Will institutional investors kill the four year boom/bust cycle?

[thecodebear]

I've been thinking about this for a while. We're used to a four year boom/bust cycle (well by used to I mean we had one and seem to be getting ready to close out another in a year). And more generally, we're used to parabolic bull runs of hundreds or thousands of percent, followed by ~80% crashes

But I'm wondering if institutional investors will change this dynamic.

The normal parabolic run, blow-off top, and enormous crash and long lasting bear market happen because retail investors FOMO into Bitcoin during a bull run, and then when it starts crashing they panic sell out of it, and leave the market for a long time.

But things are different now:
1. Institutional investors are driving the price appreciation right now, and as time passes they are going to own more and more of the bitcoin supply.
2. A significant portion of the retail market (general public) has known about bitcoin since 2017.

Why are these two things important and possible game changers to the overall market dynamics?

Well, institutional investors will likely hold long term, on the order of many years, and are unlikely to panic sell their slowly accumulated investments when they see the price going down. Here I'm talking about corporations and investment firms/funds. They make long term decisions, will build their positions in Bitcoin slowly over months or years and are thinking 5, 10, 15 years from now. They spend months researching, discussing, and approving the decision to get into Bitcoin in the first place. They aren't thinking about making a short or mid-term trade and trying to guess the market. They are accumulating. Some others like accredited individual investors who are buying through Grayscale might dump out of fear when they see a crash, but these are the types that are investing 5, 6, or maybe 7 digits. The firms investing 8, 9, or 10 digits are building long term positions. This means enormous amounts of bitcoin are going to be held for many years, and will not simply be dumped in typical 4-year cycle crash in 2022. What Bitcoin used to be in the hands of panicky retail investors who FOMO'd into the market late in a bull run and are trying to get out on a crash without too much of a loss, will now be held by corporations and investment funds who are looking at Bitcoin as a global asset class that is vastly undervalued right now and rather than dumping their coins they will be looking at accumulating more on a major pullback. Panicky retail hands -> long term institutional hands.

The second thing is that the general pubic mostly has known about Bitcoin for 3 years from now. And because they only heard about it in 2017, watched it go up for a few months, and then saw it crash and remain below its late 2017 price for 3 years, they mostly think about it as "something that always crashes". Whereas previous bull runs always brought in lots of new people who had never heard of Bitcoin before, and were therefore ripe to FOMO into it, now people already learned about it in 2017 and the amount of new people FOMOing in, as a ratio to the amount of people already into Bitcoin, will likely be far smaller. You're not gonna suddenly have 10x as many people buying Bitcoin cuz the price is going up, it'll be a far smaller increase. This means the general public will come in more gradually, rather than all at once every few years. This - I believe likely - fact, will making giant blow-off tops on top of parabolic runs much less likely, and therefore giant 80% crashes and prolonged bear markets much less likely. And for that smaller ratio of people who FOMO'd into the market who then panic sell on a correction, well the billion dollar hands of investment firms will be scooping up their dropped bags, as stated above.


These two things together I think will lead to less exaggerated parabolic bull runs, smaller blow-off tops, more shallow crashes and shorter bear markets that look more like serious corrections than full-on bear markets (think second half of 2019, as compared to a 1-2 year bear market and bottom like after 2013/2017).

And because institutional money is so enormously big compared to the money that has come into Bitcoin previously, and because it will take them many years to gradually get into Bitcoin simply because they are mostly risk adverse and the Bitcoin market is simply too small and illiquid at this point for them to plunge headlong into, it is going to be a continuous grind upwards, with corrections and sideways periods along the way, rather than absurd parabolic increases followed by soul crushing crashes.

