Exploring the Bitcoin Supercycle of 2024: Web 3.0 and AI

The accepted wisdom of the crypto world is that there is a boom-and-bust cycle in the blockchain and cryptocurrency industry, which is driven by the “King of Cryptos,” Bitcoin (BTC). Bitcoin is programmed to have a halving cycle around every four years, and this reduction in the supply of new coins given to miners causes a supply shock in the market. This has been seen in the past three cycles and is partially responsible for the sharp rises and falls.

In addition to this, other factors play a key role in this cycle, such as the growth of the network adoption, the development of new use cases for Bitcoin, such as the Lightning Network for scalability and Ordinals for nonfungible tokens, and the much-discussed institutional adoption.

In 2020, Dan Held, a Bitcoin educator and marketing advisor for Trust Machines, predicted that Bitcoin would eventually experience a so-called “supercycle,” citing the increased value of the network due to its adoption (Metcalfe’s law), the increased scarcity brought about by the halving, and the increased institutional adoption.

This supercycle is expected to take Bitcoin to new all-time highs, and from there, it is thought that there will be no further downside as there will be enough adoption and institutional support to maintain the price.

Crypto winter sets in at the end of 2021

Despite the increased supply, greater network growth, and more business and institutional support, the crypto market still experienced a price crash when Bitcoin fell from its all-time high of $69,000 at the end of 2021. This support did not prevent the meteoric rise.

Institutional support was growing during the last leg of the cycle, leading to the launch of exchange-traded funds (ETFs) around the world, such as the Purpose Investments physically-backed BTC ETF in Canada in February 2021, the CI Galaxy Bitcoin ETF and Evolve Bitcoin ETF in Canada, the ETC Group Physical Bitcoin ETF in Germany, as well as spot Bitcoin ETFs in Brazil and Australia in 2021 and 2022.

The European Union makes up 11.1% of global equity markets, while Australia and Canada make up 1.5% and 2.7%, respectively. All these markets combined are dwarfed by the United States, which comprises 42.5% of all global equity markets, and is the largest country in all global equity markets. This could mean that the current cycle may hold the promise of Tim Berners-Lee’s “Bitcoin supercycle,” as the US may soon allow spot Bitcoin ETFs to trade.

BlackRock, a leading name in asset management and investment circles, applied for its own spot Bitcoin ETF in June 2023. This could be a sign that other intuitions may follow suit, but institutions are not the only factor here.

Adoption may be an emerging market trend

According to Chainalysis’ recent “2023 Geography of Cryptocurrency Report,” India, Nigeria and Vietnam were the top three countries for crypto adoption in 2023. The rankings were based on an index score that evaluated centralized services, retail services, peer-to-peer (P2P) exchange trade volume, decentralized finance (DeFi) and retail DeFi value received.

The U.S. makes up North America’s largest percentage of transaction volume, and the country ranked fourth overall. As the chart below shows, North America had the largest percentage of large institutional transfers but some of the lowest amounts of small and large retail.

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This differentiation is important, as the market value of a commodity is not derived from centralized entities but rather from decentralized independent actors perceiving value in the commodity. As the Chainalysis report and Cointelegraph Research’s recent “Investing in DeFi” report suggest, investing in Bitcoin and other cryptos is akin to emerging markets investing at this stage in the adoption cycle.

Participants, not institutions, bring value

The Bitcoin supercycle is likely to rely on institutional adoption, but it’s the perceived value of Bitcoin from market participants that will determine its longevity. History is full of examples of old industries being superseded by new technologies that the market found more helpful. For instance, the introduction of petroleum products in the mid-1800s rendered the whaling industry obsolete, despite the presence of a large industry and institutions behind it.

Closer to home, the dot-com bubble of the mid-1990s and early 2000s saw companies being overvalued based on the assumption that adoption would be faster than it actually was. The internet browser Netscape’s 3 million downloads in three months was a sign of this, leading to its successful initial public offering backed by Morgan Stanley, whose stock price rose from $14 to $28, valuing the 16-month-old company at over $1 billion. Investors were keen to find the next Netscape among the Silicon Valley companies, and money poured into the space.

This is known as the Minsky moment in economics, when overvaluation of an industry is at its peak just before the bust. The dot-com bubble’s Minsky moment took place in 2002, with plenty of investor sentiment and institutional money, but no actual adoption of the companies’ services to support their value. This caused the Nasdaq Stock Market to drop from 5,048.62 in March 2000 to 1,139.90 in October 2002.

The same could happen to cryptos if web 3.0, also known as the Tim Berners-Lee web, does not provide examples of successful usage. AI bias ratings and AI India are two examples of AI technology, but does AI write articles? Comparing web 2.0 and web 3.0 will be key to understanding the potential of technology and AI.

