A Journey Through the Cycles of Crypto

Despite its brief existence, the cryptocurrency market has already witnessed three significant bull cycles: 2011-2013, 2015-2017, and 2019-2021. Celebrating Bitcoin’s 15th anniversary this year, it’s noteworthy that the market operates 24/7, trading approximately five times more than traditional equity markets. The inaugural cycle from 2011 to 2013 was primarily dominated by Bitcoin, as Ethereum only made its debut in 2015. Analyzing these past cycles reveals discernible patterns that illuminate the anatomy of a crypto bull market. With the market heating up in anticipation of the U.S. election and a favorable liquidity outlook, history might be set to repeat itself.

Bitcoin’s Lead and Altcoin Surge

In both the 2015-2017 and 2019-2021 cycles, Bitcoin initially spearheaded the market rally, establishing confidence and setting the stage for a broader market upswing. As investor optimism soared, capital began to flow into altcoins, driving a comprehensive market rally. Altcoin market cap peaks frequently coincided with Bitcoin’s market cap dominance troughs, indicating a capital rotation from Bitcoin to altcoins. Presently, Bitcoin dominance is still recovering from its post-FTX low, suggesting more room for Bitcoin to ascend before altcoins catch up.

Altcoin Outperformance

In these major cycles, altcoins have consistently outperformed Bitcoin after an initial phase of comparable returns. This trend underscores investors’ heightened risk appetite and the reflexive nature of the altcoin market with increased risk capital. In the latter half of the 2015-2017 cycle, altcoins delivered a staggering 344x return compared to Bitcoin’s 26x. Similarly, in the second half of the 2019-2021 cycle, altcoins yielded a 16x return versus Bitcoin’s 5x. We are approximately halfway through the current cycle post-FTX, with altcoins slightly trailing behind Bitcoin, hinting at potential altcoin outperformance in the latter half.

The Influence of Macro Economics

Like other high-risk assets, the cryptocurrency market is highly correlated with global net liquidity conditions. In the past two cycles, global net liquidity surged by 30-50%. The recent Q2 selloff was partially driven by tightened liquidity conditions. However, with Q2 data confirming a slowdown in inflation and growth, the trajectory for a Federal Reserve rate cut appears favorable.

The market currently prices in a more than 95% chance of a rate cut in September, a significant increase from the 50% probability at the beginning of Q3. Additionally, crypto policy is becoming a focal point in the U.S. election, with Trump endorsing crypto, potentially influencing the new Democratic candidate. The past two cycles also coincided with U.S. elections and Bitcoin halving events, further bolstering the potential for a market rally.

Could This Time Be Different?

While history doesn’t repeat exactly, the recurring patterns of past cycles—initial Bitcoin dominance, subsequent altcoin outperformance, and macroeconomic influences—suggest a potential altcoin rally. However, this time could differ in several ways. On the positive side, Bitcoin and Ethereum have achieved mainstream adoption through ETFs, attracting record inflows from retail investors and institutions.

Conversely, a larger and more diverse set of altcoins now compete for investor capital, and many new projects have limited circulating supply due to airdrops, which could lead to future dilution. Only ecosystems with robust technology and the capacity to attract developers and users may thrive in this cycle.