If you want an example of this already, just look at the past two months now that institutional money has started to become a driving factor. After going from $10k to $16k, it would have been commonplace for Bitcoin to go back to the last well established level at $11k, instead it could only manage a quick bear trap to $14k and then went to $19k, after which it could only manage short bear traps to $16k and $17k during a month of sideways action instead of a reasonable correction to $11k-$13k to establish support. It then went to $24k, and so far it has only managed a couple quick bear traps to $22k and very well could push to the $25k-$30k region in Jan/Feb. The reasons for this is clear, with corporations starting to make Bitcoin purchases, investment firms starting to tiptoe into the market with 9 figure buys, and accredited investors through funds like Grayscale buying 9 figures on a weekly basis, there simply isn't enough supply to allow normal expected deep corrections, these coins will mostly be held long term, and the number of coins held by these entities will grow massively thus making the emotions of retail investors much less significant in driving the volatility of the market. This all points to a massive grind upwards in price in the years to come and a shredding of the previous boom/bust market dynamics inherent to excitable retail investors.

Basically, if this thesis of a changing market dynamic for Bitcoin is correct, don't expect a massive bull run to $150k or something in the next year followed by an 80% crash in 2022. Instead, expect a generally increasing price year after year. In this model, Bitcoin likely goes to mid to high 5-figures in 2021, but no great crash ensues, then it moves over $100k in 2022, maybe hitting a quarter million in 2024, and so on. At some point in there we could see several-month corrections occur if moderate bouts of retail frenzy ensue, but it won't be like previous market cycles, at most it'd be like the second half of 2019 when the market just got over-excited in April/May/June and pumped things too hard and then price took a half year to settle back down to what a reasonable shot out of the bear market would have taken it, before it started moving up again. Except I don't think such corrections would last half a year with institutional money consistently sucking up coins. The price will simply continue grinding upwards off and on.


What are your thoughts?

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[hatshepsut93]

They spend months researching, discussing, and approving the decision to get into Bitcoin in the first place. They aren't thinking about making a short or mid-term trade and trying to guess the market.

It's only hard to guess the market when it trades sideways - if the trend has been established, it's easy to follow it, especially if you come early. It's true that institutional investors won't panic sell, but this doesn't mean that they won't sell at all, taking profit is a part of trading, and trading for short or medium term is just as valid as trading long term.

What if institutional investors didn't come here to break the cycle, but to ride it? In that case, it will be a self-fulfilling prophecy - the cycle will happen again, because investors expect it to happen.

[exstasie]

There was never any 4-year cycle.

There were 2.5 years between the 2011 and 2013 tops. There were 4 years between the 2013 and 2017 tops. Even if the next cycle topped in December 2021, 2 out of 3 doesn't make a pattern.

One of my hypotheses (which doesn't really fit with my S-curve theory) is that these periodic exponential growth cycles have been, and will continue to, slow down. If the rate above keeps up, the next cycle will take closer to 6 years to complete, rather than 4.

[thecodebear]

There was never any 4-year cycle.

There were 2.5 years between the 2011 and 2013 tops. There were 4 years between the 2013 and 2017 tops. Even if the next cycle topped in December 2021, 2 out of 3 doesn't make a pattern.

One of my hypotheses (which doesn't really fit with my S-curve theory) is that these periodic exponential growth cycles have been, and will continue to, slow down. If the rate above keeps up, the next cycle will take closer to 6 years to complete, rather than 4.

I disagree, but that's cool haha. Market is heating up now right on pace with what many expected because we expected a four year cycle. The first few years before the first halving the market was too small and volatile to have this sort of cycle and ya know a halving hadn't even occurred, but once the first halving occurred in 2012 it's clear bitcoin has been on a four year cycle. The 2013 boom, 2014 crash, 4 years to the 2017 boom, 2018 crash, 4 years to the incoming (likely) 2021 boom. That's definitely an established cycle at that point.

But I see it likely evolving now so instead of completing the cycle a year from now, the established cycle trend will cease when we don't see a crash and prolonged bear market at that point. It will evolve because of a different class of investor moving in to control a significant part of the market, an investor that isn't trying to get rich and get out, but is just looking to store value long term, with deep pockets: institutions.

