Insights and analysis for the professional investor Was this newsletter forwarded to you? Sign up here. |
|
|
Welcome to Crypto Long & Short! This week, Todd Groth, head of research at CoinDesk Indices, says rising prices for BTC and ETH, plus more favorable interest rates conditions, could drive altcoins higher as well. Then, John Stec at the Global X prime brokerage says the recent ETF approvals, and the coming halving in April, will push bitcoin upwards this year. As always, get the latest crypto news and data from CoinDeskMarkets.com. – Benjamin Schiller, head of opinion and features at CoinDesk |
|
|
Bitcoin and Ethereum to Lead Altcoins Higher in 2024 |
Last week’s approval of spot bitcoin exchange traded funds (ETFs) was quite an event. For a brief few days our industry was the belle of the financial ball, with over $4.5 billion trading on Thursday’s debut. Pretty amazing to consider how long it took to get a proper ETF. Some things are worth the wait.
Crypto Market Reality Check:
2024 sees the crypto market growing up, rubbing shoulders with its larger asset class peers. Despite some rocky and uncertain economic terrain over the past year, Bitcoin and Ethereum are strutting their stuff and becoming increasing favorites, serving as desirable alternatives to your run-of-the-mill stocks and bonds. Asset allocators are taking note of 2023’s performance, which means demand for Bitcoin and Ethereum is on the rise.
Spot Bitcoin ETFs – Don't Ignore Them:
While the jury is still out on whether or not Bitcoin spot ETF launch week was a “buy the rumor, sell the news” event, in the medium to long term, it will likely mark a turning point in crypto adoption rates. Why?
Because it's a more familiar, regulated way to allocate capital into the crypto market. Check out Coinbase and MicroStrategy stocks in 2023 – they outperformed Bitcoin, and that's no coincidence. These ETFs will open the floodgates for Registered Investment Advisors (RIAs), pension funds, and hedge funds to get in on the action. Plus, investment banks will start concocting new products based on these ETFs and the CBOE is awaiting approval to begin listing options on these new ETFs.
Keep an eye on this space – it's gonna be a ride.
Inflows and the Big Numbers:
Get ready for a tsunami of cash entering the crypto scene. RIAs are managing roughly $130 trillion, and a 1-2% portfolio allocation to digital assets through ETFs could send 1 to 2.5 trillion into the crypto world, roughly equivalent to the current market capitalization of the digital asset market.
Here's the catch: this flood of cash is gonna flow mainly into Bitcoin and Ethereum. Sorry, altcoins, you might have to wait your turn for the time being. But, the rise of Bitcoin and Ether should trickle down into other digital assets, as crypto native investors take profits on the majors and allocate capital into smaller tokens. This will put crypto native players in the driver-seat of bitcoin dominance (see chart below), as they will be the investors capable of playing in the basis and spreads between the majors and altcoins. |
Macro Factors Ahead:
Now, let's talk about recession and interest rates. If the U.S. economy takes a nosedive in late 2024 due to higher interest rates, we will enter into a dovish period of the interest rate cycle and guess who benefits? Yep, digital assets.
Bitcoin, with its digital scarcity, and Ethereum, with its increasingly deflationary post-Merge tokenomics, will shine bright in a world of growing deficits, government spending and abundant fiat liquidity. But keep your expectations tempered. There will inevitably be volatile moments of low liquidity and deleveraging within digital assets.
Play It Smart with Portfolio Construction:
In 2024, forget about trying to predict where the market's heading. Instead, focus on portfolio construction and position sizing. Price momentum indicators, such as the CoinDesk Bitcoin and Ether Trend Indicators (BTI and ETI), can be useful inputs in moderating net exposure and managing overall market exposure.
If you find yourself itching for some altcoin exposure to take advantage of an upward trending market, consider diversified exposure. Indices like the newly launched CoinDesk 20 (CD20) offer diversified altcoin exposure while capping major tokens (Bitcoin to 30%, Ether to 20%, respectively) to better manage market volatility and diversify potential altcoin risks of specific token adoption rates and regulatory impacts. (More information on the CD20 is available on coindeskmarkets.com and here.)
