Arthur Hayes, co-founder of BitMEX, agreed that the four-year cryptocurrency cycle is over, but not for the reasons most people think.
“With the fourth anniversary of this fourth cycle coming up, traders want to apply the historical pattern and predict the end of this uptrend,” Hayes said in a blog post on Thursday.
He added that although the four-year pattern had worked in the past, it was no longer viable and “will fail this time.”
Hayes argued that Bitcoin (BTC) price cycles are driven by the supply and quantity of money, primarily in US dollars and Chinese yuan, rather than by arbitrary four-year patterns associated with halving events, or as a direct result of institutional interest in cryptocurrencies.
Hayes said past cycles ended when monetary conditions tightened, not because of timing.
The current cycle is different
Hayes argues that the cycle is different for several reasons, including the US Treasury draining $2.5 trillion from the Fed's reverse repo program into the markets by issuing more Treasuries, and US President Donald Trump's desire to “run it” with easier monetary policy to get rid of debt.
There are also plans to deregulate banks to increase lending.
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In addition, the US central bank resumed cutting interest rates even though inflation is above its target. Two additional rate cuts are expected this year, with 94% odds of a rate cut in October and 80% odds of another cut in December, according to Chicago Mercantile Exchange futures markets.
It's all about printing Chinese and American money
Bitcoin's first rally coincided with the Federal Reserve's quantitative easing and Chinese credit expansion, and ended when both the Fed and China's central bank slowed money printing in late 2013.
The second “ICO cycle” was primarily driven by the yuan's credit explosion and currency depreciation in 2015, not the US dollar. He said the bull market collapsed as Chinese credit growth slowed and dollar conditions tightened.
During the third[COVID-19] “Bitcoin rose on US dollar liquidity alone while China remained relatively restrained. This ended when the Fed began tightening monetary policy in late 2021,” Hayes explained.
China will not kill the cycle this time
While China will not fuel this rally as it has in previous cycles, policymakers are moving toward “ending deflation” rather than continuing to drain liquidity, Hayes said.
This shift from deflationary headwinds to at least neutral or somewhat supportive monetary policy, he said, removes a major hurdle that would have killed the cycle, allowing US monetary expansion to push Bitcoin higher without being counteracted by Chinese deflation.
“Listen to our monetary masters in Washington and Beijing. They are clearly stating that money will be cheaper and more abundant. So, Bitcoin continues to rise in anticipation of this very possible future. The king is dead, long live the king!”
Many still believe in the four-year cycle
Onchain analytics firm Glassnode said in August that “from a cyclical perspective, Bitcoin’s price movement also reflects past patterns.”
“I think when it comes to a four-year cycle, the reality is that it is very likely that we will continue to see some form of cycle,” Saad Ahmed, head of Gemini Exchange Asia-Pacific, told Cointelegraph earlier this month.
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