The four year cycle will seem to blend away because the price is so enormously undervalued for the type of demand that is now entering the space. That demand won't be satisfied and then run away after a FOMO induced parabolic year, it'll just keep going. The price for this new type of demand would still be vastly undervalued after a typical boom year parabolic move. Institutions are looking at this as an asset that is worth 10, 20, 30 times its current value. They're not risking paycheck money on a volatile asset, they're simply moving in a tiny fraction of other invested funds. On any retail panic selling crash they can simply move another tiny fraction of other invested funds into Bitcoin and stop the crash by soaking up millions of little fish retail investors sells all at once. This is why we had no real correction at $15k, no real correction at $19k, no real correction at $24k, and are about to push over $25k, despite the fact that there is no retail buying frenzy even happening right now. And this just from a tiny fraction of institutional investors moving a tiny fraction of their money into bitcoin the past few months.

So I don't see this as a lengthening of the market cycle, I see it as: the big boys are in and to them making money is just a game. They always have more money and the amount of money they can throw around makes Bitcoin looks tiny right now, but at the same time they are starting to understand Bitcoin is where they will ultimately preserve their money. There's a reason the stock market shot to record highs after Covid panic crash despite economy in the gutter, because big money controls the stock market and its just a game to them to make more money. They will control the bitcoin market - within a few years they will probably own close to half the accessible supply - which will vault the price up well over an order of magnitude, and they aren't gonna panic sell all their coins like a FOMO'd in average joe would do. But that's okay, because Bitcoin is just as useful for each owner no matter how much else is owned by whoever. Eventually Bitcoin might be ripe for an actual bear market again, but in the meantime it'll probably be several years of mostly grinding upwards as big money gets its hands on the supply. There won't be an end to the current cycle until they've reached some satisfied point in which they are okay taking some profit off the table, and that could be 5 years from now at like 20x the current price.

That's my new thesis at least.

[cryptomaniac_xxx]

There was never any 4-year cycle.

There were 2.5 years between the 2011 and 2013 tops. There were 4 years between the 2013 and 2017 tops. Even if the next cycle topped in December 2021, 2 out of 3 doesn't make a pattern.

One of my hypotheses (which doesn't really fit with my S-curve theory) is that these periodic exponential growth cycles have been, and will continue to, slow down. If the rate above keeps up, the next cycle will take closer to 6 years to complete, rather than 4.

This one, sooner or later as the price goes on a rise, the exponential growth will slow down. I have my own theory that we might see a single 6 year cycle or two 3 year cycle starting from 2018 lowest low of $3k. But definitely we will see boom/bust cycle regardless if its going to be end by institutional investors or not.

[zanezane]

Who knows, maybe they are planning to dump when almost all the coins are bought or not. There are a lot of things that can happen but I think that institutional investors will be influencing the prices from now on. There are more whales now, and these new ones know the inner workings of a market and the psychology behind it. In my opinion, it is still far too early for us to form a conclusive thought about the institutional investors joining the fray, the best thing that we can do as an observer is to watch what happens next.

[hugeblack]

They are not cycles, but the market by its nature gets highs and lows and it is renewed after periods of bears that may be short or long.
In normal conditions, peaks and troughs occur in the market within 5 years, during which they are times of stability, and it has been confirmed that it happened at the end of 2013, 2016, and 2020, but this means that it must happen again, especially since Covid-19 pandemic will change many investment ideas for many people.

It may create a financial crisis similar to the one that was one of the reasons for the emergence of Bitcoin (2008.)

[philipma1957]

Nice thread. Just saw this image on wo thread.

BTC be worth more than all of these combined.

2.244
1.684
1.592
1.174
  .763
.669
.627
.600
.550
.531

the top 5 holdings = 7.457 trillion

the new 5 holding =2.977 trillion

then btc = 464 billion

to think a 10% shift from the top ten to BTC will or won't happen
Is simple.

Pretend it does and it takes the next 3 years to do so.

that would be 745.7 billion and BTC cap would grow to 1209.7

roughly 2.6x todays price of 25k or 65k

Seems easy to do.

This month Norway added 2 usd worth of BTC for each citizen  to Norway's retirement plan.  About 2 x 5 million = 10 million dollars.

But think what happens if the 450 million European Union adds a 1% vat and use it to buy BTC that would be vast numbers.

