The Supercycle theory, popularized by Three Arrows Capital, suggests that over time, Bitcoin volatility diminishes as markets grow more efficient and institutional investment increases. Appreciation in price occurs as adoption expands, supply reduces, in combination with a relatively devaluing dollar. The primary notion is that Bitcoin and other digital assets, will gradually increase in value on long enough time frame, rather than the wild fluctuating trajectory we see in the four year cycle to date.
Arguments in Favor of the SupercycleEvidence already points us in the direction of reduced volatility observed in each cycle. In terms of percentages, Bitcoin's highs and lows aren't as extreme as time goes on. Specifically, this year we have witnessed record low volatility in the markets while rampant speculation has diminished, leaving market makers to trade among themselves. As nations continue the unabated printing of fiat money, inflation is inevitable. This not only implies that Bitcoin could eventually cost $100,000 but also that, given enough time, so will a Big Mac. Hopefully these two things don’t happen too close together. As adoption of Bitcoin increases, its value likewise appreciates through an increase in demand. If Bitcoin becomes more widely used and accepted, particularly within traditional finance, then as large institutions and sovereign wealth funds allocate substantial capital, it becomes an appreciating asset in its own right. Given the imminent introduction of Bitcoin spot ETFs, a steady flow of investment from sophisticated investors can be expected. Unlike the occasional Uber driver buying bitcoin at the peak and capitulating at the trough of the market, institutions are more likely to buy low and sell high, thus stabilizing the market.
Arguments Against The SupercycleCryptocurrency's primary use case is speculation, and this is unlikely to change in the near term. Mr Market remains as irrational and unpredictable as always. In 2022, bitcoin crashed below its previous all-time high for the first time, despite the prevalent belief that such an event was impossible. This downturn was partly driven by rampant greed, fraud and acceptance of malpractice throughout the industry. Following these events, did the blockchain sector learn from its mistakes? Rather than advocating for sustainable, steady, long-term growth, the industry chose to inflate the value of Pepe into a billion dollar memecoin. By nature, cryptocurrency markets are volatile due to a lack of inherent utility and hard value in the digital asset space. The speculative and volatile environment causes cryptocurrency's appeal to fluctuate with market trends. The four year cycle has repeatedly proven its validity and there is no reason to believe it will cease to function without substantial evidence to suggest otherwise.
Whether you believe in the Supercycle, or anticipate Bitcoin's four year halving cycle to persist for the foreseeable future, it's interesting to consider the effects of both scenarios on your portfolio and how to best capture the expected value. Research Posts
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