Is the BTC Rally Losing Steam? Evaluating Recession Risk and Unpacking Ripple's CBDCs
Understanding Crypto Market Cyclical Trends
By @HooiTerrence
Chief Investment Strategist
The below is the opinion of the authors. Any conclusions are their own. This should not be considered as investment advice. Investing involves the risk of loss and returns are not guaranteed.
1. ⛓️ Bitcoin Transactions: Ordinals Dominate Amid Volume Decline 📊
A heated discussion emerged last week following the release of a report that revealed a significant decline in sales volumes for Bitcoin Ordinals, dropping by 97% between May and August.
DappRadar's report indicated a decrease in interest across the broader NFT space, with trading volume for distinct active wallets on both Ethereum and Polygon experiencing reductions of 22% and 60% respectively.
The decline in Ordinals was notably more pronounced, though. Ordinals are Bitcoin's equivalent of non-fungible tokens (NFTs), representing digital items attached to individual satoshis, the smallest unit of Bitcoin (BTC).
According to DappRadar, the number of distinct active wallets for Ordinals also plunged from its peak of 85,316 in June to a mere 6,708 as of August 14, marking an astounding 92% decrease.
2. 💱 Ripple Unveils 8 Nations Building CBDCs on XRP Ledger
In May 2023, Ripple (XRP) introduced a revolutionary venture in digital finance - a Central Bank Digital Currency (CBDC) platform. This initiative equips central banks, governments, and financial institutions with the means to supervise the issuance, distribution, and management of their digital currencies.
Built upon Ripple's advanced technology and an extension of their prior Private Ledger project, this platform utilizes the capabilities of the XRP Ledger (XRPL), paving the way for an era of highly adaptable and efficient CBDCs. Noteworthy nations exploring this platform include Russia, the Republic of Palau, Montenegro, Japan, the United Arab Emirates (UAE), Uruguay, New Zealand, and Hong Kong. There's a possibility that over 15% of all countries could adopt XRPL as their CBDC framework.
James Wallis, Vice President of Central Bank Engagements and CBDCs at Ripple, recently disclosed that the company is in conversations with more than 30 countries regarding the potential adoption of their XRPL-powered CBDC platform. Wallis revealed that while Ripple had publicly declared partnerships with five central banks, an additional five partnerships remained undisclosed. Additionally, Ripple was in discussions with 20 more countries, offering them their private or public XRP ledger as a basis for developing CBDCs.
Singular’s Take: Considering the global count of 195 countries, this indicates that upwards of 15% of the world's nations are contemplating the utilization of Ripple's technology for constructing their CBDCs.
3. Is BTC Rally Over?
The cryptocurrency market operates in distinct cycles that exhibit a high degree of consistency. These cycles are not merely coincidental; they are actually predictable. If our understanding is accurate, this predictability carries significant implications for the future of the crypto market. Let's take a look at some illustrative charts below. 👇
Utilizing Bitcoin ($BTC) as a benchmark, a typical cycle tends to unfold as follows:
1. Bitcoin reaches a new All-Time High (ATH).
2. Experiences an approximate 80% decline from the peak, hitting a bottom about a year later.
3. Takes approximately 2 years to regain its previous high.
4. Undergoes a price rally for another year, ultimately culminating in a new All-Time High.
It's worth noting that recent cycles have adhered closely to this pattern, displaying a consistent blueprint in their progression.
Each of these cycles tends to have a duration of roughly four years. However, the regularity and duration of these cycles are not arbitrary; they are notably linked to cyclical shifts within the business cycle. In fact, each of these cryptocurrency cycles has closely aligned with the timing of cyclical changes in the broader business landscape.
Indeed, the Year-over-Year percentage change in Bitcoin's performance typically exhibits indications of a reversal that coincides with the troughs in the Year-over-Year changes of the ISM (Institute for Supply Management) index. Presently, this relationship appears to be unfolding as anticipated, as evidenced by the data.
To begin, let's examine the recent trading patterns in the market. The S&P 500 (SPX) has been closely mirroring its price movements observed between 2015 and 2017. This resemblance extends even to the timing of its double bottom, exhibiting a remarkable similarity.
Once again, we encounter significant similarities in this scenario. Gold (GL) reached its peak in 2014, followed by a contraction during 2015-2016, and subsequently continued its upward trajectory. Similarly, in 2021, GL hit its peak, experienced a contraction in 2022, and reached its lowest point in the fourth quarter of that year.
Notably, this bottoming-out in late 2022 was concurrent with the bottoming of high-risk assets such as stocks and cryptocurrencies.
Singular’s Take: The prevailing factors of higher interest rates, persistent inflation, and concerns about economic recession have collectively led to a prevailing sense of indifference towards high-risk assets throughout the current year. However, it's important to recognize that financial markets inherently anticipate future developments. As we entered this year, equity markets were already factoring in a substantial deceleration, and in some cases, even the possibility of a complete economic downturn.
Singular’ Insights: All of this has profound implications for the cryptocurrency space. This is because the cycles observed in the crypto market are intricately linked to broader macro cycles, such as the cyclical shifts within the business cycle that we discussed earlier. And to add to the intrigue, there's a final piece of the puzzle that holds particular significance for those who are enthusiastic about cryptocurrencies.
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