Delphi Digital Co-founder: The cryptocurrency market is cyclical or predictable, data reveals a bull market is approaching

Author: Kevin Kelly

Compiled by: Deep Tide TechFlow

The cryptocurrency market often exhibits a high degree of cyclicality, which is very consistent and not coincidental. They are predictable. If we guess correctly, this has a huge impact on the future of the cryptocurrency market. It's time to show some charts…

There is increasing evidence that we are in the early stages of a new cycle, with risk assets like stocks and cryptocurrencies subtly confirming this throughout the year. In my view, this is not just another bear market bounce.

The cyclicality and consistency of the cryptocurrency market are reflected in several aspects:

• The time interval from peak to trough;

• The time taken to recover to previous cycle highs;

• The time taken for prices to rise to new cycle highs.

Using Bitcoin ($BTC) as a benchmark, a typical cycle looks like this:

• Bitcoin reaches a new all-time high;

• Experiences about an 80% retracement, reaching the bottom a year later;

• Takes about 2 years to recover to the previous high;

• Prices rise for a year before reaching a new all-time high.

Recent cycles have followed this proposed blueprint almost perfectly…

Each cycle typically lasts about 4 years, but their length and consistency are not random; each cycle almost perfectly aligns with the cyclical changes of the business cycle…

The peak in Bitcoin prices coincides with the ISM showing signs of a peak, while metrics such as active addresses, total transaction volume, and total fees also peak simultaneously with the ISM. As the business cycle shows signs of recovery, network activity levels do as well…

(Deep Tide Note: The full English name of the ISM index is "Institute of Supply Management Manufacturing Index," which is an important data point published by the American Supply Management Association, significantly influencing the reflection of the U.S. economic prosperity and the dollar's trend.)

In fact, the year-on-year changes in Bitcoin typically show signs of reversal near the year-on-year bottom of the ISM. So far, this is exactly what we are seeing…

Equally surprising is how closely the ISM tracks the trajectory of its previous cycles, including the timing of peaks and troughs. This is, I believe, the real key point, occurring every 3.5 years, like clockwork, shuffling repeats…

This year, higher interest rates, persistent inflation, and concerns about an economic recession have led to a general coolness towards risk assets. However, the market is forward-looking; before entering this year, the stock market had already priced in a significant slowdown.

Historically, turning points in the business cycle have often been good opportunities to increase risk exposure, and it currently appears that the ISM index is nearing the final stages of a two-year downtrend, which is also a sign that risk assets have been tested…

Therefore, I believe we are more likely in an environment similar to that of 2015 to 2017. The more I look at the charts, the more I believe this scenario is the most likely to occur.

There are several reasons for this. First, let's look at the trading situation in the market. The S&P 500 index (SPX) has moved almost exactly in line with the price movements from 2015 to 2017, including the timing of the double bottom…

I remember all the doomsday prophecies between 2015 and 2016, along with the widespread uncertainty at that time.

Risk sentiment had deteriorated, with expectations that earnings would be hit again, and many even called for a larger-scale sell-off (even as global stock indices had already entered bear markets). Fast forward to today—there has been much uncertainty surrounding whether a recession might end the risk rally. But if you look closely, we have been in an earnings recession for several consecutive quarters (similar to 2015 to 2016).

At that time, the global economic growth outlook also dimmed, partly due to the dollar experiencing its strongest rally in 15 years, which again resembles what we saw in 2021 to 2022…

Interestingly, the price movements of gold also resemble that period, as gold is a safe-haven asset against currency devaluation. Gold is significantly influenced by changes in the global liquidity cycle and a weakening dollar.

• Gold peaked in 2014, contracted during 2015 to 2016, and then continued to rise;

• Gold peaked in 2021, contracted in 2022, and bottomed in the fourth quarter of 2022.

…This also marked the bottom for risk assets (such as stocks/cryptocurrencies).

So what does all this have to do with cryptocurrencies? Everything is connected.

Because the cycles of the cryptocurrency market are related to larger macro cycles (as we pointed out with the cyclical changes in the business cycle), and the biggest highlight of all this is closely related to cryptocurrency believers…

Bitcoin's halving is expected to occur in April 2024, and the last two halving events occurred:

• About 18 months after Bitcoin hit its bottom;

• About 7 months before Bitcoin broke through to a new all-time high.

If Bitcoin develops according to its usual cyclical pattern, this means a new all-time high will occur by the fourth quarter of 2024 (and reach a new cycle high in the fourth quarter of 2025).

Like previous cycles, the timing of the halving could not be better; it will occur at the most favorable moment—after indicators like the ISM show signs of bottoming out and in line with expectations for a new liquidity cycle uptrend.

Clearly, I have a bias here, and I cannot guarantee that anything will develop as I envision. Perhaps I am wrong, or maybe it's because I have spent too many hours glued to the screen. But the more I look, the more I find various signs starting to align…

This is why I believe the market's trajectory will be similar in direction to previous cycles—this is not just coincidence. But just because the long-term outlook is becoming brighter does not mean we will not or do not face further adjustments…

In fact, it may be time for another moderate sell-off or price consolidation, especially after a strong rally over the past approximately 9 months (similar to the second half of 2019).

Another notable risk is if the business cycle experiences a false bottom (as we saw in March 2020) or does not bottom out as quickly as expected.

Over the past 18 months, the cryptocurrency market has been grappling with many "heavyweight narratives," but if we look beyond short-term trading, the outlook for the next 12 to 18 months appears significantly brighter.

The catalysts for a bull market are accumulating…