Why the Bitcoin Reserve Act could break the four-year cryptocurrency cycle

Author: Daniel Ramirez-Escudero, CoinTelegraph; Compiler: Deng Tong, Golden Finance

With speculation growing that incoming President Donald Trump could sign an executive order declaring a Bitcoin reserve on day one, or pass legislation to establish a reserve during his term, many are wondering if such a move could lead to a cryptocurrency supercycle.

Since Wyoming Senator Cynthia Lummis introduced the Bitcoin Reserve Act earlier this year, states such as Texas and Pennsylvania have introduced similar proposals. Further adding to the pressure, Russia, Thailand and Germany are reportedly considering proposals of their own.

If governments race to protect their Bitcoin stocks, will we say goodbye to the four-year boom-bust cycle in cryptocurrency prices?

Iliya Kalchev, an analyst at crypto lender Nexo, believes that “The Bitcoin Reserve Act could be a landmark moment for Bitcoin, marking its “recognition as a legitimate global financial instrument.”

“Every Bitcoin cycle has a narrative that tries to push the idea that ‘this one is different.’ The conditions have never been so ideal. The crypto space has never had a pro-crypto U.S. president controlling the Senate and Congress. ”

Lummis’ proposed Bitcoin Act of 2024 would enable the U.S. government to include Bitcoin in its treasury as a reserve asset, purchasing 200,000 Bitcoins per year over five years, accumulating 1 million Bitcoins, and holding them for at least 20 years.

Jack Mallers, founder and CEO of Strike, believes that Trump could “use a day one executive order to buy Bitcoin”, though he cautioned that this would not be the same as buying 1 million Bitcoins.

Dennis Porter, co-founder of the Satoshi Act Fund, a nonprofit that supports the Bitcoin U.S. Policy Act, also believes that Trump is exploring enabling a strategic Bitcoin reserve via executive order.

Dennis Porter announced that Trump is working on an executive order for a strategic Bitcoin reserve. Source: Dennis Porter

So far, Trump's team has not directly confirmed the claims about an executive order, but Trump was asked on CNBC whether the United States would establish a BTC reserve similar to oil reserves (which could mean legislation).

However, executive orders lack stability, as subsequent presidents often overturn such orders.The only way to secure the long-term future of the Bitcoin strategic reserve is to pass legislation with majority support.

With Republicans dominant in Congress and a slim majority in the Senate, Bitcoin advocates on Team Trump have a solid foundation to push through Loomis’ bill. However, only a few GOP defectors, swayed by growing anger over handing government wealth to Bitcoin supporters, could derail the bill.

US Senate and Congress results after the 2024 election. Source: Associated Press 'Stop Comparing This Cycle to Previous Cycles' Earlier this month, economist and founder of macro digital asset advisory firm Asgard Markets Alex Krüger said the election results convinced him that "Bitcoin is most likely in a super cycle." He believes Bitcoin's unique situation can be compared to that of gold, which surged from $35 an ounce in 1971 to $850 in 1981 when former US President Richard Nixon took the US off the gold standard, ending the Bretton Woods system. Krüger does not rule out the possibility that Bitcoin could experience a bear market like past cycles. However, he urged crypto investors to “stop comparing this cycle to previous ones” because this time may be different.

Trump’s actions so far certainly point to an administration that is future-friendly. He nominated crypto-friendly and pro-deregulation Paul Atkins to be chairman of the Securities and Exchange Commission following the resignation of Gary Gensler.

He also nominated crypto-friendly Scott Bessent to be Treasury secretary and appointed former PayPal COO David Sacks to be AI and crypto czar, tasked with developing a clear legal framework for the crypto industry.

Supercycle Theory Never Had Super Outcomes

However, the notion that “this cycle is different” has emerged in every past Bitcoin bull run, each time supported by narratives around mainstream and institutional adoption.

During the 2013-2014 bull run, the super cycle theory was supported by the theory that Bitcoin would gain international attention as an alternative asset to fiat currencies.

In the 2017-2018year cycle, rapid price appreciation was seen as a sign of mainstream financial adoption and the beginning of mainstream acceptance of Bitcoin, with institutional interest booming.

In the 2020-2021year cycle, when tech companies such as MicroStrategy, Square, and Tesla entered the Bitcoin market, they believed that many tech-related companies would follow suit.

Bitcoin’s price performance has seen peaks and lows in previous cycles. Source: Caleb & Brown

However, in each cycle, the supercycle narrative did not materialize, ultimately causing prices to plummet and wiping out supporters as they entered a long-term bear market.

