Crypto Comes in From the Cold
2024 Commentary
If there is no such thing as a dull year in crypto, then 2024 certainly was no exception. It was another year of strong performance for Firinne Capital but also another year of many dramatic twists and turns. It was the year which finally saw bitcoin cross the much anticipated 100K mark, a US presidential candidate taking time out of his campaign to market his own NFT collection, and a crypto based prediction market “out predicting” all the media experts and correctly forecasting a Trump victory.
Moreover, if previous years were a slow and sometimes uneven march toward acceptance of digital assets as a bona fide investment, November 2024 sprinted us forward toward a future of relevancy and legitimacy. The incoming US administration seems to evince a very pro-crypto stance, and we welcome the eventual regulatory clarity and clear parameters that seem soon to be developed.
By looking at headlines over the past few years, we can see the shift in sentiment, first slowly, then suddenly:
The Wall Street Journal, “Google to Ban Ads for Cryptocurrencies” (March 2018)
The New York Times, “Bitcoin Uses More Electricity Than Many Countries. How Is That Possible?” (September 2021)
CNN Business, “Elizabeth Warren unveils bipartisan bill to crack down on crypto money laundering” (December 2022)
Forbes, “Spot Bitcoin ETFs Attract Almost $2B In Initial Three-Day Trading Period” (January 2024)
Beyond the obviously massive success of the bitcoin ETFs, the US election cycle dominated market considerations throughout the year. Indeed, crypto becoming a political topic was a long-forecasted opinion by our fund. Ironically, despite crypto’s fundamentally nonpolitical or even anti-political ethos, in the lead up to the November election the dominating factor driving bitcoin price returns became the odds of a Republican victory. This was largely due to perceived hostility from the incumbent administration towards the industry as personified by Gary Gensler in his role as the head of the SEC. Despite possessing a deep understanding of blockchain technology, Gensler failed to produce clear rules for the industry to abide by and his exit from the role with change of leadership in Washington was viewed with relief by the industry. Furthermore, what first circulated as rumor throughout 2023 and 2024, that the administration was trying to throttle the industry via backchannels in the banking industry, appeared to be confirmed in the dying days of 2024 by prominent figures such as Marc Andreessen and others speaking openly to that effect.
Despite our awareness of the frosty environment for crypto in the US, our commitment to the space remained unwavering during these years, our thought process being that it was a great opportunity to accumulate and wait for the pressure applied to inevitably overreach and the market would bounce back like a coiled spring.
One way to think about it is given that by some estimates the percentage of crypto ownership in the United States is comparable to that of dog ownership, the logic behind some prominent members of the political establishment deciding to make an enemy of the industry is hard to fathom. Stretching the analogy – just like with dogs, many people are at worse indifferent, but a very large cohort are fanatical about them and running on a platform along the lines of “we are going to ban dogs and demonize their owners” proved to be about as popular as you might have expected. Trump, who it must be stated, was not particularly pro crypto during his first administration, clearly saw that his opponents had manufactured and then handed a wedge issue to him which he adeptly utilized – referring to himself as the “Crypto President”. Our view is that with this election we have finally crossed the Rubicon, in future elections crypto will move towards being a bipartisan issue with all politicians quickly realizing that working with rather than against the industry makes much more sense.
Favorable political winds and the outstanding success of the bitcoin ETFs too have gone a long way towards bringing crypto in from the cold into traditional financial circles. This sampling of headlines below showing the progression:
As for legitimacy for investment professionals:
Crypto Boom: 15 New Hedge Funds Want In On 84,000% Returns (July 2017)
Bloomberg, First U.S. Pension Funds Take the Plunge on Crypto Investing (February 2019)
MarketWatch, “Michigan joins Wisconsin pension fund with bitcoin investment” (July 2024)
CFA Institute Insights, “Explore the Valuation Strategies Behind Bitcoin’s Historic Rise to $100K” (December 2024)
However, we must temper expectations here and sound a note of caution, one concern is that the pendulum may swing too far the other way, allowing the many dubious schemes riding on coattails of legitimate projects to also thrive at the ultimate expense of investors. What will be critical to observe over the coming years is how the incoming SEC leadership decides to deal with this issue which continues to plague the industry. Already this is something we are seeing in the markets with poor quality projects experiencing relief rallies post-election, strengthening the argument all the more for active management. Our core portfolio holdings will remain positioned based on quality and long-term technological conviction rather than short-term price movements.
Finally, 2024 was a productive year for our firm and for our fund. We continue to increase the breadth and sophistication of our investment strategies at a measured pace. Our network of high-quality partners has deepened and strengthened. We are grateful for our colleagues, partners, service providers, and friends of the firm – we couldn’t do it without them!