├─ Chapter Fourteen: The Bitcoin Supercycle ├─

1) 2) 3) economist at CME Group, identifies two supercycles in commodities occurring in the past eighty years, with a third one brewing: The first commodities supercycle ran from the mid-1960s through the entire 1970s. It was brought on by dollar depreciation and exacerbated by both the end of the gold standard in 1971 and the legalization of gold ownership for American citizens in 1975. The second commodities supercycle started in the mid-1990s and lasted until 2008, when the Great Recession ended it. That supercycle was brought about by the rapid rise of China’s industrialization, as bringing one billion people into the industrial age required an extensive amount of commodities, from oil to copper to lithium. The current expansion cycle that is moving toward supercycle status began in 2021 and is still active. It was triggered by massive stimulus spending by the United States during and after the COVID-19 pandemic. That spending led to a wave of global inflation unseen since the 1970s. The latest contributing factor is the expiration and nonrenewal this year of the petrodollar agreement by Saudi Arabia after fifty years, wherein all global sales of Saudi oil needed to be in US dollars. Losing the petrodollar arrangement further weakens the dollar’s hold on global reserve currency status. Norland notes that all supercycles must have three things in common: (1) they must be broad-based across multiple commodities, (2) they must have a duration of five years or longer, and (3) prices must “supersize” over the term, often tripling in price or more. They also require an “outsized driver” to power the narrative, with dollar depreciation and China’s industrialization driving the past two supercycles. Norland questions whether de-dollarization and inflation alone can cause a third commodities 1) 2) supercycle, but the significant increase in the prices of gold, silver, and copper since 2019 (66, 66, and 98 percent, respectively) would tend to promote the prospect of a new supercycle for commodities already being here. Outsize Drivers for a Bitcoin Supercycle What macroeconomic triggers would be strong enough to unleash a supercycle for Bitcoin? At least three are worthy contenders: Money printing. During times of high inflation, gold and other commodities have been a flight to safety. As noted above, the early seeds of a gold and commodities supercycle are already underway. As Chapter 9 details, gold and bitcoin have similar characteristics and drivers. The bitcoin price has risen more than 20x from the March 12, 2020 flash crash bottom of $3,600 to the March 14, 2024 all-time high of $73,835.57. The US government, which took more than two hundred years to register its first trillion dollars of debt, is now stacking on new national debt at the rate of $1 trillion every one hundred days. Neither major candidate running for president in 2024 is committed to reducing this rate, and given the election is a rematch between two administrations (counting Kamala Harris as an integral part of the Biden administration) that each added $8 trillion in their four-year tenures, it is highly unlikely to reverse anytime soon. Hyperinflation. Inflation has destroyed 96 percent of wealth in the past hundred years. Anyone who had $10,000 in 1924 could buy a nice home and have enough money left over to furnish it. If they took that $10k and stuck it in a mattress, it would barely be able to pay for a few months of rent on a similar home in 2024. As Milton 3) Friedman declared, “Inflation is taxation without legislation.”cxxxiv However, hyperinflation is far more insidious. While 4 percent inflation per year can ruin one’s cash reserves over a lifetime, hyperinflation can destroy life savings in a much shorter period of time. The Hanke-Krus Hyperinflation Table, first published in 2013cxxxv, ranks 47 episodes of hyperinflation that doubled prices in 45 days or less. The table included famous examples like postwar Hungary, where prices tripled daily, and 2007–2008 Zimbabwe, which doubled every twenty-four hours. Hyperinflation continues to threaten many nations in 2024, particularly in Africa and Latin America. The IMF quarterly World Economic Outlook report in April 2024cxxxvi highlighted inflation rates of 249.8 percent for Argentina, 100 percent for Venezuela, 145.5 percent for Sudan, and 561 percent for Zimbabwe. Turkey had an inflation rate of 59.5 percent. These five nations have a combined population of more than 220 million. Add in Nigeria (220 million) and Egypt (111 million), which are inflating at rates of 23.5 and 32.5 percent respectively, and you have more than half a billion people desperate to exchange their hyperinflating currencies