Bitcoin Could Enter ‘Supercycle’ As Fed Balance Sheet Hits New Record High

Indicators point to the moon as an ailing macro economy provides a mass influx of retail investors into Bitcoin. Bitcoin Could Enter ‘Supercycle’ As Fed Balance Sheet Hits New Record High

Bitcoin (BTC) is looking increasingly like it is in a “supercycle,” not just a bull cycle, statistician Willy Woo suggests.

In a Twitter exchange on Feb. 12, the popular analyst joined Dan Held, growth lead at U.S. exchange Kraken, calling the current BTC market a bull run like no other.

Woo: Retail Has Arrived

Held had previously explained his theory about the state of Bitcoin in 2021 — that price gains cannot be compared to past bull phases, and do not even match the end of 2017 when BTC/USD neared $20,000.

Instead, this year is looking like a bull run on a wholly different magnitude — a “supercycle” in the making for Bitcoin.

In his own observations, Woo confirmed that data pointed to retail investors returning to Bitcoin in January.

“Retail has arrived. The last 4 weeks. Welcome to the middle phase of the bull market. This one is like no other,” he wrote.

When Held suggested that the supercycle had arrived with them, he responded that 2021 would provide confirmation.

“Can answer that with more confidence in Q4. Right now it’s only fundamental narrative, need to see if the capital flows validate it,” he continued.

“The Setup Has Me Leaning Towards It.”

Search interest in “Bitcoin” spiked in the first portion of 2021, but still has noticeably more ground to cover in order to match the peak of 2017.

Is A Rally Past $50K Now Inevitable?

Bitcoin’s price is taking a breather after a Tesla-fueled rally, but where will the next move take it, and could a new ATH be established soon?

The price of Bitcoin (BTC) achieved a new all-time high on Feb. 11 as it surpassed $48,500 across major exchanges. Since then, the dominant cryptocurrency has been consolidating, showing no real momentum to break out of the record-high in the near future. But analysts are not fazed by the consolidation after breaking past a new peak.

Generally, market commentators say that when an asset moves slowly or consolidates after an explosive move upward, it is a sign of a healthy market. For Bitcoin, stabilizing following a strong impulse rally to a record-high is critical at this current juncture due to the overcrowded futures market. If the price of Bitcoin continues to increase without a proper reset pullback, it would increase the probability of a major long squeeze in the short term.

A long squeeze happens in the futures market when the market is overwhelmed with buyers or long contracts, and as a result, the funding rate turns highly positive. When the funding rate is above 0%, buyers have to pay a portion of their position as a fee to their short-seller counterpart every eight hours. This mechanism is used by futures exchanges to achieve balance in the market so that the market is not swayed to one side for a prolonged period.

Considering the negative effect of an imbalance in the futures market and the fact that the Bitcoin futures funding rate is consistently hovering above 0.1%, which is 10 times higher than the normal 0.01%, longer consolidation is optimistic for Bitcoin. But this is given that BTC remains above crucial support areas, which has seemingly been established at $44,214, acting as a crucial whale cluster support level in the near term.

Where Is Bitcoin Heading Next?

In an interview with Cointelegraph, Guy Hirsch, U.S. managing director at eToro, emphasized that Tesla’s $1.5-billion BTC purchase took the market by storm. The news caused a significant sentiment shift, leading many investors to perceive this as a turning point in the history of the crypto market and how public companies would perceive crypto assets. The news also broke as MicroStrategy conducted a seminar with over 1,400 corporations to discuss Bitcoin.

Hirsch explained that the synergy between Tesla buying Bitcoin and MicroStrategy continuing to spread awareness about the merit of BTC as a store of value and a corporate investment would propel more public companies to follow up with similar announcements. If this trend occurs, Hirsch emphasized that a push toward $50,000 is plausible before the end of the second quarter, adding:

“We are likely to look back on MicroStrategy and Tesla as being at the forefront of this new way of using corporate treasury assets to appreciate cash holdings, rather than just sit on them, and see this as a turning point not only in the history of Bitcoin but also of how publicly traded companies act and serve in the best interests of their shareholders.”

Traders are also generally expressing optimism toward both the short-term and medium-term trajectory of Bitcoin’s price. A pseudonymous trader known as Loma said that the “relative downside on BTC is so slim” at the moment, considering the strong market sentiment around it. The trader noted that “$50k is inevitable,” and whether BTC drops “a bit beforehand” is not a major issue.

A “black swan” event could in theory cause a 30%–40% correction in the price of Bitcoin, as seen throughout its past bull cycles.

However, Bitcoin is seeing an unprecedented level of buyer demand from high-net-worth investors and institutions who were not as active in the past few years.

The inflow of new institutional investors presents a major variable that could buoy BTC’s momentum toward the $50,000–$70,000 range. The continuous increase in liquidity in the traditional financial market is further catalyzing the appetite for inflation hedge assets, which include the likes of Bitcoin and gold.

A Potentially Bearish Case For BTC

A crypto whale known as Waro said that there is one scenario where Bitcoin could see a potential pullback in the short term. The trader explained that if BTC struggles to break out of $48,000, it could see its momentum dwindle and see a 5%–15% drop in the foreseeable future.

