Bitcoin's trend is dull, what kind of catalyst is needed for the bull market?

Bitcoin continued to slump, falling below the psychologically important $30,000 mark in the past 24 hours, and at press time it was at $29,333. In addition to Bitcoin, the second largest cryptocurrency Ethereum fell 0.2% to $1,840. Other altcoins also fell, with Cardano down less than 1% and Polygon down more than 1%. Memecoin also saw losses, with Dogecoin down 1% and SHIB down 4%.

Unlike the U.S. stock market, where the Dow Jones 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 economic cycles on Bitcoin prices

A recent report from research firm Delphi Digital illustrates the predictable consistency of price behavior and trends within the crypto market. The report delves into the correlation between Bitcoin’s four-year cycle and broader economic trends. This cyclicality is demonstrated by the time between peaks and troughs, the recovery period to the previous cycle high, and the time it takes for prices to rebound to the top of a new cycle.

These 4-year cycles involve Bitcoin reaching a new ATH, experiencing a retracement of about 80%, and then bottoming out about a year later. This is often followed by a recovery to the previous high within two years, and finally, another year of price gains to new all-time highs.

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

The above chart shows that during peak Bitcoin prices, the ISM often shows signs of peaking, with active addresses, transaction volume, and fees reaching their highest points. Conversely, as the business cycle shows signs of recovery, network activity levels will also recover.

Delphi Digital also highlights the role of Bitcoin halvings in these cycles. The last two halvings occurred about 18 months after BTC bottomed and about 7 months before a new ATH. This historical pattern suggests that Bitcoin is expected to see a new ATH by Q4 2024, coinciding with the expected timing of the next halving.

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

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 notes that the trading patterns of the markets, especially those of the S&P 500, closely resemble the trajectory observed between 2015 and 2017. These patterns persist even during uncertain times such as revenue recessions, reflecting the sentiment of that period.

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

Delphi highlighted the similarities between the bleak global growth outlook in 2015-2016 and the recent economic uncertainty in 2021-2022. Factors such as the strengthening of the US dollar and changes in the global liquidity cycle echo those in the past.

What are the catalysts for the market?

“The market remains dull and 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 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 trading.

Stablecoins remain a nascent but relatively promising regulatory area, and the United States is likely to make it a national priority to create legal clarity for such tokens, thereby extending the dollar’s ​​dominance into the digital economy.

The current crypto market cap is around $1.2 trillion, and Chhugani said: "As the market transitions to a more regulated onshore stablecoin market, we expect new demand to emerge, and we expect stablecoin growth over the next five years to approach $2.8 trillion allocated to digital assets."

Another catalyst is the tokenization of traditional assets, which is another potential source of funds flowing into the cryptocurrency space. Bernstein expects $2 trillion of traditional assets to be tokenized in the next five years, which will provide further entry points for the crypto economy. Chhugani said: "Although the regulatory time for the tokenization of traditional assets is longer, the tokenization of money market treasury bills and short-term bonds is already underway."

Momentum may also come from crypto itself, with Bernstein arguing that “layer 2” blockchains built on top of other networks like Ethereum are rife with significant opportunities, with analysts noting that tokenization of new market infrastructure has historically been beneficial for future scalability and adoption by new users.

The analysts said: “Native crypto tokenization is a capital multiplier for cryptocurrencies… While many tokens fail, a few create valuable infrastructure and capital.”

Most importantly, a spot bitcoin exchange-traded fund has the potential to entice retail and institutional investors to collectively invest in funds that own the cryptocurrency itself, rather than in regulated derivatives such as futures. Bitcoin got a boost in June after BlackRock filed to set up such a fund, but the biggest boost is likely to come only if the SEC approves the ETF and investors pile in.

Chhugani said: "We expect the spot Bitcoin ETF market to be sizable, accounting for about 10% of Bitcoin's market capitalization in 2-3 years. Cryptocurrency ETFs will benefit from a strong brand marketing push from leading global asset managers and a distribution drive from retail brokers and financial advisors."

Investors are still awaiting regulator decisions on a slew of newly filed spot bitcoin ETFs, including one from BlackRock, but the SEC has delayed a resolution on the Ark Invest ETF.

As for when these catalysts will appear, only time will tell us the answer. Delphi Digital analysts believe that the current consolidation of Bitcoin prices around $30,000 is similar to the period from 2015 to 2017. Indicators show that Bitcoin is about to hit a record high by the fourth quarter of 2024, which is consistent with the historical halving pattern.