most people believe that the crypto Market is really um complex but when you break it down into its two core components it's actually very simple in fact you could argue that the crypto Market is even easier to understand than traditional markets where stocks in technology and finance have long dominated now crypto is a combination of technology and finance and many believe it's the future of Finance it's the future so given this possibility it's important to understand how the crypto Market works well we've been in this game for a while now and in this video we're
going to tell you exactly what's going on under the hood my name is Guy stay tuned let's start with the first core component of the crypto Market the 4year cycle historically the crypto Market has followed a predictable 4-year cycle for 2 to three years of the cycle crypto is in a bare Market meaning that prices tend to go down during this period for 1 to two years of the cycle crypto is in a bull market meaning that prices tend to go up during this period but what causes this price action well the answer is Bitcoin
every four years the supply of newly issued BTC coins is cut in half in an event known as the Haring when the supply of something decreases but the demand stays the same or goes up then the price will rise so assuming demand stays the same btc's price should double every four years however the demand for BTC has been steadily Rising due to a series of factors particularly its similarity and superiority to Gold the result is that btc's price has gone up by a lot over the years by some measures Bitcoin is the best performing asset
of all time with BTC Rising by a factor of over 1 million x since its launch in 2009 historically speaking BTC will hit a new all-time high roughly one year after the Bitcoin harving for context the previous Bitcoin harving was in 2024 and the next Bitcoin harving is in 2028 last year was the first time that BTC surpassed its all-time high prior to the Haring and we'll explain why a little bit later and by the way if you're enjoying the video so far then be sure to smash that like button and subscribe to the channel
and ping that notification Bell so you don't miss the next one now BTC surpassing its previous all-time high has historically signaled the beginning of the crypto bull market phase of the cycle which you'll recall lasts between 1 and 2 years because Bitcoin is the largest cryptocurrency by market cap BTC leads and all the other cryptocurrencies eventually follow these other cryptocurrencies known as altcoins eventually follow BTC because Bitcoin Wales that is entities which hold lots of BTC eventually rotate some of their BTC into altcoins in search of larger returns this rotation is done by either selling
BTC to buy altcoins or using BTC as collateral to borrow money which is then used to buy altcoins these days borrowing against BTC is the primary method now whereas btc's tend to see most of its gains in the early stages of the crypto bull market altcoins tend to Rally the most during the final stages of the crypto bull market this is because new investors only start paying attention to BTC when it's hitting new highs and only start paying attention to altcoins when Bitcoin whales start rotating into altcoins causing altcoins to pump and creating greed among
investors when new investors get greedy enough that they start looking to buy most will look at the top cryptocurrencies by market cap and feel intimidated by the large price tags of BTC and other altcoins this gives them the impression that they can't afford to buy BTC or these other large altcoins this impression comes from the fact that other assets like stocks require you to buy an entire share there is actually an economic term for this unit bias now the consequence of this is that new investors will invest most of their money into altcoins with smaller
price tags particularly because these smaller price tags give them the impression that they'll be rich if the crypto gets a price tag as big as btc's this is part of why altcoins like xrp and Ada are popular but it's not just the price that new investors look for in an altcoin though new investors will also look for strong narratives which is another reason why altcoins like xrp and Ada are popular xrp's narrative is that it works closely with banks whereas cardano's narrative is that it's based on academic research as with all narratives these tend to
follow the positive price action which you'll recall is initially triggered by bitco coin whales rotating some of their BTC gains into altcoins like xrp and cardano's Ada the positive price action gets investors interested they invest primarily in the altcoins with smaller price tags and the strong narratives of these altcoins justify the price action causing their prices to go even higher the outcome is that new investors start focusing on the altcoins themselves and the events that are related to these altcoins become the primary drivers of their speculative price action rather the Wales news of a technical
upgrade or an Institutional partnership causes their prices to explode higher and news of a technical issue or the revelation of a fake partnership causes their prices to collapse lower the extreme emotions of fear and greed experienced by new crypto investors quickly attracts crypto Traders that's because technical price analysis fundamentally measures emotional patterns related to fear and greed the more extreme the emotions the more effective that technical analysis becomes this phenomenon makes crypto Traders overconfident and it tempts them into trading with leverage that is with borrowed money this creates a dynamic where every small dip in
