The probably most often repeated saying in this newsletter is that history does not repeat but it rhymes. This is even more true when it comes to markets. November and December 2023 have treated Crypto markets exceptionally well. Bitcoin is well above $40k and many Altcoins have been following. It also does not just feel like ’empty’ euphoria. Actual technological innovation is fuelling some of the run.
Bitcoin’s Taproot upgrade has added actual programmability to the Old Orange Lady Bitcoin that had never previously been open to innovation. This has enabled Ordinals, which are essentially NFTs on Bitcoin, as well as ‘BRC-20’ tokens. For the smart-contract chains, the scalability discussion is splitting clearly along the lines of monolithic vs modular. Monolithic, fast Layer-1 chains like Solana have a strong User Experience advantage versus ‘modular’ chains like Ethereum that look to Layer-2 ‘rollups’ and other scaling technology for growth. Both approaches have seen a lot of technical progress which brings with it new applications, games and more. Even NFTs are on the rise again.
On the other hand, macro events, from an apparent end of interest rate rises to the imminent approval of the first Bitcoin ETF, have aligned well in favour of crypto markets. On top of all that, the next Bitcoin Halving in April 2024 is approaching fast.
If we look at previous cycles to try and predict what will come, we can make a number of observations. Historically, the strongest part of a Bull Market has followed a Halving, not preceded it. Also historically, we have seen run-ups in BTC price in December 2017, which was then followed by the 2018/19 bear market. We have also seen the December 2020 run-up that preceded the 2021 Bull market.
What is also interesting is that retail interest for Bitcoin and crypto is nowhere near previous levels. In December 2017 and December 2020, Bitcoin google searches were peaking. Currently they are still well below 2021 levels. At what Bitcoin price level would retail interest come back? Should interest re-emerge, price growth could accelerate further. Given the level of retail interest and the approaching halving, it may look like we are following the path of December 2020, not 2017.
This, of course, all sounds too good to be true. If there is one thing us jaded survivors of countless bear markets have learned, it is that things rarely turn out as expected. Unexpected bad news on the US regulatory side could still arrive. Or the economic environment could take a turn to the worse, which seems more likely than not. At the end of the day, without COVID Stimulus checks, with a recession on and having been burned on crypto previously, retail might also simply not have the money to invest again. There might be some rhyming but history could still end up taking a very unexpected turn in either direction.
For now though let us celebrate a merry Christmas season. After the last 2 years we have deserved it.