Is the Crypto Bull Market About to Start?

There's a new narrative being advanced by some of the crypto sector's most important players right now, saying that the real crypto bull market hasn't even begun. In the aftermath of the crypto flash crash on Oct. 10, such messages are likely to reach a highly receptive audience of investors who are still desperate to recover some of their losses.

But is a crypto bull market really about to start with gusto, or is the narrative just compelling copy because it promises a euphoric phase of the market just ahead? And how do these predictions fit into crypto's widely held beliefs about the four-year nature of the market cycle, mediated by Bitcoin (CRYPTO: BTC) and its halving schedule?

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The chatter isn't about the price chart

Let's answer the second of the two aforementioned questions first.

In a nutshell, many crypto investors believe that the crypto market as a whole tends to follow a four-year market cycle based around Bitcoin. The date of Bitcoin's halving is typically considered to be the midpoint of the cycle, with investors assuming that a new market cycle begins two years before the halving, which, so the theory goes, is almost always a bear market year.

So the general pattern is that there's a year-long bear market, a year of strong recovery and growth leading up to the halving, another year of more strident growth, and then, in the final year, a period of parabolic growth and speculative excess that ultimately ends in a crash and a bear market to restart the cycle. By that logic -- which, by the way, is not something that's empirically proven -- the crypto market is currently in what should be its final months of a vigorous run skywards.

Now let's map this to what actually happened during the past few years.

Bitcoin bottomed near $15,500 during the collapse of the FTX crypto exchange in November 2022, and three years later, it trades near $102,000, a several-multiple gain from the trough, just as predicted by cycle theory. Ethereum (CRYPTO: ETH) fell to roughly $880 in mid-June 2022, and now sits near $3,450, again a large multiple off the low. Likewise, Solana (CRYPTO: SOL) cratered to about $8 in late 2022 and now trades at $153. Many other cryptocurrency majors show the exact same pattern.

There's no getting around the fact that this kind of growth is what roaring bull markets look like. So, the idea that we are still in pregame warmups for a bull run that's yet to come is a bit hard to believe.

Meanwhile, the crypto market structure is considerably different now than in the past. Spot Bitcoin, Ethereum, and now Solana exchange-traded funds (ETFs) are adding a continuous buying by retirement accounts and financial institutions, and even after periodic outflow streaks, the ETF complex posts sizable net inflow days that move the needle on the price of the underlying assets.

The path forward will still see some powerful tailwinds

So is the real crypto bull run about to begin?

Most investors in the stock market would be euphoric in response to the crypto market's recent performance, regardless of whether they would call it a bull market or anything else. The Bitcoin cycle theory, putting aside the issue of whether it's true, also suggests that there probably isn't a broad bull run on the way for at least a few quarters.

Nonetheless, the backdrop already has several durable drivers that could continue to buoy prices for years to come.

First, the persistent bids from financial institutions and asset managers offering ETFs changes who owns crypto and how they behave. Record weekly crypto ETF inflows in early October, led by U.S. ETFs, underline that institutional capital is still onboarding, and it could have a long way to go. The presence of these vehicles makes a timed, across-the-board exit phase after a parabolic run a far less plausible scenario than in prior cycles.

Second, real economic activity on chains is increasing. Solana's daily transaction counts and active users remain elevated, validating its low-fee, high-throughput design for consumer and decentralized finance (DeFi) use cases. And Ethereum's ecosystem retains much of the traction it accumulated in the 2021 bull market.

Assuming that ETFs continue to gather assets and on-chain usage expands, crypto's path of least resistance could be for prices to go higher. The trend will probably be punctuated by declines, or perhaps even bear markets, and there is always a chance that sentiment gets out of control relative to fundamentals.

So don't worry about whether crypto investors are right about Bitcoin market cycle theory, or whether it's the right moment to be participating in the market. Just stay focused on accumulating quality crypto assets and holding them with a five-year investing horizon, and it won't really matter if cycle theory is true or not, because you will end up buying and holding through more than one full cycle anyway.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.