To start this post: Crypto Market Cycles, it is important to know that nothing in this post can or should be considered financial advice or consulting. Simply one person’s opinion on the crypto market and the future of digital assets. With that being said, let’s dive into it.
The Importance of Cycles
The crypto Industry has come a long way since the initial Bitcoin whitepaper in 2008. As Bitcoin developed, it was very important for the first use-cases to show the utility of digital assets. From the first pizza ordered, to the Silk Road showing the benefit of an unstoppable digital currency, the world has been marveled by cryptocurrency. As Bitcoin and the blockchain industry continue to mature, there will continue to be cycles for the market.
To date, we have experienced three crypto market cycles:
First cycle: Digital assets that proved there is a use-case for digital currency through means of exchange coupled with a unique, verifiable data storage layer, blockchain.
Second cycle: Implemented coding through addition layers to allow the creation of decentralize applications, token generation and new internal economic systems of control.
Third cycle: New age scalable platforms with unique consensus algorithms POS, DPOS, Ouroboros. Market is maturing with new partnerships, products and filtering out dying projects.
Fourth cycle: What’s Next?
Let’s take some time to break each of these cycles down more to lead us into what we can expect for the fourth cycle.
The first main cycle that the crypto industry surmounted, established the first-generation survivors. For instance, Bitcoin and Litecoin emerged from this cycle and laid the foundation for everything to follow.
With Bitcoin gaining exposure globally through this period, new market makers and innovators started to develop an understanding for what Satoshi created.
The second cycle gave us projects like Ethereum and NEO. Two of the super powers of their time, both projects shifted the market sentiment in ways unforeseen. Out of these two project Ethereum clearly came out on top. Ethereum gave the market a new investment vehicle, token sales. Additionally, ETH became the second most widely adopted trading-pair across the entire market and enabled an entire new industry, decentralized applications.
Cycle number three, is still in effect but reaching its end. It will not be done until around late 2019 or early 2020. This cycle has been ripe with huge partnerships, product developments and a purge of bad actors throughout the market.
This cycle lead to cryptos like Cardano, EOS and TRON. Scalabilty is key with each project promising different market focuses.
Each of the previous cycles has propelled the market forward one way or another. What then is to be expected from the fourth cycle?
To consider a decent time frame, we can project the fourth cycle to move into effect late 2021 and possibly last until 2027. It is important to note that a majority of the movement in this cycle will be a result of each previous cycle laying the ground work.
The first thing that will happen in the fourth cycle is a dramatic increase in adoption. The third cycle has laid the foundation of partnerships and regulatory clarity for this to take place.
The partnerships will want to move quickly to test and develop products. Their aim is, capitalize on first mover advantage to maximize profits. Therefore, timing will be everything in the fourth cycle. Ironically with the economy surging, it is highly probable that during the fourth cycle the economy could start to slip into a global recession. This would compel companies to cut funding, reduce development and look to increase cash flow and reserves due to devaluation of assets. This scenario would lead to markets being squeezed and forced ahead of schedule. Additionally, in this scenario, most companies will be reluctant to investing funds into further research without measurable short-term economic benefits.
Ignoring the economic collapse, prior cycles have set the fourth cycle up for regulatory clarity. Additionally, I discuss this in another article here. Looking at the current market situation, we see governments slowly but surely increasing their data mining and research, developing professional blockchain teams, and clarifying the problematic regulatory issues. We anticipate a few things resulting from this in the fourth cycle:
- Oversight from governing bodies will increase
- Transactions will start to be tracked more diligently leading to decrease in anonymity
- Expectations of the market leaders will increase
- Growth in financial instruments through the traditional market like Bakkt, ETFs, derivatives, options and futures
Regulation and proper clarification seems to be the only thing keeping the flood gates closed at this point. The fourth cycle may be the biggest opening in those gates we have received yet.
In the fourth cycle, there will be a new phase of development across the market like in the previous 3 cycles. My personal prediction is that we will start to see a few things:
- Projects will begin to acquire other failing projects and their communities
- The new investment vehicles will be focused on Initial exchange offerings and Security token offerings
- Larger projects will start to capitalize and impact specific industries
- Cross chain transactions, data transfers and atomic swaps will become the norm
- We will start to see initial phases of what I call “clustering”. This means top projects focusing on different markets will united and form super chains. These super chains will be like combining the use-cases, utility and communities of 3 different projects. Imagine XRP combining with Cardano and IOTA. Now any project launched on top of this super chain and naturally migrate throughout each eco-system and interchangeably utilize all products, protocols and nodes in the network.
Crypto Market Cap
It is not improbable to expect the fourth market cycle to take the crypto industry to new heights in terms of prices. With the historical growth patterns and the increase in “intrinsic” value of the market, we can estimate the market cap of the entire market to grow into the trillions.
Based on the 2017 bull run, an out of the box exaggerative number would be a total market cap of $8 trillion. A more realistic number with higher probability would be a market cap between $1.2 – $2.5 trillion. This would easily lead to another bubble and potential retracement to the 2017 highs of $800 billion afterwards. If the market can grow and sustain a total market cap over $1 trillion then we could consider the market volatility to be decreasing steadily as the market grows.
How to Prepare
In Addition, if you are curious on how to prepare your portfolio for crypto market cycles, head on over to my other article on, How to Structure a Crypto Portfolio.
Honestly, the best way to prepare for the crypto market cycles is to do your due diligence and never invest in things you can not easily explain to your mother.