BITCOIN SUPERCYCLE

Bitcoin Supercyle Theory 

The Bitcoin Supercycle is a hypothesis that suggests that Bitcoin is on the verge of entering a new phase. This phase is characterised by mass adoption and appreciation, propelled by technical, economic, and social factors.

In simpler terms, bitcoin is expected to become more widely used and valued, thanks to technological advancements, economic changes, and societal attitudes towards cryptocurrency.

The Bitcoin Supercycle theory predicts that Bitcoin will break out of its historical boom-and-bust cycles and reach unprecedented value and stability.

The term Supercycle was coined by Dan Held, a Bitcoin educator and marketing adviser, who argued that Bitcoin could eventually see a Bitcoin Supercycle due to a combination of factors and assumptions.

Factors And Assumptions

Network effect
Bitcoin is a network of users who transact and store value using this form of cryptocurrency. According to Metcalfe’s law, the value of Bitcoin is a function of the number of users or participants in the network.

As more people use Bitcoin as a digital currency and a store of value, they create positive feedback loops that attract more users and increase the network size and strength.

Institutional adoption
Bitcoin is also attracting more adoption and investment from institutional investors, such as corporations, hedge funds, banks, and governments. These entities have large amounts of capital and influence and can provide more support and stability for the Bitcoin market.

Institutional adoption can also increase the awareness and acceptance of Bitcoin among the mainstream public, as well as the regulatory and legal clarity and protection for Bitcoin users and businesses.

Supply shock
Bitcoin is programmed to have a halving cycle roughly every four years, which cuts the supply of new coins awarded to miners in half. The halving sends a supply shock to the market, as the demand for bitcoin exceeds the supply, creating upward pressure on the price.

The next halving is predicted to occur in April 2024.

These are some of the main factors that support the Bitcoin Supercycle theory, but they are not the only ones. Bitcoin also has other advantages, such as transparency, innovation, and resilience, contributing to its value proposition.

• Network Effects And The Bitcoin Supercycle
• Metcalfe’s Law And Bitcoin
• Bitcoin Supercycle Challenges 

Network Effects And The Bitcoin Supercycle

Network effects are the phenomenon where the value or utility of a good or service increases with the number of its users or participants. The network effects can affect the volatility of bitcoin, which is the degree of variation in its price over time, in various ways, such as:

Adoption and demand for bitcoin
When more people use Bitcoin as a digital currency and a store of value, they create positive feedback loops that attract more users and increase the network size and strength.

This can increase the demand and liquidity of Bitcoin, as well as its utility and legitimacy. This can boost its price and reduce its volatility.

Competition and innovation for bitcoin
When more people use Bitcoin as a digital currency and a store of value, they also create incentives and opportunities for other cryptocurrencies and platforms to compete and innovate in the market.

This can increase the supply and diversity of Bitcoin alternatives and their utility and legitimacy. This can challenge or complement Bitcoin’s position and influence its price and volatility.

Shocks and sentiments for bitcoin
When more people use Bitcoin as a digital currency and a store of value, they also create more exposure and sensitivity to the shocks and sentiments that affect the market.

This can increase the volatility and unpredictability of bitcoin and its correlation and contagion with other assets and events. This can trigger or exacerbate price movements.

Metcalfe’s Law And Bitcoin

Metcalfe’s law is a principle that states that the value of a network is proportional to the square of the number of its users. As more people join and use a network, its value increases exponentially. This increase creates what are known as positive feedback loops and network effects; a phenomenon where the value or utility a user derives from a service or good depends on the number of users of compatible products.

Metcalfe’s law emphasises network effects and can be applied to various networks. These include social media, telecommunications, and cryptocurrencies like Bitcoin.

Bitcoin can be seen as a network of users who transact and store value using this form of cryptocurrency. Therefore, Metcalfe’s law can be used to explain how Bitcoin is influenced by the size and growth of its network.

According to Metcalfe’s law, the value of Bitcoin is a function of the number of users or participants in the network.

Various indicators can measure this. These include the number of wallets, active addresses, unique addresses, and transaction activity.

Metcalfe’s law also implies that the value of Bitcoin is dependent on the network effects and feedback loops that the users and participants in the network create.

This means that the value of Bitcoin can be influenced by competition, innovation, regulation, media, and sentiment, that affect the network size and strength.

Insight Not Predictor

Metcalfe’s law and network effects can be used to model and understand the value and volatility of bitcoin and its potential and challenges.

However, Metcalfe’s law is not a perfect or precise predictor of bitcoin’s price. It is based on assumptions and simplifications that may not capture the full complexity and diversity of the bitcoin network and market.

Moreover, Metcalfe’s law is not the only factor that affects the value and volatility of bitcoin. Other factors, such as supply and demand, technology, and external events, influence the price and performance of bitcoin.

While Metcalfe’s law offers a useful framework for understanding the relationship between network size and value, it is not a definitive or deterministic factor in predicting Bitcoin’s value. It is rather a descriptive and explanatory one that may offer insights and implications for the users and investors of bitcoin.

Therefore, while it can provide valuable insights, it should not be the sole basis for investment decisions.

Network effects can vary and change over time and across different regions and segments, creating more complexity and diversity for the bitcoin network. Therefore, network effects are not a simple or linear factor but rather a dynamic and evolving one that may affect the volatility of Bitcoin in different ways and degrees.

Bitcoin Supercycle Challenges

The Supercycle hypothesis is not universally accepted, and some challenges and limitations could prevent it from happening. Some of these challenges are:

Regulation
Bitcoin faces regulatory uncertainty and hostility in many countries, where it’s legal status and tax treatment are unclear or unfavourable. Some governments may ban or restrict the use of Bitcoin or impose strict rules and regulations that could hamper its growth and innovation.

Competition
Bitcoin has competition from other cryptocurrencies, such as Ethereum, Cardano, and Solana, that offer more functionality, scalability, and innovation than Bitcoin. Some cryptocurrencies may challenge or surpass Bitcoin regarding adoption, value, and market share.

Education
Education plays a crucial role in the adoption of Bitcoin. A certain level of technical knowledge and understanding is required to use Bitcoin safely and securely. Many still need to know what Bitcoin is, how it works, and why it matters. There is a need for more education and awareness to increase the adoption and usage of Bitcoin.

In conclusion, despite facing challenges and limitations, the Bitcoin Supercycle holds a bold and optimistic future vision. It paints a picture where Bitcoin overcomes these hurdles and becomes the dominant and universal form of money. This vision is not a certainty, but a possibility that depends on how the market and the world will evolve in the coming years, offering a sense of optimism for those invested in its potential.