According to him, this would be a positive trend for BTC, as it would allow it to access some of the liquidity and large buy orders in the low $40,000 range: “I was one of the first to call for 52k about a week ago and now everyone is euphoric and screaming for 50+ while bitcoin is having trouble with this resistance. Not a bear, it just needs more fuel, that’s all.”

One fundamental factor that could counter a potentially bearish market sentiment around Bitcoin is the declining selling pressure from miners. In the past two weeks, miners sold large amounts of BTC, placing pressure on the short-term price trend of Bitcoin. Since miners are one of the few external sources of selling pressure in the cryptocurrency market, heightened levels of selling activity can suppress the uptrend of Bitcoin.

Lex Moskovski, a cryptocurrency investor and a quant trader, found that miners “are not so eager to sell their #Bitcoin the last two weeks.” He said that either miners are anticipating the price of Bitcoin to increase substantially in the foreseeable future or have run out of BTC to sell in the near term.

Either way, this trend is a positive catalyst for Bitcoin that could counter the bearishness around the crypto market and push BTC toward a new all-time high above $50,000.

Updated: 3-20-2021

We May Be Entering A New Commodities Supercycle

Bitcoin Could Enter 'Supercycle' As Fed Balance Sheet Hits New Record High

Rising commodity prices have bank analysts and strategists asking if resurgent demand for raw materials and insufficient supply will create a new commodities supercycle. Price swings, of course, are as old as business itself. A commodities supercycle is different, though.

In the usual business cycle, demand pushes prices up, and supply increases to try to capture that windfall, sending prices down again. In a supercycle, supply is so inadequate to demand growth that prices rise for years, even a decade or more.

Before we examine the current possible supercycle, we should take a brief look back at the last two. In the 1970s, spiking oil prices created a boom that lasted into the early 1980s. In the early 2000s, China’s demand for copper, steel, aluminum, coal, and copper kept prices high through 2014, with a spike thanks to record high oil prices in 2008.

On this long timeline, we can just see the emergence of today’s possible supercycle.

Two components of this potential supercycle – oil and gas and metals – are relevant to decarbonization prospects. They’re also increasingly connected to each other.

First, oil and gas. One indicator in favor of a potential supercycle is the very low investment in oil and gas exploration. As prices fell from above $100 a barrel in 2014, capital expenditure fell, too. In real dollar terms, oil and gas capex is at about the same level as 15 years ago, when oil demand was 10% lower than at the end of 2020, and more than 15% lower than it was prior to the pandemic.

Two things could counteract that. Number one: If oil and gas prices rise consistently and the returns on capital increase, investors might demand more investment. Number two: Spare production capacity amongst the Organization of the Petroleum Exporting Countries spiked during the pandemic to more than 10 million barrels per day and remains far higher than at any point this century.

That spare capacity could be a release valve on high prices, as could a resurgence in U.S. shale production if prices are high enough to support new investment (and if capital markets are willing to fund it).

With the International Energy Agency predicting that global oil demand won’t rebound to pre-Covid levels until 2023, OPEC’s spare capacity could be very relevant—especially if oil demand has already peaked, as BP Plc said last year. That’s not to say that prices won’t keep increasing, but rather that the sector has mechanisms in place to meet demand.

Now, though, to metals, albeit in a roundabout way.

It’s always been true that rising oil prices will push consumers to seek alternatives. In the 1970s, oil was still widely used as a power generation fuel, and coal-fired generating capacity was added to replace it when oil prices soared. In transportation, however, alternative fuels and electric powertrains were pipe dreams.

This time, there are alternatives to oil in surface transportation which are technically effective, increasingly economically competitive, and globally available. The last time oil was $100 a barrel, in 2014, only 300,000 electric passenger vehicles were sold.

Last year, that figure was 3.1 million; this year, it’s likely to be closer to four-and-a-half million. The expanding EV fleet reduces oil demand; add in the world’s two- and three-wheel light electric vehicles, and buses, and we’re already looking at a million barrels a day of avoided oil demand as of 2019.

The world’s metals producers stand to benefit from increasing electrification, and not just in the transport sector. BloombergNEF estimates that global copper demand in both the clean power and the clean transport sectors will double in the next decades, to almost 5 million tons per year. Copper demand this year is expected to be about 24 million tons, so that jump would be a material increase.

As economists know, smart people have been saying “this time is different” for eight centuries and been proven frequently and thoroughly wrong. As we look today at the beginning of a possible commodities supercycle, we really should ask if this time is different.

This time, reducing demand for one commodity (oil) would boost demand for another (metals) in a way that really could be sustained for years or decades. The companies meeting that demand will be under increasing scrutiny, with investors and the public deeply interested in the environmental sustainability and carbon intensity of their extraction and processing.

If we enter a metals supercycle, it will be a cleaner one, with the potential to decarbonize part of the economy and reduce emissions in the process.

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Bitcoin Could Enter ‘Supercycle’ As Fed Balance Sheet Hits New Record High

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