Author: Daniel Ramirez-Escudero, CoinTelegraph

Translated by: Deng Tong, Jinse Finance

As speculation grows that incoming President Donald Trump may sign an executive order declaring Bitcoin reserves on his first day or establish reserves through legislation during his term, many are wondering if this move could lead to a cryptocurrency supercycle.

Since Wyoming Senator Cynthia Lummis introduced the Bitcoin Reserve Act earlier this year, similar proposals have emerged in states like Texas and Pennsylvania. Reports indicate that Russia, Thailand, and Germany are also considering their own proposals, further increasing the pressure.

If governments around the world compete to protect their Bitcoin holdings, will we say goodbye to the four-year boom-bust cycle of cryptocurrency prices?

Iliya Kalchev, an analyst at cryptocurrency lending institution Nexo, believes that "the Bitcoin Reserve Act could be a milestone moment for Bitcoin, marking its recognition as a legitimate global financial instrument."

"Every Bitcoin cycle has a narrative trying to push the idea that 'this time is different.' The conditions have never been so ideal. The cryptocurrency space has never had a pro-crypto U.S. president controlling the Senate and Congress."

The "2024 Bitcoin Act" proposed by Lummis would enable the U.S. government to incorporate Bitcoin as a reserve asset into its treasury, purchasing 200,000 Bitcoins annually over five years, accumulating a total of 1 million Bitcoins, and holding them for at least 20 years.

Jack Mallers, founder and CEO of Strike, believes Trump "could potentially issue an executive order to buy Bitcoin on day one," although he warns that this does not equate to purchasing 1 million Bitcoins.

Dennis Porter, co-founder of the nonprofit Satoshi Act Fund, which supports pro-Bitcoin U.S. policy legislation, also believes Trump is exploring enabling a Bitcoin strategic reserve through an executive order.

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

So far, Trump's team has not directly confirmed the claims regarding the executive order, but Trump was asked on CNBC whether the U.S. would establish a BTC reserve similar to the oil reserve (which could imply legislation).

However, executive orders lack stability, as subsequent presidents often overturn such orders. The only way to ensure the long-term future of a Bitcoin strategic reserve is through legislation that gains majority support.

With the Republican Party holding a dominant position in Congress and a slim majority in the Senate, Bitcoin advocates within Trump's team have a solid foundation to push Lummis's bill. However, only a few Republican defectors may be influenced by progressive outrage over handing government wealth to Bitcoin supporters, potentially derailing the bill.

Results of the U.S. Senate and Congress after the 2024 elections. Source: AP

"Stop Comparing This Cycle to Previous Cycles"

Earlier this month, economist and founder of macro digital asset consulting firm Asgard Markets, Alex Krüger, stated that the election results lead him to believe "Bitcoin is very likely in a supercycle."

He believes Bitcoin's unique situation can be compared to gold when former U.S. President Richard Nixon decoupled the U.S. from the gold standard, ending the Bretton Woods system, causing gold prices to soar from $35 per ounce in 1971 to $850 in 1981.

Krüger does not rule out the possibility of Bitcoin experiencing a bear market like in past cycles. However, he urges cryptocurrency investors to "stop comparing this cycle to previous cycles," as this time may be different.

Trump's actions so far undoubtedly indicate a government favorable to the future. After Gary Gensler's resignation, he nominated Paul Atkins, a pro-crypto and deregulation supporter, as chairman of the Securities and Exchange Commission.

He also nominated Scott Bessent, a pro-crypto advocate, as Secretary of the Treasury and appointed former PayPal COO David Sacks as the czar of AI and cryptocurrency, responsible for establishing a clear legal framework for the cryptocurrency industry.

Supercycle Theory Has Never Yielded Super Results

However, the concept of "this cycle is different" has appeared in every Bitcoin bull market in the past, each time supported by narratives surrounding mainstream and institutional adoption.

During the 2013-2014 bull market, the supercycle theory was supported by the idea that Bitcoin would gain international attention as an alternative asset to fiat currency.

In the 2017-2018 cycle, the rapid appreciation in price was seen as a sign of mainstream financial adoption and the beginning of Bitcoin's acceptance by the mainstream, with institutional interest expected to flourish.

