Arthur Hayes, co-founder of cryptocurrency exchange BitMEX, has declared that the widely accepted four-year cycle of Bitcoin price movements is no longer relevant, although his reasoning diverges from popular beliefs. In a recent blog post, Hayes emphasized that many traders attempt to forecast market trends based on past cycles, especially as the fourth cycle anniversary approaches.
According to Hayes, historical price patterns have proven successful in the past, but the current market conditions render these cycles obsolete. He believes that rather than being anchored to arbitrary timeframes, Bitcoin’s value is now primarily influenced by monetary supply and demand, notably involving the United States dollar (USD) and the Chinese yuan.
“Cycles in Bitcoin have concluded due to tightening monetary environments, not mere timing,” he stated, suggesting that current economic dynamics warrant a fresh approach to understanding market fluctuations.
Hayes pointed to several distinct factors contributing to this evolving landscape. He noted that the U.S. Treasury has withdrawn $2.5 trillion from the Federal Reserve’s Reverse Repo program and directed those funds back into the markets through the issuance of additional Treasury bills. This injects significant liquidity into the financial ecosystem.
Moreover, Hayes referenced former President Trump’s strategy to “run it hot,” advocating for an easier monetary policy aimed at reducing national debt. As a consequence, banking institutions plan to deregulate in order to boost lending activities.
Compounding this situation, the Federal Reserve has recently reversed its course, initiating interest rate cuts despite persistent inflation levels that exceed their target metrics. Current futures markets reflect considerable speculation surrounding further rate reductions, with predictions of significant cuts in October and December.
Historically, Bitcoin’s price increases have been closely linked to monetary easing initiatives, both in the U.S. and China. The initial bull run in 2013 emerged during a period of Federal Reserve quantitative easing paired with a surge in Chinese credit. Conversely, the end of that cycle stemmed from a slowdown in liquidity from both central banks.
Following that, Hayes mentions that the second major cycle, identified as the “ICO cycle,” was predominantly fueled by Chinese credit growth and the devaluation of the yuan around 2015, collapsing when credit conditions tightened.
In what Hayes terms the “COVID-19 cycle,” it was the influx of U.S. liquidity that propelled Bitcoin prices. This cycle eventually waned as the Fed began tightening its policies at the end of 2021.
Looking forward, Hayes contends that although China’s influence will be less pronounced in the ongoing cycle, their policymakers are shifting focus towards combating deflation rather than retracting liquidity altogether. This change is pivotal, as a supportive monetary environment is expected to bolster Bitcoin’s upward trajectory.
“The messages from our monetary leaders in both Washington and Beijing suggest that money will continue to be abundant and cheaper. Therefore, Bitcoin is positioned for a favorable rise,” Hayes asserted, espousing a belief in the digital asset’s potential based on forthcoming monetary policies.
While Hayes is advocating for a new understanding of Bitcoin cycles, many in the crypto community still align with the traditional four-year cycle theory. For instance, on-chain analytics firm Glassnode recently noted that Bitcoin’s price movements exhibit patterns reminiscent of prior cycles. Furthermore, Saad Ahmed, head of the APAC region for crypto exchange Gemini, expressed confidence in ongoing cyclical trends, saying, “It’s likely we will continue to witness some form of a cycle.”
This ongoing debate highlights the diverse perspectives within the cryptocurrency community regarding market analysis and prediction methodologies as Bitcoin continues its evolution in the financial landscape.