I can see a huge money shift to BTC for the next 2-4 years.  If the world wraps BTC as a driving force to make new solar and new wind plants. Along with future retirement money as a bundle.

Yeah   just real long term growth.

Running out of coins to mine has a temp fix. Just empty the old untouched accounts. Use them to be mined as second chance coins.

Many countries do this with old bank accounts they call them abandoned.

I think 3 million untouched coins could recirculate.

So in 2028 we are down to 1.12 per block
in 2032 we are down to  .56 btc per block
in 2036 we are down to .28 btc per block
in 2040 we are down to .14 btc per block
in 2044 we are down to .07 btc per block
in 2048 we are down to .035 btc per block  grab the 40 year old idle coins add to mining
in 2052 we stay the same at 0.035
in 2056 "
in 2060 "

makes coins last a long time. does not change the 21 million count.

[20kevin20]

While I get your point and it certainly is an interesting point of view, selling is part of the investment game as replies say above. Therefore, I personally think that when we have more and more institutional investors (and not only those but other regular investors as well) joining in, these cycles will actually become even more powerful than they used to be.

Beforehand, we've had newbies coming in and dumping 100s or thousands of bucks during crashes. Since there were lots of newbies dumping small amounts, the market turned into a big parabolic bear run. But today, with institutional investors coming in with billions of bucks, a single $10M dump would crash the markets immediately and provoke a larger fuss than small dumps would. Add the regular people panicking and dumping their money as well, other institutional investors dumping theirs in order to either cash in high or just planning to purchase lower and you'd have a big bomb overall.

On the other hand, this truly depends on the way institutional investors sell. I doubt it'd be a $10M order on Binance, so their moves may actually not be felt as a strong impact. But when you think about it, institutional investors publicly announcing the sale of their Bitcoin holdings could easily crash our still immature market.

Personal opinion: this is a highly speculative thing and the best thing we can do is wait for another round of 4 years (so until 2028) so that we can see whether institutional investors joining in have impacted and influenced BTC cycles differently or it's better/worse than it used to be.

[justdimin]

There is a huge chance this could actually happen. The bust cycle at least, boom is still in full on going on right now but the bust might actually stop existing very soon. Plus there is no 4 year cycle, it was 2014 and it was 2017 and it is 2020 which means the big ones happened in 3 year difference and not 4 years, I don't know why people keep calling it 4 years when in fact the big increases happened with 3 year difference.

And by the looks of it these big companies can't allow for such big falls neither, they would have to actually tell their investors that they have lost a lot of money on bitcoin and they do not want to do that, maybe stocks would be fine because market was bad at one point, but bitcoin was always risky and telling your investors you lost money on this high-tech thing will be taking too much responsibility. So I assume they will definitely buy more and more to keep it afloat.

[thecodebear]

While I get your point and it certainly is an interesting point of view, selling is part of the investment game as replies say above. Therefore, I personally think that when we have more and more institutional investors (and not only those but other regular investors as well) joining in, these cycles will actually become even more powerful than they used to be.

Beforehand, we've had newbies coming in and dumping 100s or thousands of bucks during crashes. Since there were lots of newbies dumping small amounts, the market turned into a big parabolic bear run. But today, with institutional investors coming in with billions of bucks, a single $10M dump would crash the markets immediately and provoke a larger fuss than small dumps would. Add the regular people panicking and dumping their money as well, other institutional investors dumping theirs in order to either cash in high or just planning to purchase lower and you'd have a big bomb overall.

On the other hand, this truly depends on the way institutional investors sell. I doubt it'd be a $10M order on Binance, so their moves may actually not be felt as a strong impact. But when you think about it, institutional investors publicly announcing the sale of their Bitcoin holdings could easily crash our still immature market.

Personal opinion: this is a highly speculative thing and the best thing we can do is wait for another round of 4 years (so until 2028) so that we can see whether institutional investors joining in have impacted and influenced BTC cycles differently or it's better/worse than it used to be.

