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Bitcoin Enters a New Reflexive Cycle
As Bitcoin's creator Satoshi Nakamoto famously said: “It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self-fulfilling prophecy.” Satoshi's statement refers to Bitcoin's network traction per se, however it can also be interpreted as a message about reflexivity. Originally proposed by George Soros, reflexivity is a theory that positive feedback loops between expectations and economic fundamentals can cause price trends that substantially and persistently deviate from equilibrium prices. Bitcoin has always been characterized by strong reflexivity. Bitcoin's positive cycles are likely to continue for extended time periods, however bitcoin's negative cycles are notorious for their length and depth. After meeting its technical and on-chain watershed in late 2022, bitcoin has shifted into a new paradigm in early 2023. The leading cryptocurrency is up almost 100 percent year-to-date, mirroring a demand renaissance. Supported by a positive feedback loop, bitcoin has also moved into a new reflexive cycle (turquoise). In the broader picture, bitcoin’s market behavior can be segmented into accumulation (blue) and distribution (violet) phases, which together form a multi-year series of cycles. Institutional money has traditionally favored accumulation cycles, while retail investors have been active in distribution cycles. Bitcoin’s history is also defined by halving events, which are always preceded by a pre-halving accumulation cycle. Praeterea, bitcoin's path is currently supported by multiple macro-level factors. First, bitcoin has shifted from a distribution cycle to a pre-halving accumulation cycle, looking towards the spring 2024 halving. Additionally, bitcoin is now being uplifted by reflexivity, and the leading cryptocurrency correlates with stocks like Coinbase (COIN), which has strengthened 138 percent this year.