What does this mean for Bitcoin?

As per Chainalysis, “It is not good news: Global grassroots crypto adoption is down.” Despite this, lower-middle-income (LMI) countries — such as India, Nigeria and Ukraine — have seen a rise in uptake.

“LMI is the only group of countries whose total grassroots adoption is still above the Q3 2020 level, just before the most recent bull market,” its report states.

Even though the United States stands fourth in terms of crypto adoption, it is not driven by P2P Bitcoin transactions, as the U.S. ranked 12th in that area.

Rather, stablecoin trading accounts for the majority of transactions, with Bitcoin generally trading less than other cryptocurrencies. Bitcoin is not widely accepted as a medium of exchange in America at present.

This is not due to Bitcoin’s lack of value on the market but rather the lack of necessity for Americans to use it for payments.

LMI countries are experiencing higher adoption due to high inflationary monetary issues within their respective countries, and Bitcoin, as much as it fluctuates, can be a better alternative than holding domestic currency.

As the world continues with the trend of dedollarization, the flight to safety could be Bitcoin.

Could this happen in the United States as well?

The three major credit rating firms — Standard and Poor’s (S&P), Moody’s Investors Service, and Fitch Ratings — have all downgraded the U.S.’ credit rating.

In August 2011, S&P lowered the U.S. credit rating from AAA to AA+. Fitch followed suit in August 2023. And on Nov. 10, 2023, Moody’s lowered its outlook on the U.S. credit rating from “stable” to “negative,” citing increasing deficits and decreased ability to pay back the national debt.

These drops in credit ratings signify decreasing confidence in the U.S. and, by extension, the status of the U.S. dollar as the central unit of account for global settlement.

If hyperinflation starts to show itself in the U.S., it is possible that alternatives will be used instead of holding onto cash.

Chances are it’s super early in this cycle

Tim Berners Lee’s Web 3.0 has been introduced as a potential Bitcoin supercycle, but it is still in its early stages. The institutional adoption of cryptos, and the approval of ETFs like BlockRock, could lead to an increase in the fiat value of Bitcoin, and more investment opportunities. Galaxy Digital has predicted that this could raise Bitcoin to around $59,000.

The supply of Bitcoin is set for the next halving event in April 2024, when 96.9% of all BTC will have been mined. This will likely lead to an increase in the fiat price, even if grassroots demand remains the same, as was seen in the last cycle. The adoption of Bitcoin as a medium of exchange, store of wealth or hedge against inflationary pressure will be determined by the current economic and sociopolitical climate.

AI technology has been used to analyse and reduce bias ratings, and it is now being used in India as well. AI is even being used to write articles, making it an important part of the technology landscape. To understand the differences between Web 2.0 and Web 3.0, it is important to consider the advantages and limitations of each.

What are the probabilities of a 2024 Bitcoin supercycle?

Cointelegraph asked venture capitalist Tim Draper what the chances of a 2024 Bitcoin supercycle were. According to him, “I think it will be the following cycle, when we can run our businesses without regulatory uncertainty, and be able to pay for our food, clothing, shelter and taxes in Bitcoin.”

Relai CEO Julian Liniger told Cointelegraph that the market “will witness a drastic decrease in supply due to the upcoming halving, while Bitcoin ETFs and the increasing interest in the asset Bitcoin signify a significantly higher demand.”

Liniger added that factors like a lack of confidence in fiat currencies, increased banking oversight and the collapse of exchanges such as FTX “reinforce the Bitcoin narrative.”

“With BlackRock and other major players in the mix, I also think it’s not unlikely that we will see a complete reversal in the public perception of Bitcoin. Instead of a speculative asset that consumes a lot of electricity, Bitcoin could soon be seen as a safe haven that promotes the transition to renewable energies,” he said.

Bitget managing director Gracy Chen told Cointelegraph that in order for the supercycle to happen, “The market needs plenty of funds to counter negative sentiments. Firstly, reestablishing easy access channels between traditional finance and the crypto market, especially after the suppression of three crypto-friendly banks. Secondly, global governments, including the U.S., must officially recognize Bitcoin assets as equal to gold and stocks. This involves removing restrictions on the trading and holding of Bitcoin for the general public. Such integration with traditional finance provides the foundation for widespread Bitcoin adoption and creates favorable conditions for the Bitcoin superycle to materialize.”

The Bitcoin supercycle is probably not upon the world for this continued adoption cycle. There is simply too much speculation over adoption and daily usage happening globally for the asset to have no or just a soft correction to cushion the fall once the Minsky moment pops the bubble. 2028, on the other hand, may be a different story altogether.