Crypto Assets - A Four Year Cycle

Crypto assets are renown for their volatility and risk-adjusted returns. Many observers and participants quickly recognize that crypto returns appear very cyclical.

The crypto cycle appears to last four years wherein crypto assets are the best performing assets on earth for three years and the absolute worst performing assets on earth for one year. Raoul Pal has astutely pointed this out via his Everything Code thesis, and takes things a step further by correlating the PPI, PCE, and US presidential election cycles with the crypto cycle.

In my view of this cyclical theory, there are effectively three periods with the Bitcoin halving representing roughly the middle of the bull cycle.

1. Period 1 begins ~500 days before a Bitcoin halving and ends at the halving;

2. Period 2 begins at the Bitcoin halving and lasts ~500 days; and,

3. Period 3 begins ~500 days post-halving and lasts ~460 days.

Today, we sit about three weeks before the start of Period 2. This means, using previous cycles as a guide, there is about 500 days of bullish price action remaining before we would expect the crypto markets to begin consolidating gains for about 15 months.

During our current cycle, Bitcoin has reached all time highs before the halving for the first time ever. This has led to much debate regarding:

• Is the halving priced in?

• Does the halving really produce a supply/demand shock?

• Is the halving simply a psychological factor?

These questions are fun to ponder, but as market participants we are obliged to listen to price action. Historical price action is our best guide and suggests that the market will top ~500 days after the halving. See the below chart, h/t @thescalpingpro on Crypto Twitter.

Many crypto participants feel that they “missed” Bitcoin, and therefore seek greater returns by moving out on the risk curve: alt-coins and memes. To be clear, there is no “missing” Bitcoin. Just as equity investors in 2016 had not “missed” Microsoft or Apple.

Every day is a new opportunity to underwrite every investment opportunity.