December 20th, 2024
Market Overview:
Digital assets experienced a mixed week, reaching new record highs before pulling back sharply to record a weekly loss following a gloomy economic outlook from the Fed.
- Bitcoin hit new record highs this week, before falling back down below $100,000 in Fed-led risk-off behaviour
- Bitcoin broke through several new levels for the first time, setting records from $104,000 to $108,000
- Ultimately, Bitcoin achieved a new all-time high on Wednesday, hitting $108,270, before US economic policy halted the momentum
- However, traders pulled back across financial markets—including crypto—after Federal Reserve chairman Jerome Powell issued a gloomier-than-expected forecast for 2025
- This erased the week’s gains, leading to a weekly low of $95,880 as risk-off behaviour increased alongside persistent profit-taking around the $100,000 mark
- Some analysts attributed this rally to further political support, amidst reports that the next CFTC chair could be the crypto policy head of a major digital asset VC
- Ether showcased similar movements to Bitcoin, but fell harder; first matching last week’s $4,090 peak on Monday before dropping down to a low of $3,355 early on Friday
- Overall industry market capitalisation fell to $3.34tn, after reaching a new record of $3.79tn on Tuesday
- According to industry monitoring site DeFi Llama, total value locked in DeFi fell in line with Ether and altcoin declines, to $128bn
Digital assets cooled off and pulled back after a cautious Federal Reserve lowered expectations of future rate cuts, reversing earlier bullish momentum that had led to new record highs for Bitcoin. Beyond the market, adoption continued to gather steam, including state and nation-level Bitcoin reserve filings, banks adopting Ethereum-based solutions, nine-figure ETF inflows, and much more.
What happened: Bitcoin continues record-breaking run
How is this significant?
- Before Thursday’s Fed-driven pullback, Bitcoin posted several new records this week, surpassing $108,000 for a new record valuation
- Bitcoin reached an initial new record high of $104,000 on Monday, before running above $3,000 that same day, and reaching its current all-time high on Tuesday
- In the end, the world’s leading digital asset stopped just short of the landmark $110,000 figure, after topping out at $108,270
- This put Bitcoin’s year-to-date return at over 150%
- James Butterfill, head of research at CoinShares, cited numerous reasons for Bitcoin’s strong growth, stating “it is the US election dividend, and in 2025 the prospects for the US owning Bitcoin as a strategic reserve asset (likely not priced according to Polymarket which sees it as only 27% chance of happening), geopolitical instability, looser monetary policy—these factors are likely to remain supportive in 2025”
- Since Bitcoin topped $100,000, its overall market capitalisation has also exceeded $2tn, placing it between the likes of Alphabet (Google’s parent company) and Saudi Aramco within the world’s most valuable assets
- Additionally, Bitcoin’s long-term outperformance versus gold led to a new record high for their relative ratio
- As pointed out by Galaxy Digital’s head of research Alex Thorn, Bitcoin’s market cap as a percentage of gold’s reached a new record of 14% this year; almost double last year’s percentage
What happened: Political news
How is this significant?
- The amount of political discourse and coverage around digital assets cooled to a post-election low this week, following the confirmation of all Donald Trump’s crypto-related nominations
- Future Financial Services Committee chair, pro-crypto Republican French Hill, announced his intention to spearhead crypto legislation within Trump’s frist 100 days in office
- The former banker and Treasury Department veteran told Bloomberg that “We want to work with the Trump administration and Senate Banking Committee Chairman Tim Scott and try to get all of us on the same page as to how do we proceed”
- Nevertheless, Jennifer Schulp (director of financial regulation studies at the Cato Institute) believes that passing digital asset regulation will still be “a heavy lift”, despite Republican control of Congress
- Reports this week indicated that crypto.com CEO Kris Marszalek met with Trump at Mar-a-Lago to discuss appointments and regulations within the upcoming administration
- A crypto.com spokesperson told Bloomberg that “We look forward to working with the new administration to develop and advance clear regulations for the crypto industry so the US can become a global leader in digital assets and innovation”
- Meanwhile, Jerome Powell removed a lot of festive cheer from the markets, indicating that the Fed projects just two rate cuts next year, and will exercise a proliferance of caution, leading to widespread losses across most major markets (including the Dow Jones’ longest losing streak since 1974)
- Crucially for crypto, he also pushed back against any immediate plans for a Bitcoin reserve, stating “We’re not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we’re not looking for a law change”
- However, the Fed could still be moved to hold Bitcoin in the event of political consensus around the matter, as he added “That’s the kind of thing of thing for Congress to consider, but we are not looking for a law change at the Fed”
What happened: ETF News
How is this significant?