crypto prices turns into a massive crash as all the crypto traders who were betting that prices would go up are forced to sell their positions this causes prices to go lower and panic selling by new investors pushes prices even lower than that the result is a massive crash where prices go much lower than new investors crypto Traders and even Bitcoin Wales were expecting this is because the cause of the crash isn't just Panic selling from new investors who are fearful it's also automated selling caused by the overconfident crypto traders who went long termed liquidation the
catch is that during crypto bull markets this crash is usually shortlived this is because many new and existing investors will take advantage of the crash to buy the dip which slowly pushes price back up these investors tend to be the ones who believe in The Narrative of the crypto in question the most after a few weeks or even days crypto starts to recover due to a combination of new investors who believe in the narrative buying the dip overconfident Traders wrongly betting with leverage that prices will continue to go down which forces them to buy when
they go up and Bitcoin whales wanting to see if they can repeat the process by pumping up prices this takes the crypto markets even higher hey everyone sorry to interrupt the video but I just want to very quickly tell you about the coin Bureau deals page this is the place where we put together all the amazing deals and promos that we're able to offer you guys exclusively as viewers of this channel head on over and you will find such things as discounts on Hardware wallets some seriously impressive trading fee discounts on some of the best
exchanges as well as some frankly mindboggling signup bonuses for some of those exchang changes too the link is down below check it out when you have a moment thank me later and now back to the video now thanks to the depreciation of fat currencies like the US dollar over the course of the cycle BTC and altcoins will go much higher than investors expect as the Crypt bull market progresses it's estimated that the money supply grew by 30 to 40% during the pandemic this explains why BTC hit a new all-time high in early 2024 it's price
had technically not hit a new all-time high when adjusted for inflation it also means that the cycle tops being forecast for BTC and altcoins by most crypto analysts are likely off by a factor of 30 to 40% as most do not factor in this inflation in other videos we've noted that btc's cycle top should be roughly $140,000 based on the diminishing returns it's experienced over each successive cycle but that on an inflation adjusted basis btc's cycle top could be higher closer to $200,000 BTC and most altcoins tend to hit their cycle tops because of some
bullish Catalyst that triggers an extreme fear of missing out or fomo for BTC this could be the creation of a strategic Bitcoin Reserve in the USA or elsewhere for altcoins this could be a partnership with a major bank or payment processor like PayPal now this Catalyst should be fairly easy to spot as it'll make you feel like crypto will just keep going up forever as the prices of cryptos exceed expectations feelings of greed among new investors crypto Traders and Bitcoin Wales do as well these Market participants will take on some form of Leverage to buy
more crypto than they can afford this can be in the form of bank loans credit card debt or BTC collateral eventually however this leverage becomes so big that it becomes difficult for these Market participants to replicate the prior recoveries when prices crash new investors have borrowed as much as they can from the bank and can't afford to buy the dip overconfident crypto Traders have maxed out their credit cards and can't bet on prices going down Bitcoin Wales can't take any more loans against their BTC collateral what starts off as another sharp correction in a bull
market turns into the beginning of the crypto bare Market as the process starts going in reverse after realizing that another recovery is no longer possible Bitcoin whales who can't take any more loans against their BTC collateral start selling gradually more altcoins to pay back their BTC loans before their BTC gets sold some are too late and their BTC gets sold for them this causes the price of BTC to crash which puts even more pressure on bitcoin Wales to sell altcoins to pay back their BTC loans this causes the prices of altcoins to fall very fast
the few overconfident traders that are left use their remaining funds to bet that prices will go up thinking that they'll bottom around the levels that they'd identified using technical analysis but technical analysis doesn't work anymore that's because the dip isn't being driven by emotion anymore it's being driven by force selling from Market participants who borrowed too much money to invest and need to sell any and every crypto they can at whatever price the market will buy it from them to ensure that they don't end up in massive debt as prices start falling much more than
overconfident Traders expected the last of their Longs are liquidated taking altcoin prices even lower by this point most new and existing crypto investors have spent the last of their money buying every successive dip only to see prices continue to fall lower after a few weeks or even a few months new and existing crypto investors either capitulate and sell or forget about the crypto they bought because it's worth so little that it's not worth selling but if you look at past crypto bare markets you'll notice there's typically one big bare Market rally before the lows now