Preparing for Altcoin Season:
It's time to consider tilting your portfolio towards altcoins while keeping a firm grip on Bitcoin and Ethereum. Altcoins shine when the rest of the crypto market is humming along, and there's no denying their potential for growth. But keep in mind the benefits of portfolio construction as markets never move in straight lines and there’s always a twist in the tale. |
– Todd Groth, Head of Index Research at CoinDesk Indices |
|
|
We were surprised too. Coalition Greenwich's research, sponsored by Amberdata, shows that the U.S. regulatory environment remains crucial for digital asset investors, but other locations like Dubai and Switzerland also garner support. Check out the report to learn more. |
Amberdata delivers comprehensive digital asset data and insights into
blockchain networks, crypto markets, and decentralized finance empowering
institutions with the critical data required to participate in digital assets. Trusted by Citi, Coinbase, Nasdaq, Franklin Templeton and more. |
|
|
Why 2024 Will Be Bitcoin's Year |
2024 is already shaping up to be a transformative year for digital assets broadly, and bitcoin particularly. With SEC approval for a spot bitcoin ETF last week and bitcoin’s next halving event scheduled for April, we anticipate key shifts in both the supply and demand. Understanding these shifts is critical to understanding what role digital assets may play in the years ahead as they help to foster worldwide financial accessibility. On the demand side, the SEC’s potential approval of a spot bitcoin ETF should open the door for a significant number of new investors seeking exposure to the price of bitcoin directly in their traditional investment accounts. They can now forego the complexity of dealing with crypto exchanges, and access a familiar investment vehicle — an ETF. This will spark both higher liquidity and greater price stability in bitcoin. Equally importantly, the SEC’s approval represents a significant milestone for bitcoin’s growing legitimacy with established financial institutions. As for supply, bitcoin’s scarcity increases approximately every four years with each halving event. Bitcoin halving is the process in which the reward for Bitcoin miners is cut in half, reducing by 50% the rate of new bitcoin issuance. With the next halving expected in April 2024, the block reward will be 3.125 versus 6.25 today. This historically has led to significant increases in BTC price in the months and years following each (see chart). While the actual timing of this event is predictable, the market takes time to find a new price equilibrium. Looking at Bitcoin’s prior halvings, we see significant increases in the months and years following each. |
Bitcoin’s last halving occurred on May 11, 2020, when the block reward decreased from 12.5 BTC to 6.25 BTC. Bitcoin has grown at a 52% compound annual growth rate since that event, with the most rapid rise occurring in the first nine to 12 months following the event. The halvings prior to 2020 produced a similar trajectory. The combination of these factors makes a compelling investment case for bitcoin and offers a potential entry point. Using a stock-to-flow model, which attempts to quantify the value of an asset which has a limited supply, we find an implied value of approximately $62,000 per bitcoin in April 2024, representing roughly a 34% increase relative to the current price as of January 10. |
The landscape of digital assets, particularly bitcoin, is set for significant change this year. The SEC’s approval for a spot Bitcoin ETF and the halving event in April are poised to reshape both the supply and demand dynamics of Bitcoin. For a deeper dive into the transformative power of digital assets, Global X recently published our latest Charting Disruption report, our annual deep-dive into the trends and technologies shaping the economy of tomorrow. |
– John Stec, Head of National Accounts at Global X |
|
|
From CoinDesk's managing editor for Markets Stephen Alpher, here is some news worth reading: |
- SELL THE NEWS: The long-awaited U.S. spot bitcoin ETF approval finally came, and no sooner did the news go down then the price went down. After a very brief spike up to $49,000 on the first trading day for the new ETFs, bitcoin quickly retreated, falling below $42,000 late on Friday. Bulls likely took the opportunity to lighten up after bitcoin's fast rise from the $27,000 area on Oct. 1. And expectations for the new products had probably gotten way ahead of themselves. Net inflows into the ETFs were just shy of $1 billion in the first two days of trading – a wild success for any other ETF launch, but somehow disappointing to at least some who had expected triple that amount.
- NOT SO FAST ON ETHER ETF: BlackRock CEO Larry Fink wasted little time following regulatory approval for the spot bitcoin ETFs, telling CNBC late last week he would like to get moving on a spot ether ETF. SEC Chair Gary Gensler – seemingly not very pleased about having to greenlight the bitcoin ETF – made very clear he has little intention at this time about doing the same for any other cryptos. There's also the question of demand as Sui Chung, CEO of CF Benchmarks, noted a key bitcoin selling point to Tradfi is as a "the most potent diversifier in the history of investing." Once financial advisors have put some of their clients' portfolio in BTC, Chung wondered what just how much of a marginal benefit ETH could be.
- TETHER HAS THE MONEY: Amid all the crypto bankruptcies, collapses, indictments, and jail sentences of the past few years, Tether often draws attention as being the next shoe to drop in the industry. It would be a big shoe. Tether's USDT stablecoin is by far the world's most popular with a market capitalization nearing $100 billion, and skeptics have often wondered if the company actually has the assets to back those USDTs. "They have it," said Howard Lutnick, CEO of Wall Street bond trading powerhouse Cantor Fitzgerald. As a primary dealer for U.S. Treasury paper and the manager of a sizable chunk of Tether's assets, Cantor is surely in a position to know. "From what I've seen – and we did a lot of work – they have the money they say they have."
|
|
|
Consensus is the biggest and most established hub for everything crypto, blockchain and Web3. Join us at the 10th annual Consensus May 29-31 in Austin, Texas for dialogue, discovery and dealmaking alongside developers, investors, startups, executives and more. Register before prices increase on Jan. 25 to save $1,600 on registration! Plus, use code CLS15 for an additional 15% off. Get your pass. |
|
|
|