for something that does not devalue rapidly. Most of these countries make it difficult to exchange their native currency for dollars, so these and other developing nations are among the fastest growing adopters of bitcoin, led by Nigeria, with 20 percent of the population using bitcoin daily for transactions, the highest rate in the world. As these numbers climb in Africa and Latin America, there will not be enough new bitcoin to serve millions of new users (see Chapter 20 for a detailed analysis). India also has an estimated 100 million bitcoin holders. Ease of use, lower regulatory barriers. One reason why the impact of the Bitcoin ETF was so immediate and profound was its ability 4) to quickly onboard anyone with an online brokerage into owning an instrument invested in bitcoin. Heretofore, new users had to sign up for a centralized crypto exchange, which in the early days was challenging to understand and navigate, and in recent years has been difficult to sign up for because of regulatory restrictions. Eight of the top ten crypto exchanges in the world do not allow Americans to be clients, including the largest one, Binance. Of the top twenty exchanges, only three (Coinbase, Kraken, and Gemini) onboard US residents. Even then, the amount of paperwork required to open an account vastly exceeds what is required to open a traditional bank account. This is in complete opposition to the very purpose of bitcoin, which is to be accessible to anyone with a computer or mobile phone and access to the internet. Times are changing, with two of the three leading candidates for US president promising to be crypto-friendly and lower entry barriers. Better interfaces and cold storage devices also make buying and selling bitcoin and other cryptocurrencies as easy as trading stocks. This will make onboarding the next billion users far easier than the first few million. Supply shock meets demand shock. Simply put, demand for bitcoin is rising. As noted earlier, there is simply not enough new bitcoin to accommodate 600 million new users buying even $100 each at current prices. There is also insufficient bitcoin that will ever exist to accommodate every millionaire in the world buying one bitcoin each—at any price. Gold’s market cap is nearly $16 trillion because of its widespread adoption, with the average American owning two ounces of gold and the global average closer to one ounce of gold per person on earth. Similar to the rise of gold in 2024, bitcoin increases in value when more investors feel left out if they don’t have any—or want more if they’re already owners. Short sellers bet on the price going down; when they’re wrong, there is a short squeeze sending prices even higher. This continues throughout each bull market until the bubble pops, but new demand coupled with low supply can accelerate the market top above the normal diminishing returns of the cycles. In Chapter 9, I discussed the stock-to-flow model proposed by Dr. Saifedean Ammous in The Bitcoin Standard cxxxvii and the modeling work of PlanB, whose charting has been extremely close to predicting the market tops thus far. When he released the model in 2019, he predicted bitcoin’s price through 2028, with looser guidance through 2040. At the start of 2024, he updated his model with even more bullish guidance. His daily modeling predicted $68,343 bitcoin for June 22, 2024. The actual price was $64,240. His prediction for the price of bitcoin on the day of the Bitcoin halving, April 19, 2024, was $51,487. My prediction of the halving price from 2022 was $45,000. The actual price was $63,900. PlanB’s model has bitcoin hitting the iconic all-time high mark of $100,000 in September 2024, then passing $150,000 in November 2024, and $200,000 in early January 2025. A word of caution about his models: he does not take into account market corrections, just 365-day averages over a straight line. His model ends up with bitcoin reaching a 365- day average of $471,739 by April 2028. You can follow Plan B’s updates for free on his X account @100trillionusd.cxxxviii His clever Twitter/X handle is both a reference to the 100 trillion Zimbabwe dollar note as an omen of where the US dollar may be headed, along with a potential market cap for bitcoin at $5 million per bitcoin. Here is his most recent chart, with price predictions through 2028: 1) My modeling is not as bullish as PlanB’s, and I present it in two ways: The first chart takes the diminishing returns of the past four cycles (roughly 3,000x for the first pre-halving cycle, followed by 100x after the first halving, followed by 30x after the second halving, then roughly 8x for the third halving; from those trends, I project 3x the halving price for this cycle). I also note that in