2024 Second Half Investment Outlook: Cryptocurrency Market
In summary, although the price of Bitcoin has shown weakness at times, a series of positive factors continue to support the Bitcoin market. Investors can continue to closely monitor the impact of these factors on Bitcoin prices and carefully assess the risks and returns to formulate appropriate investment strategies.Author: Huaxia Fund Hong Kong
2024 First Half Review of Crypto Assets
- The US spot Bitcoin ETF was approved on January 10, 2024, and the Hong Kong spot Bitcoin and Ethereum ETFs were approved on April 29, 2024.
- On April 20, 2024, the Bitcoin halving milestone occurred.
The Bitcoin miner reward halving event happens every time an additional 210,000 blocks are mined, approximately every four years. This year's halving event took place on April 20, 2024. This event will reduce the total issuance of Bitcoin from 900 Bitcoins per day (annual issuance rate of 1.8%) to 450 Bitcoins per day (0.9%). Approximately 13,500 Bitcoins will be added to the total supply each month.
The halving events will continue on the same schedule until 21 million Bitcoins are mined, which is expected to occur around the year 2140.
Figure 1: Historical Bitcoin Halving Timeline
- Significant breakthrough in the approval process for the US spot Ethereum ETF
On May 23, 2024, the US Securities and Exchange Commission (SEC) approved the 19-b4 filing applications from VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK21Shares, Invesco Galaxy, and Bitwise, effectively greenlighting the issuance and listing of the spot Ethereum ETF.
If the SEC follows a timeline similar to that of the spot Bitcoin ETF process, according to Bloomberg ETF analysts, the spot Ethereum ETF could launch as early as early July.
Figure 2: Bitcoin and Ethereum Price Trends Year-to-Date
- In Q2 2024, the active Bitcoin supply is on a downward trend
Historical data shows that a decline in active Bitcoin supply, which refers to the number of Bitcoins that have been transacted in the past three months, typically lags behind local price peaks, indicating a slowdown in market trading volume. The active Bitcoin supply fell from a local peak of 4 million Bitcoins in early April to 3.1 million Bitcoins in early June.
However, during the same period, the inactive Bitcoin supply, which refers to the number of Bitcoins that have not been moved in a year, has remained stable this year. We believe this indicates a reduction in recent market exuberance, although long-term cyclical investors remain vigilant.
Figure 3: Bitcoin Supply vs Price
- The number of active Bitcoin addresses and new addresses is declining.
Current State of the Bitcoin Market
The US Bitcoin spot ETF saw outflows of approximately $64 million, $200 million, and $226 million on June 10, 11, and 13, respectively, leading to a softening of Bitcoin prices.
Figure 5: Total Cumulative Inflows of US Bitcoin Spot ETF
Bitcoin Market Outlook
The yield on the US 10-year Treasury bond adjusted by 21 basis points from 4.43% on June 7 to 4.22% on June 14, which is favorable for all high-risk assets, especially Bitcoin. This indicates an increased demand from investors for risk assets, including Bitcoin.
The Bitcoin miner stock ETF (the miner ETF with Bloomberg code WGMI) is one of the leading indicators of Bitcoin prices, and this indicator shows an upward trend. Within the week, the price of the Bitcoin miner stock ETF rose by 21%. This suggests that smart money continues to actively buy during periods of Bitcoin price weakness, expressing positive confidence in Bitcoin's future performance.
The SEC's progress on the approval of the spot Ethereum ETF has had a positive impact on the market and further boosted Bitcoin's performance.
The current Bitcoin market bubble has not yet reached historical peaks, and Bitcoin may have further upside potential.
In summary, although Bitcoin prices have shown weakness at times, a series of positive factors continue to support the Bitcoin market. Investors can continue to closely monitor these factors' impact on Bitcoin prices and cautiously assess risks and returns to formulate corresponding investment strategies.
Additionally, we are closely watching the impact of the November US elections on digital assets. If Trump returns to power, it could have a broadly positive potential impact on the crypto market through more supportive crypto regulatory policies.
Ethereum Market Outlook
Recently, Bloomberg ETF analyst Eric Balchunas stated on Twitter that the listing date for the Ethereum spot ETF could be moved up to July 2, which has sparked widespread attention and discussion in the market.
According to a report from Standard Chartered, referencing the situation after the approval of Bitcoin ETFs, Ethereum may see significant ETF-driven inflows. It is expected that in the first 12 months after approval, the spot Ethereum ETF could bring in approximately $15-45 billion.
Figure 6: Projected Inflows for Spot Ethereum ETF in the Next 12 Months
Recently, the market has been focused on the decline in inflation data and the Federal Reserve's hawkish policy stance, both of which seem to send mixed signals to crypto assets. The US Consumer Price Index (CPI) has decreased year-over-year for the second consecutive month. The continued downward trend in inflation data will be beneficial for the prices of crypto assets. Meanwhile, Federal Reserve officials have adjusted their expectations for future interest rates, anticipating two rate cuts in 2024, exceeding the previous general expectation of one rate cut, which will further drive up risk assets.
Although the Federal Reserve has been pushing up long-term rates, the upward trend in the 10-year Treasury yield has been broken, indicating that the market is anticipating a more accommodative monetary policy. While low inflation may prompt the Federal Reserve to adjust its policy response, it is expected that by the end of 2024, the Fed's stimulus measures could further boost crypto asset prices.