this bare Market rally is due to the actions of the three Market participants we've identified Bitcoin Wales who buy altcoins to tempt any new and existing investors that are left into spending the last bit of cash in between their sofa cushions on altcoins in the hopes that the crypto bull market will come back now this buying by Bitcoin Wales and new and existing investors causes prices to pump which squeezes all the traders who went short at the local lows forcing them to buy sending prices higher the result is a rally that feels almost like the
beginning of a new crypto bull market but the rally is short-lived Market participants understand that it won't be sustained and the resulting sell-off sets the stage for the lows historically the Crypt be Market low has been marked by a catalyst that makes all Market participants wonder whether crypto was all a huge mistake this Catalyst often involves some very large entity that took on twoo much debt and is eventually forced to sell everything to pay down these debts the Catalyst in 2022 was the fall of the FTX exchange which was not only fraudulent but highly leveraged
as well the time between the Catalyst that marks the crypto cycle lows and the Bitcoin harving has historically been the best time to accumulate BTC and altcoins that's because btc's price is too low for Bitcoin Wales to use it to borrow a lot of money to pump altcoins overconfident crypto Traders have moved on to trading other assets and new and existing investors have gone back to focusing on non- crypto things the catch is that during this period of the bare Market it's common for there to be sudden rallies that are shortlived these are usually due
to small rallies turning into big rallies because of the few traders who are still betting that cryptos will go down they never evolve into a recovery rally due to the absence of rotational flows from Bitcoin Wales and the absence of any new or existing investors to buy back in eventually the Bitcoin harving comes along putting BTC back in the spotlight the combination of a slightly restricted new Supply and slight increase in investor interest causes btc's price to begin to rise and the crypto Market slowly begins to awaken from its Slumbers the caveat is that this
is only one component of how the crypto Market works the crypto component there's a second macro component involved as well now as we noted at the start of this video crypto is a combination of technology and finance this is significant because the only two sectors that have significantly outperformed inflation in recent decades have been technology and finance given this fact crypto is technically the ideal inflation hedge in this cont text inflation refers to a rise in prices caused by an increase in the money supply which is the demand side of every economic equation the more
money that's created the less valuable it becomes relative to everything else and the assets that have the least Supply growth experience the largest gains this is why prices of assets like housing gold and even BTC have gone up so much in recent years their supply is restricted relative to Fiat currencies the these assets didn't become more valuable the currencies they're measured against became less valuable because of the massive increase in currency Supply now earlier we noted that btc's inflation adjusted price is likely lower than meets the eye because of the 30 to 40% inflation that
occurred during the pandemic this effect didn't happen overnight it took many months and years for it to feed through into the price of BTC and other assets with scarce supplies now whereas crypto analysts simply refer to this as money printing macro analysts refer to it as an increase in liquidity which can be simply understood as the amount of money in the markets and the economy when Global money supply I.E Global liquidity Rises so does the price of assets like cryptocurrencies research by liquidity experts like Michael how suggests that Global liquidity follows a cycle of expansion
and contraction just like the crypto Market what's fascinating is that the global liquidity cycle follows a similar timeline to the Bitcoin harving cycle this has led some macro analysts to theorize that the primary driver of the crypto Market cycle is not its own 4-year cycle but the 4-year Global liquidity cycle evidence for this Theory lies in the fact that the bottom of the global liquidity cycle has historically corresponded very closely to the bottom of the crypto Market cycle evidence against this Theory lies in the fact that the top of the global liquidity cycle has historically
not corresponded very closely to the top of the crypto Market cycle but this can be explained by the crypto components we discussed earlier on the flip side the immediate impacts that liquidity declines have on crypto can be explained by crypto's position relative to other assets at the macro level BTC is like gold due to its monetary properties but most investors still see Bitcoin and other cryptocurrencies as high-risk assets this is because they new relative to the Alternatives gold has been around for Millennia the result is that most investors will only allocate a small percentage of
their portfolios to BTC and other cryptos this is especially true of large investors who are just looking for ways to protect their massive money piles against inflation with minimal volatility and risk in other words BTC and other cryptos are too volatile and risky for the largest pools of capital to allocate to in size for the time being this creates an interesting dynamic as it relates to Global liquidity when new money is created be it by a central bank government or otherwise this money starts by flowing into the safest assets such as government bonds if macro
