Thoughts on Stages of the Bull Market Cycle

Reposted Original Title: Preparing for the Bull Market’s Primary Uptrend, My Phased Thinking on this Cycle

Introduction:

Last week, BTC reached a historic high against the US dollar, marking the commencement of the current bull market phase. Unlike the rebound and recovery phases from previous bear markets, the sentiment in the official stage of the bull market will further heat up, and the fluctuations will be more intense.

Each bull market phase typically shares common characteristics, such as:

• The transition from BTC-led rallies to altcoins leading the market resulted in a decrease in Bitcoin’s dominance.
• Increased velocity and amplitude of price increases across various cryptocurrency assets.
• Heightened public attention, with cryptocurrencies becoming popular topics on social media and search engines.

In this article, the author attempts to logically deduce potential differences between the current cycle and previous cycles, while also presenting their own thoughts and response strategies. It should be noted that this article represents the author’s phased thinking at the time of publication, and views may change in the future. The opinions expressed are highly subjective and may contain factual, data, or logical errors. Therefore, they should not be construed as investment advice. Criticism and discussion from industry peers are welcomed.

The following is the main body of the article.

Factors Driving the Crypto Bull Market and Alpha Tracks

Bull Market Catalysts:

Upon reaching a certain market capitalization threshold for BTC, looking back at the past three cycles, bull markets have been driven by multiple factors, including:

• BTC halving (expectations of supply-demand adjustment), with the current halving scheduled for April
• Loose monetary policy or anticipated looseness, with the market having reached a consensus on peak interest rate levels being behind us and high expectations for rate reductions in the coming quarter
• Loose regulatory policies. This cycle is reflected in updates to US accounting standards, allowing crypto assets to be reflected at fair value in the financial statements of listed companies, as well as the SEC‘s lawsuit against Grayscale leading to ETF approval, among others.
• Innovations in new asset models and business models

The current bull market already encompasses the first three points mentioned above.

Alpha Tracks in Each Bull Market Cycle:

In every bull market cycle, the most explosive gains are typically seen in new species born or experiencing their first major surge during that cycle. For instance, during the 2017 bull market, the ICO craze saw the highest gains in ICO platforms (smart contract blockchains) such as Neo and Qtum. In the 2021 bull market, the greatest gains were in DeFi, GameFi & Metaverse, and NFT assets. 2020 marked the beginning of the DeFi era, while 2021 saw the emergence of NFTs and GameFi.

However, in the current bull market cycle, there are yet to emerge new asset models or business models of similar significance to smart contract blockchains or DeFi seen in the previous two cycles. Existing DeFi, GameFi, NFT, and Depin projects, whether new or old, have not shown significant evolution in their product forms or narratives compared to the previous cycle. In essence, they are all “old concepts.”

The relatively new species emerging in this cycle primarily consist of two categories:

• BTC ecosystem: Such as inscription-based assets represented by ORDI and Node Monkeys, as well as second-layer projects mainly based on BTC L2.
• Web3 AI projects: These include distributed computing projects existing since the previous cycle (Akash, Render Network), as well as newly emerging AI projects like Bittensor (TAO).

However, strictly speaking, AI is not a native track of the cryptocurrency industry. The Web3 AI track is more of a result of the AI boom initiated by GPT in 2023 permeating into the cryptocurrency industry. It can barely be considered as half of a “new species” in this cycle.

Projection and Strategies for the Current Bull Market Cycle:

Potential Misjudged Alpha Tracks:

In many recommendations for bull market investment portfolios that I have observed, altcoins from the GameFi, Depin, and DeFi tracks are often included in the asset pool. The main reason behind this is their potential to outperform BTC and ETH significantly during the formal phase of the bull market (after BTC hits a new high), thus achieving alpha returns.

However, as mentioned earlier, “the most explosive gains are typically seen in new species born or experiencing their first major surge during that cycle.” Therefore, it’s important to note that DeFi, GameFi, NFT, Depin, and similar projects, having already experienced a previous cycle, may not replicate their price performance from the first cycle. This is because an asset category can only enjoy a massive valuation bubble during its first cycle.

During the first bull market cycle, new business models or asset categories face the primary challenge of being “falsified,” which is difficult to achieve amidst the frenzy of a bull market. Conversely, projects within the same track during the second bull market cycle face the challenge of “proving themselves,” demonstrating that their business ceiling remains high and their growth potential is still significant. However, convincing people to believe in the stories once again, especially considering the memories of being trapped at the peak of the previous bull market, is not easy.

Some may argue that the L1 track was the top performer in both the 2017 and 2021 bull markets, serving as a counterexample. However, this is not entirely accurate. The demand for the L1 track in the 2021 bull market experienced exponential growth. The explosion of multiple product categories within DeFi, NFT, and GameFi led to rapid expansion in both user and developer markets, resulting in unprecedented demand for blockchain space. This not only boosted the valuation of Ethereum but also caused an explosion in Alt L1 projects. Therefore, the 2021 bull market was truly the year of Alt L1s.

The question now is whether the current cycle can replicate the explosion of Dapp product categories and asset categories from the previous cycle, leading to further growth in demand for L1s.