Su Zhu, co-founder of Three Arrows Capital, is the most notable proponent of the supercycle theory since 2021, arguing that the crypto market will continue to be in a bull market without a sustained bear market, and that Bitcoin will eventually peak at $5 million.

Three Arrows certainly borrowed money as if the supercycle theory was real, and when it was finally liquidated, the cryptocurrency market value fell by nearly 50% after the news broke, and the collapse led to bankruptcies and financial difficulties for lenders including Voyager Digital, Genesis Trading and BlockFi.

So the supercycle is a dangerous theory to bet your life savings on.

For Chris Brunsike, partner at venture capital firm Placeholder and former head of blockchain products at ARK Invest, the Bitcoin supercycle is just a myth.

“The super cycle is undoubtedly a collective delusion.”

However, the U.S. election results overwhelmingly provide unprecedented and extremely bullish conditions for Bitcoin, given the support of the U.S. President, who appears to be making good on his promises to support the cryptocurrency, including never selling any Bitcoin from the U.S. Bitcoin treasury.

Potential Global Domino Effect

If the Bitcoin Reserve Act is passed, it could spark a global race to hoard Bitcoin, with other countries following suit to avoid being left behind.

Attorney George S. Georgiades, who pivoted from advising Wall Street firms on financing to working with the cryptocurrency industry in 2016, told Cointelegraph that enactment of the Bitcoin Reserve Act “could mark a turning point in global Bitcoin adoption” and could “spark other countries and private institutions to follow suit, driving broader adoption and enhancing market liquidity.”

Basel Ismail, CEO of crypto investment analytics platform Blockcircle, agreed, saying that approval would be “one of the most bullish events in the history of cryptocurrency” because “it would set off a race to get as many Bitcoins as possible.”

“Other countries won’t have a say, they will be forced to act. Either pivot and compete, or die.”

He believes “most G20 countries will follow suit and establish their own reserves.” ”

G20 map in 2024. Red: G20, purple: EU representative countries, green: African Union representative countries. Yellow: permanently invited countries. Source: Wikipedia

Veteran crypto investor and Bitcoin educator Chris Dunn pointed out that This FOMO-based exchange rate among countries A competitive buying spree could radically alter the current crypto market cycle.

"If the U.S. or other major economic powers start accumulating Bitcoin, Bitcoin could trigger FOMO, which could create market cycles and supply and demand dynamics that are different from anything we have seen so far."

The president of the OKX exchange noted that other countries may already be ready for such a race.

"It is very likely that game theory is already quietly at work. ”

However, Ismail said that most of the bitcoin purchases will be done through over-the-counter brokers and settled in block trades, so "it may not have an immediate direct impact on the price of bitcoin," but will create long-term effects. The lasting force of demand will eventually drive the price of bitcoin higher.

A new wave of crypto investors could change crypto market dynamics

The bitcoin market could change fundamentally if countries become buyers in the market. A new wave of new investors from global financial centers would flood into the cryptocurrency market, changing market dynamics, psychology and reactions to certain events.

Nexo analyst Kalchev said that while it was still speculative to assume that the legislation could disrupt bitcoin's well-known four-year halving cycle, some dynamics could change.

Bitcoin is a unique market that has been driven so far by retail buying and selling, and prices are highly sensitive to market psychology.

192);">The emergence of new types of investors could change market dynamics and alter historical cycles.

Ismail believes that “stock market investors will behave differently than overreacting retail investors”. Institutional investors have deep pockets and advanced risk management strategies, which allow them to treat Bitcoin differently than retail investors.

“Over time, Wall Street’s involvement could help create a more stable and less reactive market environment.”

Stable is another way of saying less volatility, which logically means that bear markets will be less aggressive than past cycles.

Georgiades believes that “Price cycles will persist,” but “continued demand from large buyers such as the United States could reduce volatility and the swings we have witnessed in past cycles.” ”

Ismail also pointed out that the Bitcoin market is already behaving differently than in previous four-year cycles. The current cycle saw Bitcoin’s price fall below the previous cycle’s all-time high (ATH), “which everyone thought was impossible,” and then Bitcoin reached a new ATH before the official halving.

“The four-year cycle has been debunked and broken multiple times now.”

Bitcoin has only experienced four halvings to date, with nearly three dozen halving events yet to take place. “It’s hard to imagine that all of these halvings will follow the same predictable four-year pattern,” Kalchev said, especially when broader macroeconomic and political factors, such as central bank policy and regulatory developments, have a more significant impact on Bitcoin’s market trajectory.

Kalchev believes that Bitcoin’s price action will be less influenced by internal mechanisms such as halvings and more by external factors, such as institutional adoption and geopolitical events.