A Step Change
Mid-November 2024 Commentary
The US November 5 election was a step change in many ways, not the least of which for the cryptoasset market and ecosystem. With a decisive majority of the popular and electoral votes, Donald Trump will resume his second term as the 47th President of the United States. Along with Republican control of the Senate and the House, cryptoasset denizens are expecting sweeping support in the form of clearer and friendlier regulations, broader awareness, and speedier adoption by the general populace. Adding to this, the Federal Reserve lowered benchmark rates by 25 bps on November 7. It is no surprise that we are seeing expectations and prices running hot.
The Week After
During and soon after the elections, cryptoasset prices jumped and large sums flowed quickly into the two spot crypto ETFs in the US. In the week ending November 11, the top 100 tokens gained about 30%, on average. BTC’s gain was, perhaps unsurprisingly, a bit anemic, posting just +19%, while ETH, SOL, and SUI posted 27%, 32%, and 70% gains respectively. DeFi tokens such as UNI gained 27% over the same period. As of the time of this writing, the combined US spot BTC and ETH ETFs have over $100 billion of net assets under management.
US Spot ETH ETFs Flows (source: SoSoValue)
The palpable interest in getting long exposure to cryptoassets can also be seen in other metrics. Futures funding rates are the costs that exchanges charge to their clients using perpetual futures to get leveraged exposure to cryptoassets. Positive rates indicate that funding costs are being paid by those with long positions while negative rates indicate that the costs are being paid by the shorts. In the recent days, these costs have spiked well above +50% per annum. While this sounds very expensive, it is indicative of the pent-up demand in expectation of strong short term positive momentum.
Source: CoinGlass
This time is for real; watch the mile markers
Expectations in the crypto-markets that had been running far and wide are turning into reality. Gary Gensler is expected to be replaced by a far friendlier SEC Chair, and this has underpinned the recent gains of ETH, alt-L1s, and DeFi tokens. Of Trump’s many cabinet appointments, his choice of Elon Musk and Vivek Ramaswamy to head a new Department of Government Efficiency (yes, DOGE) has sent the DOGE coin to the moon, close to doubling in the week right after the elections.
More broadly, according to Stand With Crypto’s tally as of the time of this writing, 272 House members and 19 Senators who have been voted into office are pro-crypto, compared to 122 and 12 who are anti-crypto, respectively. Expecting pro-crypto regulations is certainly warranted.
Then there are the expectations that are speculative. Mid-2024 considerations for the US to hold a strategic reserve of BTC are now re-gaining attention.
For those of us who have been steeped in the cryptoasset ecosystem, technology, markets, and advocacy, the use of public blockchains and adoption of crypto-tokens feel inevitable. Only time will tell if we are correct. However, we now have more tangible markers to look at.
ETF flows are one indicator. More importantly, looking at and understanding the entities behind those flows will be important. In May of this year, the State of Wisconsin Investment Board was reported to have purchased $160M worth of BTC ETFs for its pension. Just earlier this month, the State of Michigan Retirement System was estimated to be holding approximately $18M in BTC and ETH ETFs. Pension funds tend to have a long-horizon investment mindset, liquidity and rebalancing needs notwithstanding, so these types of holdings are strong indicators of broader institutional acceptance and adoption.
On the regulatory front, watch for announcements regarding the new SEC Chair. Stalled legislative proposals include the Stablecoin Bill, introduced by Representative Patrick McHenry to the House Financial Services Committee back in July 2023, and the Financial Innovation and Technology for the 21st Century Act (FIT 21) which passed the House earlier this year and provides clearer guidance on the regulatory body for cryptoassets. Expect both these bills to move forward in the new Congress. A US Bitcoin Strategic Reserve seems unlikely to happen soon at the federal level but it’s worth watching whether this idea gains traction at the state level.
As for indications that traditional financial institutions are looking to adopt public blockchains for their transaction rails, look for anecdotes like Blackrock’s decision to issue their BUIDL fund, tokenized short-term Treasuries, on five different L1s and L2s including Avalanche and Arbitrum. We expect many more like these in the not-so-distant future.
On Polymarket, bettors are expecting BTC to reach $100k this year with a 70% probability. With BTC currently trading around $90k, that seems like a fair bet. Looking at the mile markers that we noted above, we seem to have one of the strongest alignments of adoption, usage, and regulatory clarity here in the US. The path forward won’t be straightforward but the $100k price marker seems within reach in the short to medium term.