Coinbase Global (COIN +4.28%) Chief Executive Officer Brian Armstrong told CNBC on Aug. 20 that he thinks crypto is on the verge of a new bull market. If he's right, now would be the time to finish loading up on any assets, before they start to get pricey.
So, is Armstrong's prediction likely to play out? Let's look at what the historical data says.
Image source: Getty Images.
He makes a good argument
Armstrong's rationale for believing that the ongoing crypto bear market is approaching its end is based on three pillars.
First, the current downturn has lasted for 10 months, which is about as long as crypto bear markets have tended to last in the past. On its own, that's not any guarantee of better times coming, though it does suggest -- at least psychologically -- that investors could be ready to believe that rising prices are possible again.
The second part of Armstrong's argument is that the Senate now has a vote scheduled for the Clarity Act, slated for Sept. 15. He's bullish about the bill's chances of passage, and it's probably true that getting legislation that defines the rules of competition in the industry would be a tailwind that could help with exiting the bear market.
NASDAQ: COIN
Key Data Points
Lastly, he said that Bitcoin (BTC -0.83%) has historically done well during the fourth quarter. Given that its median return in the fourth quarter is 47.7%, he isn't wrong on that point. Ethereum (ETH -0.66%) has also tended to perform well in that period, with a median gain of 22.5%.
The broader idea he's getting at is that Bitcoin has always led the broader crypto sector in the past, with Ethereum following and paving the way for other coins to rally as well.
But things could be different this time; as financial institutions become larger and more important holders of Bitcoin as well as other cryptocurrencies, the old dynamics influencing price action and market structure may not be applicable anymore.
Don't take the timeline too literally
Armstrong's prediction is more likely to prove true than false, but that doesn't mean you should try to time the market, even given that the crypto sector has a big catalyst coming up on Sept. 15. Prediction markets imply that the Clarity Act's chances of passing are about 18% or so as of Aug. 24. If the bill isn't passed at that point, Congress could take another go at it later in the year, or in 2027.
CRYPTO: BTC
Key Data Points
Aside from that, the Securities and Exchange Commission (SEC) has proposed a tailored offering framework called Regulation Crypto Assets, following a joint interpretation it issued with the Commodity Futures Trading Commission (CFTC) in March that sorts crypto assets into a few buckets. The CFTC isn't waiting on Congress, either. Its chairman, Michael Selig, said on Aug. 20 that if the Clarity Act stalls, he has already directed his staff to start building a crypto market-structure regime out of the authority the agency holds today.
So there's a fairly large window for new policies to be implemented and start affecting the function of the market, and they could take longer than investors might hope for.
CRYPTO: ETH
Key Data Points
Then there's the macro situation, which is especially doubtful right now. The Federal Reserve has opted to hold interest rates steady for five consecutive meetings. But inflation is still well above the Fed's long-term target of 2%. Rate hikes, should they occur, have historically been a wet blanket for crypto, and higher rates might impede or delay the development of a new bull market.
The takeaway here is that investors shouldn't be thinking about the crypto market as something to shovel money into when it's hot and to avoid when it's not.
Carefully accumulating the high-quality assets that the sector has to offer, especially when they're cheap, has typically paid off in the long run. Brian Armstrong's incentive is to spur a new crypto bull market and as soon as possible -- and with a little planning, your portfolio can be ready to flourish whenever it arrives.
