This episode dissects the critical tension between crypto's historical four-year cycle and compelling on-chain and macroeconomic data suggesting this bull run could extend well into 2026.
Current Market Snapshot: ETH Leads, Bitcoin Consolidates
- The episode opens with an analysis of the current market state, where Ether (ETH) has recently hit a new all-time high after nearly four years, though it's facing resistance. In contrast, Bitcoin has been sluggish for the past three months and is trading down from its peak. Host Ryan Adams notes that altcoins, with the possible exception of Solana, have yet to catch a significant bid, suggesting capital is still concentrated in major assets.
- Michael Nato of The DeFi Report attributes last week's market exuberance, including a 15% single-day surge for ETH, to Federal Reserve Chair Jerome Powell's speech at Jackson Hole. The market, which had anticipated a hawkish tone, reacted positively to signals that were less aggressive than feared.
Macroeconomic Outlook: Global Liquidity and Equity Valuations
- Michael presents a chart showing that Bitcoin's price remains highly correlated with global liquidity, which continues to expand. This trend suggests a risk-on environment can persist, as liquidity shifts typically precede market reactions by six to eight weeks.
- Global Liquidity: The data indicates continued growth, with no major headwinds on the horizon. Michael notes, "I don't see anything in the global liquidity telling me that that's a concern."
- Equity Valuations: Contrary to the popular "AI is a bubble" narrative, Michael argues that equity valuations are not at extreme levels. He points to the Magnificent Seven's forward P/E (Price-to-Earnings) ratio—a metric used to value companies—which stands at 29, below its 2021 peak of 38. Valuations for mid-cap and small-cap companies appear even more compressed, suggesting potential for growth as AI-driven productivity gains are priced in. This contrarian view supports the idea of an extended market cycle.
The Banking Sector's "Dry Powder"
- Analysis of the banking sector reveals a unique dynamic that could fuel further economic expansion.
- Lending Standards: Data shows that a net percentage of banks are loosening their lending standards, a historical precursor to market rallies and increased liquidity.
- Lending Activity: Despite easier standards, the annual rate of change for commercial and industrial loans is only 5.6%, which is historically low. Michael interprets this as a sign that we may be earlier in the business cycle than commonly believed. This gap between willingness to lend and actual loan issuance represents significant "dry powder" that could be deployed into the economy, acting as a powerful liquidity stimulus.
Powell's Dovish Signal and Market Implications
- Jerome Powell's recent speech was pivotal, signaling a shift in the Federal Reserve's focus from solely fighting inflation to also addressing a weakening labor market.
- Rate Cut Expectations: The market is now pricing in an 86% probability of a 25-basis-point rate cut in September. Michael suggests a surprise 50-basis-point cut is possible if upcoming labor data is worse than expected, which would be a significant bullish catalyst.
- Inflation Target Shift: The market is also digesting the possibility that the Fed may be implicitly moving away from its 2% inflation target towards a 3% target. This policy would effectively mean inflating away debt, creating a highly favorable environment for non-yielding assets like Bitcoin and gold. As rates fall, the trillions of dollars currently in high-yield money market funds will likely seek higher returns in risk assets.
Crypto On-Chain Analysis: Sentiment and Holder Behavior
- Shifting to crypto-native data, the on-chain metrics do not indicate that the market is overheated.
- Fear & Greed Index: The Bitcoin Fear & Greed Index is currently in "Neutral" territory, having recently dipped into "Fear." Michael emphasizes, "Markets don't end, crypto cycles don't end in the neutral territory, do they?" This suggests significant room for upside before reaching the "Extreme Greed" levels typical of cycle tops.
- Long-Term Holder Activity: A chart measuring Coin Days Destroyed—a metric that gives more weight to coins that haven't been spent for a long time—shows a massive recent spike. This indicates that very early Bitcoin holders (from as far back as 2011-2012) are taking profits, selling to new institutional buyers like the BlackRock ETF. While this creates selling pressure and explains Bitcoin's consolidation, it is also a typical feature of maturing bull markets.
- Realized Price: The Realized Price is the average price at which each coin in circulation last moved, serving as a proxy for the network's cost basis. The market value is currently only 2.1 times the realized value, far below the ratio of 7 seen in the last cycle peak. This metric suggests that even if the ratio only reaches 3, a Bitcoin price in the $150,000-160,000 range is plausible.
The Altcoin Question: Is It Alt Season Yet?
- While sentiment is improving, the data shows that a broad-based altcoin season has not yet begun.
- DEX Volumes: Solana DEX volumes, a proxy for retail "animal spirits," are recovering but remain depressed compared to Q1 2024.
- Alt Season Index: The index sits at 57, a middle zone that Michael calls "a little bit misleading." He clarifies that the current reading is heavily skewed by ETH's strong performance, which has been pulling liquidity from other altcoins. The market remains dispersed, favoring a "stock picker's" approach rather than a broad-based rally.
The Million-Dollar Question: 2025 Peak or 2026 Extension?
- The core of the episode debates whether crypto will follow its historical four-year cycle, peaking in late 2025, or enter an extended cycle into 2026.
- The Four-Year Cycle Case: Ryan presents a chart from analyst Allo showing Bitcoin's cycle tops consistently occurring every four years (December 2013, December 2017, November 2021). Following this pattern would place the next top in Q4 2025.
- The Extended Cycle Case: Michael argues that while history is a powerful guide, several factors suggest "this time is different." The business cycle appears to be earlier than perceived, institutional flows are a new dominant force, and on-chain metrics are not flashing red. Furthermore, the ISM manufacturing index has been in contraction for 30 months, a condition that has never preceded the end of a business cycle without a subsequent expansion phase. Michael concludes, "I could definitely see the case to be made that this can just extend for a while."
Portfolio Strategy for Navigating the Cycle
- Michael outlines his high-conviction, concentrated portfolio strategy designed for long-term outperformance. He recommends holding fewer than 10-15 assets to maintain focus and conviction.
- Core Holdings (70-80%): This foundational layer consists of assets like Bitcoin and Ethereum, which are used as the benchmark for all other investments. The goal is to outperform these core assets, not just the US dollar. This portion also includes crypto-equities like Coinbase and Robinhood, viewed as future financial institutions.
- Non-Core, Longer-Term Holds (10-15%): These are higher-risk assets with a strong, data-backed thesis that could significantly outperform the core holdings over a 2-4 year cycle. Worldcoin is cited as an example due to its large addressable market and critical use case in the age of AI.
- High-Beta / "Hot Sauce" Assets (5-10%): This segment is for tracking narratives and capturing extreme upside from memecoins and emerging metas like AI agents. Michael's team applies fundamental analysis even here, tracking whale retention and wallet cohort behavior to identify assets with strong holder bases. Zora and Pump.fun are mentioned as assets that would fit this category.
- The Role of Cash: Michael advocates for maintaining a healthy cash position (typically over 10%) to remain psychologically resilient and capitalize on market drawdowns. This strategy allows an investor to "buy fear and sell into greed" without panic.
Conclusion
- The episode concludes that while historical four-year cycles provide a strong baseline, current macroeconomic and on-chain data present a compelling case for an extended bull market into 2026. Investors should monitor liquidity trends and holder behavior to position for either a rapid 2025 peak or a longer, more sustained run.