conditions are good meaning there's no political or geopolitical uncertainty interest rates are low employment is high and so on then it will slowly flow into riskier assets like stocks eventually this Capital flows into the highest risk assets including BTC and other crypto in Practical terms this means that there's a delay between the time that new liquidity is created and the time that it takes for this newly created money to make its way into the crypto market research by liquidity experts suggests that it can take as long as two months for new liquidity to make its
way into the crypto Market but suppose there's a change in macro conditions because of say political instability or geopolitical conflict if this happens investors will know that a liquidity drain is coming and move to protect their portfolios most investors will sell their riskiest and best performing assets out of caution and duty this means assets like BTC and altcoins which have been the best performers in recent years but also the riskiest this causes the prices of cryptos namely BTC to fall first and the most in response to bad macro conditions as BTC is the only crypto
that's held by the largest investor s this puts pressure on the Bitcoin whales who borrowed against their BTC to buy altcoins because the value of their BTC collateral falls mainly due to macro factors while the altcoins they bought mainly fall due to crypto components like Leverage trading in Practical terms then this means that it takes a long time for an increase in global liquidity to cause a rally in crypto prices but when there's a negative change in macro conditions decreases liquidity the crypto Market crashes as quickly as liquidity is drained this explains why the bottoms
of liquidity Cycles correspond to crypto Market bottoms and the liquidity lag explains why it's not the case for cycle tops there's just one problem though and that's that it's not easy to measure Global liquidity not only that but Global liquidity is not nearly as easy to model as bitcoin's 4-year cycle which is baked into its code by contrast Global liquidity is determined mainly by politicians and Central Bankers who are unpredictable the caveat is that many macro analysts believe that the liquidity cycle is ultimately driven by debt refinancing every four to 5 years large entities like
corporations and governments need to refinance their debts this refinancing causes liquidity to contract since money is destroyed when debts are repaid this contraction in liquidity causes asset prices to fall now consider that the crypto components we learned about earlier don't just apply to crypto but the entire Financial system whereas Bitcoin Wales use BTC as collateral to borrow and speculate on assets like altcoins financial institutions use assets like government bonds as collateral to borrow and speculate on assets like stocks so when asset prices fall because of liquidity contraction from debt refinancing this basically forces central banks
and governments to step in with more liquidity to ensure that asset prices don't fall too much that's because if the prices of assets like government bonds do fall too much then it's not just the crypto Market that's in trouble as the bond whales get liquidated it's the entire Financial system what this means is that the liquidity cycle is likely to continue repeating indefinitely in turn this means that the crypto Market cycle is likely to continue repeating indefinitely and it will be bigger and bigger each time not just because of the cryp components around things like
BTC but also because of the macro components that require liquidity levels to continue Rising for the financial system to keep operating macro analysts like Russell napia believe that Capital controls will eventually be implemented when the average person begins to understand that their money is going to continue losing value at an accelerated rate and start trying to buy assets like BTC to protect their purchasing power well it's a good thing that Bitcoin can't be controlled so here are the key takeaways to keep in mind the crypto Market follows a predictable 4-year cycle this is due to
a combination of the Bitcoin harving which happens every four years and the liquidity cycle which also happens roughly every four years when you combine these crypto and macro components it becomes easy to understand what's happening now and what's likely to come next if BTC has surpassed its previous all-time high and Global liquidity is rising then crypto is is in a bull market and this liquidity will eventually find its way into altcoins both via BTC and flows from traditional investors who eventually allocate some liquidity into crypto the crypto cycle top will occur when there's a bullish
Catalyst that makes everyone feel like crypto will only go up forever and Global liquidity is high if however altcoins are falling fast and liquidity is also falling then crypto is in a bare market and it will bottom once large crypto entities reveal that they're insult and Global liquidity bottoms too now perhaps these predictable Cycles will change someday but at the moment that is the way the world goes around if they do though we will of course be the first to let you know now if you enjoyed that then don't forget to check out our latest
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