assets that the Swiss National Bank (SNB) can hold.
The thesis behind this proposal is to protect Switzerland’s sovereignty and neutrality and to shield the country from uncertainties in the economic arena. Bennaïm stated that the preparations for this initiative were already taking shape. In an interview with NZZ, he declared they were “preparing the documents that must be submitted to the State Chancellery to start the process.”
The latest bitcoin initiative is just one of the interesting national developments. Equally relevant is the Lugano's crypto adoption program, in which the Ticino canton city accepts bitcoin, USDT, and LVGA payments within its area. LVGA is Lugano's native token, which has recently been offering cashbacks for every purchase.