addition to the exponentially diminishing returns each cycle for the highs, there have been diminishing losses, but on more of a linear scale. In the first bitcoin cycle prior to any halving, there was a 97 percent crash from the cycle high of $30 to the low of $1. After the first halving in 2012, there was an 86 percent plummet from the peak of Bitcoin Summer in 2013 until capitulation in early 2014. For the second halving, there was an 84 percent drop from the 2017 top to the early 2019 bottom. Most recently, there was a 77 percent decline from the 2021 all- time high to the FTX capitulation in late 2022. Given that halving prices have always risen substantially in between cycles thus far and the cycle lows have always been 2) higher than the halving price, either the halving prices will start being higher than the subsequent cycle capitulation or the rate of diminishing losses will be much less as the asset class becomes more mature. The latter proposition is the path I am taking in this chart. My second chart accounts for a Supercycle effect, presuming higher than linear adoption and the beginning of the “S Curve” that defines many other technology adoption lifecycles. I don’t need to repeat the first four cycles above, so I will concentrate on my projections using a Supercycle approach over the next twenty years, at which point more than 99.9 percent of all bitcoin will have been mined, leaving less than 21,000 bitcoin to be mined over the final 96 years. While I firmly believe that a Bitcoin Supercycle between now and 2044 could surpass these numbers, with adoption by four billion people (10x what it is today) powering $700,000 bitcoin by 2033 and $1,000,000 bitcoin by 2041, the conservative part of me wants to counteract these positives with the impact of futures trading and increasingly sophisticated financial vehicles. These instruments used by institutions, including ETFs, can mitigate the raw buying pressure by funneling it through futures contracts and derivatives to smooth out the price spikes, as has been done with gold and silver contracts for many years. Wall Street investment research firm Bernstein boldly predicted in June 2024cxxxix that bitcoin could top $200,000 this cycle and break the $1 million barrier by 2033. ARK Invest CEO Cathie Wood had previously said she believed bitcoin could top $1 million by 2030. Whichever of the charts above comes closer to the factual performance in the next decade or two, even the most conservative of these models would most likely outperform traditional equities, bonds, and commodities by a significant margin. In the next chapter, I will demonstrate techniques used by other crypto investment professionals and me to help maximize returns without being a day trader. It will include an introduction to some basic metrics and trading terms that help explain how to read a chart and how past performance can help predict future behavior more often than not. Of course, one can choose to manage one’s bitcoin portfolio more aggressively, to diversify into other crypto assets like Ethereum and altcoins, or to stake part of one’s crypto portfolio for additional yield. I discuss these alternatives in Chapters 16–19, then finish with two chapters about Bitcoin’s long-term future as an asset class in Chapters 20 and 21. * There was no halving in the first Bitcoin cycle, so I use the first quoted sale price. I also use the lowest reported price of $1 during the 2011 crash, not the lowest daily close of $2.05. ** All numbers for the 2024 and 2028 cycles other than the actual halving price are estimates, based on my Four Seasons model, using diminishing returns and no supercycle accelerator. OceanofPDF.com Chapter Fifteen Mastering the Cycles Mastery is not a function of genius or talent. It is a function of time and intense focus applied to a particular field of knowledge. —Robert Greenecxl You must immerse yourself in your work. You have to fall in love with your work. You must dedicate your life to mastering your skill. That’s the secret of success. —Chef Jirocxli The big money is not in the buying or selling, but in the waiting. —Charlie Mungercxlii In the past, one did not have to master the cycles of Bitcoin to make a substantial, even crazy profit. Over the past decade, “buy and hold” was a solid way to beat the returns of every other asset class substantially. Those who bought and held bitcoin since the start of 2020 were up more than 10x by March 2024. Investors from 2016 made at least 100x their money invested at the halving. Earlier investors who stuck to the course since the first halving in 2012 made 5,000 times their initial investment. Pioneers who were fortunate enough to buy or mine during the first pre-halving cycle