I see your point. But since this class of investor is just barely entering the game now, and it seems pretty obvious this is going to be a years-long trend of more and more institutional investors coming into the market and gradually buying up what they want, the demand to buy should outweigh any short term profit taking the vast majority of the time. Even the companies / investment funds that have gotten into Bitcoin the past few months, other than Microstrategy, having only been dipping their toes in and will no doubt be continuing to stack sats for a long time. They're not going to be selling anytime soon, they're gonna be continuing to buy to add to their position, and more and more will join the fray. I'm not saying corrections won't happen. But I don't see a prolonged bear market happening anytime soon, I don't see an 80% crash because it's the panicky retail market that has driven those kind of crashes, but they will be owning a smaller and smaller portion of the market cap, especially those who would jump in on a boom and panic sell on a drop.

When the big boys do take profit they are just going to be selling to a larger amount of interested institutional buyers. Yeah they're not gonna dump $10 million on Binance, they're gonna be like hey custody company we want to take some profit and sell $10 million, and the custody company will be like great we've got a bunch of clients looking to pick up that much right now.

This is just my current thinking thesis. Will be interesting to see how it all plays out in the coming years!

[thecodebear]

There is a huge chance this could actually happen. The bust cycle at least, boom is still in full on going on right now but the bust might actually stop existing very soon. Plus there is no 4 year cycle, it was 2014 and it was 2017 and it is 2020 which means the big ones happened in 3 year difference and not 4 years, I don't know why people keep calling it 4 years when in fact the big increases happened with 3 year difference.

And by the looks of it these big companies can't allow for such big falls neither, they would have to actually tell their investors that they have lost a lot of money on bitcoin and they do not want to do that, maybe stocks would be fine because market was bad at one point, but bitcoin was always risky and telling your investors you lost money on this high-tech thing will be taking too much responsibility. So I assume they will definitely buy more and more to keep it afloat.

Just wanted to correct you, it has indeed been 4 years, not 3 years. They cycle has been driven by the 4 year halving cycle. Boom/bust '13/'14, boom/bust '17/'18, and we are just now starting the boom of this cycle (2020 was not a boom it was the buildup to the start of the boom) so it'd be boom/bust '21/'22. 4 year cycles. I think we're gonna get the boom in '21 to perhaps around $100k, but then there isn't going to be a year long bust after that, it's gonna just keep grinding up for years, with corrections here and there, because the market thesis of Bitcoin is essentially changing from volatile speculation for risky investors to institutional-class global reserve and store of value - the latter has many trillions of dollars to allocate without the need for the crazy hype cycle that has driven the retail bitcoin market.

[STT]

We're rising out of market hours on a Saturday far more then the trend itself justifies, at a greater pace then we do with high volume all markets open.   If its overdone and liable to failure, its mostly the home consumers buying too much too soon is probably the bulk of the reason.   Also people compare gold and other assets to BTC but they are orders of magnitude different which makes the wholesale division from main stream buying into this asset type quite unlikely.  This isnt a criticism exactly but volatility is too high to be blaming institutions for the nature of BTC and I think they study and invest mostly elsewhere and will continue to do so for some time so their buying is light still.

[sheenshane]

IMO might be the best thing is to cross the bridge when we get there, it's too early today to panic and overthink.

Anyway, I really admire this thread however, I think you have to consider other people's perspectives as well.

For those who are worried, let me share this.
Institutional investors don't need to drive the market.  That isn't how they play and the only purpose they have in investing is to save from taxes (90% of the time).  They won't care if they profit or not, as long as there is a store of value away from taxes or at least reduce it.  That would be enough.

[Luthier]

I like the idea but I still think there is plenty of room for retail "investors" to FOMO in and create a boom/bust.  They will just be fighting over a much smaller number of coins as so many have been taken off the market by the big guys, which will drive the price up to over-inflated highs.  The big guys won't be buying at those prices and whales will start to dump/take profit, triggering the typical panic selling response.

I know most people have "heard" of Bitcoin by now, but back in 2017 you didn't have Joe Rogan reading Cash App ads every week and talking about "stacking sats", PayPal putting crypto front and center in their advertising, etc. etc. and you also didn't have free $$$ raining from the sky.