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

Bitcoin's price has shown peaks and troughs in previous cycles. Source: Caleb & Brown

However, in each cycle, the narrative of a supercycle has not materialized, ultimately leading to price crashes and the elimination of supporters as the market entered a prolonged bear phase.

Su Zhu, co-founder of Three Arrows Capital and a prominent supporter of the supercycle theory since 2021, believed the crypto market would remain in a bull market without a sustained bear market, with Bitcoin eventually reaching a peak of $5 million.

Three Arrows certainly borrowed money as if the supercycle theory were real, and when it was ultimately liquidated, news of the collapse sent the cryptocurrency market cap down nearly 50%, leading to bankruptcies and financial difficulties for lenders including Voyager Digital, Genesis Trading, and BlockFi.

Thus, the supercycle is a dangerous theory that encourages you to bet your life savings on it.

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

"The supercycle is undoubtedly a collective illusion."

However, given the support of the U.S. president, the election results overwhelmingly provide Bitcoin with unprecedented and extremely bullish conditions, as the U.S. president seems to be fulfilling his promise to support cryptocurrency, including never selling Bitcoin from the U.S. Bitcoin reserves.

Potential Global Domino Effect

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

Lawyer George S. Georgiades, who shifted from providing financing consulting to Wall Street firms to working with the cryptocurrency industry in 2016, told Cointelegraph that enacting the Bitcoin Reserve Act "could mark a turning point for global Bitcoin adoption" and may "trigger other events" as countries and private institutions rush to follow suit, driving broader adoption and enhancing market liquidity."

Basel Ismail, CEO of cryptocurrency investment analysis platform Blockcircle, agrees, stating that approval would be "one of the most optimistic events in cryptocurrency history," as "it would trigger a race to acquire as much Bitcoin as possible."

"Other countries will have no say; they will be forced to act. They will either pivot and compete or perish."

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

2024 G20 map. 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 points out that this FOMO-driven competitive buying frenzy among countries could fundamentally change the current cryptocurrency market cycle.

"If the U.S. or other major economic powers start accumulating Bitcoin, it could trigger FOMO in Bitcoin, potentially creating market cycles and supply-demand dynamics that are unlike anything we've seen so far."

The president of OKX exchange noted that other countries may already be prepared for such a competition.

"Game theory is likely already quietly at play."

However, Ismail stated that most Bitcoin purchases will be conducted through over-the-counter brokers and settled in bulk trades, so "it may not have an immediate direct impact on Bitcoin's price," but will create long-term effects. Persistent demand forces will ultimately drive Bitcoin's price up.

A New Wave of Cryptocurrency Investors May Change Market Dynamics

If countries become market buyers, the Bitcoin market could undergo a fundamental transformation. A new wave of investors from global financial centers will flood into the cryptocurrency market, altering market dynamics, psychology, and reactions to certain events.

Nexo analyst Kalchev stated that while it is speculative to assume that this legislation could disrupt Bitcoin's well-known four-year halving cycle, some dynamics may change.

Bitcoin is a unique market, driven so far by retail buying and selling, with prices highly sensitive to market psychology. The emergence of new investors could alter market dynamics and change historical cycles.

Ismail believes that "the behavior of stock market investors will differ from that of overreactive retail investors." Institutional investors have substantial capital and advanced risk management strategies, allowing them to treat Bitcoin differently than retail investors.

"Over time, Wall Street's participation may help establish a more stable, less reactive market environment."

Stability is another term for reduced volatility, which logically implies that bear markets will not be as aggressive as in past cycles.

Georgiades believes that "price cycles will continue to exist," but "the sustained demand from large buyers like the U.S. may reduce volatility and the fluctuations we witnessed in past cycles."

Ismail also pointed out that the performance of the Bitcoin market has already differed from previous four-year cycles. In the current cycle, Bitcoin's price fell 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 now been repeatedly debunked and broken."

Bitcoin has only experienced four halvings so far, with nearly thirty more halving events yet to occur. Kalchev stated, "It is hard to imagine that all these halvings will follow the same predictable four-year pattern," especially as broader macroeconomic and political factors (such as central bank policies and regulatory developments) have a more significant impact on Bitcoin's market trajectory.

Kalchev believes that Bitcoin's price movements will no longer be influenced by internal mechanisms like halving, but more by external factors such as institutional adoption and geopolitical events.

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