If the Bitcoin Reserve Act is passed, it may end the four-year cycle of rise and fall in cryptocurrency

Original Title: A Bitcoin Reserve Act may end crypto's 4-year boom-bust cycle

Original Author: DANIEL RAMIREZ-ESCUDERO, Cointelegraph

Original Compilation: Lawrence, MarsBit

The Bitcoin Reserve Act may disrupt the halving cycle. Will this four-year cycle unfold differently? Are we entering a mythical supercycle?

Increasing speculation suggests that incoming President Donald Trump may sign an executive order on his first day in office to announce the establishment of a Bitcoin reserve, or legislate the creation of a reserve during his term, leading many to wonder if this move could trigger 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 intensifying the pressure.

If governments around the world are racing to secure their Bitcoin reserves, could we be saying goodbye to what many believe is the four-year boom-bust cycle of cryptocurrency prices driven by Bitcoin halving?

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

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

The Bitcoin bill proposed by Lummis for 2024 would allow the U.S. government to introduce Bitcoin as a reserve asset by purchasing 200,000 Bitcoins annually over five years, accumulating one million Bitcoins and holding them for at least 20 years.

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

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

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

So far, Trump's team has not directly confirmed the claims about the executive order, but when asked on CNBC whether the U.S. would establish a BTC reserve similar to its oil reserves (which could imply legislation), he responded, "Yes, I think so."

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

With the Republican Party dominating Congress and holding a slim majority in the Senate, Bitcoin supporters within Trump's team have ample reason to push for Lummis's bill. However, as long as a few Republican defectors are influenced by the outrage of progressives, they may block the bill's passage, believing it hands government wealth to Bitcoin holders.

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

Stop Comparing This Cycle to Previous Cycles

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

He believes Bitcoin's unique situation can be compared to gold. Following former U.S. President Richard Nixon's announcement to abandon the gold standard, ending the Bretton Woods system, Bitcoin's price soared from $35 per ounce in 1971 to $850 in 1981.

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

Trump's actions thus far undoubtedly indicate that government policy will move in a favorable direction. After Gary's departure, he nominated Paul Atkins, a supporter of cryptocurrency and deregulation, to chair the U.S. Securities and Exchange Commission.

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

The Supercycle Theory Has Never Delivered 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 be recognized as a substitute asset for fiat currency, attracting international attention.

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

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

Bitcoin's price performance peaked and bottomed out in previous cycles. Source: Caleb & Brown

However, in each cycle, the supercycle narrative has not materialized, ultimately leading to price crashes, with supporters going bankrupt and entering prolonged bear markets. Su Zhu, co-founder of Three Arrows Capital, was one of the most notable proponents of the supercycle theory in 2021, believing that even without a sustained bear market, the cryptocurrency market would remain bullish, with Bitcoin eventually reaching a peak of $5 million.

3AC did borrow money as if the supercycle theory were true, and when it was eventually liquidated, the cryptocurrency market cap dropped nearly 50% due to that news, leading to the bankruptcy and financial distress of lenders including Voyager Digital, Genesis Trading, and BlockFi.

Therefore, the supercycle is a dangerous theory and should not be gambled with your life savings.

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. Nevertheless, given the support from the U.S. president, the election results provide unprecedented and extremely bullish conditions for Bitcoin, and the U.S. president seems to be fulfilling his commitment to support cryptocurrency, including never selling Bitcoin from the U.S. Bitcoin inventory.

Potential Global Domino Effect

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

George S. Georgiades, a lawyer who shifted from providing financing advice to Wall Street firms to serving the cryptocurrency industry in 2016, told Cointelegraph that the enactment of the Bitcoin Reserve Act "will mark a turning point in global Bitcoin adoption" and could "trigger other countries and private institutions to follow suit, driving broader adoption and enhancing market liquidity."

Basel Ismail, CEO of crypto investment analysis platform Blockcircle, agrees, stating that approval would be "one of the most exciting events in crypto history," as "it will catalyze 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, compete, or perish. He believes that "most countries in the G20, which are the most powerful and economically advanced countries in the world, will follow suit and establish their own reserves."

Veteran cryptocurrency investor and Bitcoin educator Chris Dunn told Cointelegraph that this FOMO-driven buying frenzy among countries could fundamentally change the current cryptocurrency market cycle.

If the U.S. or other major economic powers begin accumulating, Bitcoin could trigger FOMO, potentially creating a market cycle and supply-demand dynamics that we have never seen before.

OKX exchange president Hong Fang told Cointelegraph that other countries may already be prepared for such a race.

Game theory has likely already been quietly at play.

However, Ismail noted that most Bitcoin purchases will occur through over-the-counter brokers and settle in bulk trades, so "it may not have a direct impact on Bitcoin's price," but it will create a lasting demand force that ultimately drives up Bitcoin's price.

A New Wave of Cryptocurrency Investors May Change Market Dynamics

If nations 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 this legislation may disrupt Bitcoin's well-known four-year halving cycle is still speculative, several dynamic changes may occur.

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

Ismail believes that "investor behavior in the stock market will differ from" the 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 will help create a more stable, less reactive market environment. Stability is another way of saying reduced volatility, which logically means that bear markets will not be as severe as in past cycles.

Georgiades believes that "price cycles will continue," but "sustained demand from large-scale buyers like the U.S. can reduce volatility and the fluctuations we have seen in past cycles."

Meanwhile, Ismail pointed out that Bitcoin's market performance has already differed from previous four-year cycles. Bitcoin's price in the current cycle has fallen below the previous cycle's all-time high (ATH), "which everyone thought was impossible," and then, before the official halving, Bitcoin set a new all-time high.

The Four-Year Cycle Has Been Debunked and Broken Multiple Times

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

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