A LOT more people will wade in now who were skeptical about it before or didn't see it as legitimate enough last time around.

[hatshepsut93]

One of my hypotheses (which doesn't really fit with my S-curve theory) is that these periodic exponential growth cycles have been, and will continue to, slow down. If the rate above keeps up, the next cycle will take closer to 6 years to complete, rather than 4.

If there are indeed such cycles, and if they are tied to halvenings, then it's easy to conclude that their magnitude will be decreasing, because each halvening is less important than the previous one. And increased volumes and the decrease of the novelty factor will play some role too. I don't see any reasons why these cycles should be maintained at their full strength, though I wouldn't say that it's outside of the realm of possibility that they would.

[DustyRah]

The cycle will come when the government throws some regulations at it. We can expect some of that next year. Besides that its going to a whole pack of EVERYONE trying to get a piece of Bitcoin's a$$.

Also, there is a risk of the economy crashing and that will have an impact on Bitcoin (negative or positive unknown).

The halvings and other known issues will not cause a cycle since the market is far more mature now and will already price that in in a stable manner.

[thecodebear]

The cycle will come when the government throws some regulations at it. We can expect some of that next year. Besides that its going to a whole pack of EVERYONE trying to get a piece of Bitcoin's a$$.

Also, there is a risk of the economy crashing and that will have an impact on Bitcoin (negative or positive unknown).

The halvings and other known issues will not cause a cycle since the market is far more mature now and will already price that in in a stable manner.

Economy is not likely to crash. Stock market might crash because its very over valued, but with vaccine getting out next year, sane leadership in America starting Jan 20, and the gradual renormalizing of life, people will be heading back to work and the economy will start to improve slowly.

And government regulations aren't going to do anything to the market cycle. The halvings have always caused the cycle, though now we might be in for a mega cycle in the years to come rather than the standard 4 year cycle which would be coming to a close in a year.

[virasog]

The cycle will come when the government throws some regulations at it. We can expect some of that next year. Besides that its going to a whole pack of EVERYONE trying to get a piece of Bitcoin's a$$.

Also, there is a risk of the economy crashing and that will have an impact on Bitcoin (negative or positive unknown).

The halvings and other known issues will not cause a cycle since the market is far more mature now and will already price that in in a stable manner.

Economy is not likely to crash. Stock market might crash because its very over valued, but with vaccine getting out next year, sane leadership in America starting Jan 20, and the gradual renormalizing of life, people will be heading back to work and the economy will start to improve slowly.

And government regulations aren't going to do anything to the market cycle. The halvings have always caused the cycle, though now we might be in for a mega cycle in the years to come rather than the standard 4 year cycle which would be coming to a close in a year.

I think there will be no more cycles in bitcoin market from now onwards. Just someone was telling that these cycles things and trading indicators like RSI do not works on assets which are non inflationary. The assets like bitcoin which is fixed in quantity will keep on moving parabolically and exponentially if massively adopted.

[thecodebear]

Actually today I read an article by someone named Dan Held (looking him up he's apparently an early bitcoin adopter and an executive at Kraken) who is saying exactly what I'm saying here in this thread. That Bitcoin is now entering a super cycle, as he calls it.

So instead of the typical 4 year cycle coming to a close in a year, Bitcoin is now entering a super cycle that will create a bull run that lasts for multiple years, instead of a peak in a year followed by an 80% crash and a 3 year wait for the price to come back up before the next leg up. The end of this 4-year cycle will morph into a larger super cycle thanks to acceptance from institutional investors. This super cycle is a new phase for bitcoin investment - moving from a retail investor driven market to one driven by institutional investors with enormously more money to throw around. It's the type of thing where we are gonna see maybe a half decade of growth with no substantial bear market in bitcoin as institutions work their way into the market. This super cycle will take Bitcoin from $20k to $1 million (or something like that) in that time frame.


Here's the article. This guy is thinking exactly what I have been thinking recently:

https://dailyhodl.com/2020/07/08/bitcoin-super-cycle-could-bring-btc-to-1000000-in-four-to-five-years-heres-how-according-to-dan-held/