At present, this is not evident. Therefore, the premise for Alt L1s to achieve the same momentum as the previous cycle does not exist. Expectations for Alt L1s in this bull market cycle should also be moderated.

BTC and ETH Offer Better Odds in this Cycle:

The current bull market’s primary driving force, as it stands, continues to be the influx of funds resulting from the opening of the ETF channel, along with optimistic expectations for this long-term inflow. Therefore, the primary beneficiaries of this cycle are BTC and potentially ETH (as a potential ETF listing target). Considering the points made earlier regarding GameFi, Depin, DeFi, and L1, achieving alpha in this bull market cycle is more challenging. Hence, the risk-return ratio of allocating the main position to BTC + ETH will likely be better than the previous cycle.

So, between BTC and ETH, which one is the superior choice?

In my view, in the short term, ETH may be more favourable. This is because the expectation of a BTC ETF has already been factored into the current prices, and after the completion of the halving in April, BTC lacks other focal points of interest. For ETH, however, the ETH/BTC exchange rate is still at a low level, and the expectation of an ETH ETF is gradually gaining traction. These factors make the short-term odds for ETH more favourable than BTC.

Looking at the long term, BTC may be the preferable choice. Overall, ETH is increasingly resembling a tech stock. Its value lies in providing blockchain space services, akin to a Web3 cloud service project. In this fiercely competitive market, ETH continuously faces erosion and pressure on narratives and market share from other blockchain space service providers (L1, Rollup, and DA projects) and various new technological solutions. If Ethereum’s technical roadmap deviates or its product iteration speed is too slow, these factors could serve as reasons for capital to vote against it.

Conversely, BTC’s “digital gold” positioning is becoming more solid as its market value steadily expands and the ETF channel opens up. Its consensus as a hedge against fiat currency inflation is gradually gaining acceptance from financial institutions, publicly traded companies, and even small countries.

The narrative of “ETH surpassing BTC in store of value” is increasingly fading into obscurity.

Strategy Summary for this Bull Market Cycle:

While the author believes that over-allocating to BTC + ETH in this cycle will have a better risk-return ratio than the previous cycle, it does not mean that we should neglect to allocate to other Altcoins. It’s just that we need to be cautious in planning the allocation ratios.

In summary, the author’s current strategy considerations are as follows:

• Increase the allocation ratio of BTC and ETH.
• Control allocation ratio on old tracks such as DeFi, GameFi, Depin, NFT, etc.
• Explore new tracks emerging in this cycle for Alpha opportunities, such as:
• Meme: The ultimate speculative medium, with concepts evolving in each cycle and incredible wealth stories emerging, making it easily understandable and triggering viral spread within communities.
• AI: A new Web3 business category, constantly influenced by external business trends.
• BTC ecosystem: Including inscription assets and BTC L2. The author is relatively more bullish on the former, as it represents a new asset category in this cycle, whereas BTC L2 is essentially a rebranding of Ethereum Rollup, belonging to the “old wine in new bottles” category.

The Cycle Still Existing, But Having Notably Shifted Forward.

Additionally, concerning the cycle, the author believes that, unlike the previous bull market cycles where the “primary uptrend comes in the year following the halving,” in this current bull market, the most significant primary uptrend year should be 2024, not 2025. The years of previous BTC halving were 2012, 2016, and 2020, with this current halving occurring in 2024.

Based on statistics conducted by Hithink RoyalFlush Information Network last year, comparing the returns of major financial assets over the past 10 years, the details are as follows:

Overall, BTC adheres to the pattern of “rising for three years, falling for one year,” which means it rises in the year before halving, the halving year itself, and the year after halving, followed by a year of decline.

In the first Bitcoin halving cycle, the halving year of 2012 saw a 186% increase in BTC, followed by a staggering 5372% increase in the following year, 2013. A similar pattern was observed in 2017, where the halving year was followed by substantial gains.

However, this pattern was disrupted in the previous cycle. In 2019, the year before the halving, BTC saw significant gains (93.4%, higher than the 40.9% of 2015), and the halving year of 2020 witnessed a 273% increase, surpassing the 62.3% increase in the following year, 2021.

In this current cycle, the trend of the “rising cycle” has shifted even further forward. In 2023, the year before halving, BTC saw a 147.3% increase, surpassing the gains of the previous cycle’s pre-halving year (2019). As of the first quarter of 2024, BTC has already achieved nearly a 60% increase.

The author believes that it is highly probable that 2024 will be the main uptrend year of this bull market cycle. Waiting for a significant surge in 2025 may not be prudent, and it might be wiser to increase positions and seize the opportunities at hand. 2025 might instead be the year for reducing positions and reaping the rewards.

In conclusion, the author wishes everyone a successful hunting in this bull market cycle and a fruitful return.

Disclaimer：

1. This article is reproduced from [mintventures], Original title “Preparing for the bull market to rise, my thoughts on the stages of this cycle”, Copyright belongs to the original author [Alex Xu], if you have any objections to the reprint, please contact the Gate Learn team, and the team will handle it as soon as possible according to relevant procedures.

2. The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

3. Other language versions of the article are translated by the Gate Learn team and are not mentioned in Gate.io), the translated article may not be reproduced, distributed or plagiarized.