BitcoinBTC investors and crypto investors more broadly are no stranger to volatility, and 2024 has proven to be a year that continues to reinforce that narrative. With the approval of spot bitcoin ETFs, the possibility of spot ether ETFs soon following, and increasing regulatory clarity in the form of FASB guidance it should come as no surprise that the sentiment for bitcoin and cryptoassets continues to improve. That said, even some of the more optimistic forecasts of the effect that spot ETF approvals would have on price levels have needed to be revised as price levels continue to appreciate rapidly.
With price levels hitting highs not seen since the previous peaks in 2021, trading volumes crashing the services of exchanges like Coinbase, and institutional buying continuing to ramp upwards, seasoned investors would be right to think back to previous bull markets. While prices have not eclipsed the previous all-time-highs every bull market is different, and investors of all sizes should be aware of the ways in which these price increases differ from previous bull runs.
Let’s take a look at a few of the trends and reasons why this bull market is different.
Institutional Buying Is Driving Price Increases
A common theme of rapid price increases in assets of all kinds is that dramatic increases in prices tend to be driven by individual or retail investors. This trend is consistent across a historical and cross-asset perspective, but the recent price increases in bitcoin are being driven by additional forces as well. Following the approval of spot ETFs the institutional interest and appetite for bitcoin has obtained a viable method to purchase these assets to make them available for customers and clients.
To put this in perspective spot ETF options are acquiring approximately 10 times the number of bitcoin that are being mined during the same time, which is clearly indicative of the institutional demand and trading volume via these various spot ETF products. In addition, since approximately 80% of bitcoin of total supply has not moved in the last six months the situation has created a strong demand for bitcoin with limited new supply becoming available.
Bitcoin Is Coming Into Retirement Funds
An additional reason as to why bitcoin prices have steadily increased since the approval and launch of spot ETF products is the potential for these products to be available for purchase by financial advisors and retirement funds. Prior to this approval it was a relatively complicated process for investors to purchase and hold bitcoin or other cryptoassets into retirement accounts, with the majority of options including setting up a self-directed IRA or product that would be similarly unfamiliar to most mainstream investors.
Benefitting from the approval and legitimacy that ETF products have delivered it seems to simply be a matter of time before retirement fund and various advisors begin recommending these products to clients. Specifically news that Morgan StanleyMS is evaluating spot bitcoin ETFs to clients of the broker-dealer platform that form the $150 billion in assets under management at the financial institution seems to indicative the reality of this trend. Following opportunities similar to the one at Morgan Stanley, the potential opening of registered investment advisor (RIA) networks could serve as part of a next leg up for bitcoin and the wider cryptoasset market.
Once again the potential for even more institutional buying and interest seems set to keep driving bids for bitcoin and other cryptoassets higher for the foreseeable future.
Regulatory Clarity Continues To Bring Investment
While not as exciting as the launching of ETFs, prices breaking upwards, or the potential for even more institutional buying, the reality is that getting clearer and more understandable rules around cryptoassets is essential to encourage these behaviors. Just within the last year or so there has been significant movement in addressing several of the fundamental obstacles preventing larger and more consistent buying of bitcoin and cryptoassets.
Specifically the accounting ruling clarifies how organizations should account for and report cryptoasset holdings both on the balance and income statement, improving transparency and comparability of results. The SEC, whose efforts to seemingly sue and enforce the entire space had curtailed investment, has suffered setbacks both in court and via Congressional hearings, curbing ambitions to regulate by edit. Lastly, even the IRS has sought to clarify certain taxation points, and make it simpler for investors of all sizes to come forward if past issues need to be addressed. These changes all combine to make the appeal of crypto clearer as well as providing tangible benefits for firms seeking to invest.
Bitcoin has been on a hot streak in 2024, and there are several forces that make these moves different from similar past moves; investors should take note.
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