- Digital asset ETFs continued their recent strong performance, logging near-uninterrupted nine-figure daily inflows
- According to CoinShares data published on Monday, digital asset investment product inflows experienced their second-best inflows (following a new record the week prior) in the trading week ending the 13th of December
- Total inflows amounted to $3.2bn, logging ten consecutive weeks of growth
- Bitcoin accounted for the bulk of this figure at $2bn, whilst Ether products registered their seventh straight week of inflows of $1bn or more
- Total year-to-date inflows now stand at $44.5bn
- Spot Bitcoin ETFs continued their streak of nine-figure inflows, which reached 15 days up to and including Wednesday—albeit Thursday data published after the time of writing may halt that run, given the size of Thursday’s post-Powell pullback
- BlackRock’s IBIT dominated the market once more, with nine-figure net flows from Friday to Wednesday, as Fidelity’s FBTC proved the only other fund to register inflows above $100m (as it added $116m on Monday)
- Meanwhile, IBIT posted inflows of $393m and $418m on Friday and Monday, before hitting a considerable $741m on Tuesday and $360m on Wednesday
- However, total flows across all funds on Wednesday stood at only $494m, as BlackRock’s near-$750m haul was counteracted by significant outflows elsewhere, including $128m from FBTC, and $85m from Grayscale’s converted GBTC fund
- Bloomberg’s chief ETF analyst Eric Balchunas noted that year-to-date inflows for Bitcoin ETFs hit $37bn—well above his optimistic $10bn to $15bn estimates
- He predicted that it’s a “near lock that $IBIT passes $GLD [gold] as the king of store of value ETFs; currently has 78% of GLD's assets, there's even outside chance it does it by Jan 11th within its first year”
- Spot Ether ETFs continued their run of inflows (although late-breaking Thursday data could change that), albeit at more modest levels than last week’s nine-figure growth days
- Tuesday saw the week’s largest inflows at $145m, as the next-best day (Monday) sat at just over a third that figure, with $51m
- BlackRock’s ETHA once again led the way in flows, logging $135m of Tuesday’s $145m, and following up with $82m on a day with just $2.5m net flows across all funds
- As 2024 winds down, analysts predicts a raft of new digital asset ETFs in 2025—although they expect a staggered release of such products
- First forecast are combination Bitcoin+Ether products, followed by ETFs for Litecoin, HBAR (recognised as a non-security in America), Ripple, and Solana
What happened: Deutsche Bank launches new Layer-2 blockchain solution
How is this significant?
- Finance giant Deutsche Bank this week announced advances in its plans for a Layer-2 blockchain solution built on top of Ethereum, codenamed “Dama 2”
- This proprietary blockchain seeks to integrate ZKsync privacy solutions, ensuring that the chain can be both “public and permissioned”
- In an interview, Deutsche’s Boon-Hiong Chan said that such technology was necessary to alleviate the concerns of regulated lenders, as directly using the main Ethereum chain could cause issues as the identities of validators could be unknown; “Using two chains, a number of these regulatory concerns should be able to be satisfied”
- According to Chan, Dama 2 enables “more bespoke list of validators”, and has the potential to provide regulators (and only regulators) “super admin rights,””
- As another industry analyst stated “The only pragmatic choices for institutions that require stringent oversight and interoperability are to either run their own private, permissioned layer-1 chains, or to harness Ethereum’s L2 ecosystems”
- Dama 2 is developed under the framework of Singapore’s wider “Project Guardian” exploration between blockchain and TradFi
- Another European banking giant, Societe Generale, also achieved a blockchain breakthrough this week, as its SG Forge arm “carried out a blockchain-based repo agreement with the Banque de France” in “the first such tokenised transaction with a Eurozone central bank”
- In a press release, SocGen stated “This transaction demonstrates the technical feasibility of interbank refinancing operations directly on blockchain. It illustrates the potential of a Central Bank Digital Currency to improve the liquidity of digital financial securities”
What happened: Ohio lawmaker proposes state Strategic Bitcoin Reserve
How is this significant?
- Another US legislators filed to create a state-level strategic Bitcoin reserve this week, following on from recent efforts in Pennsylvania and Texas
- Ohio state representative Derek Merrin proposed HB 703, also known as the Ohio Bitcoin Act
- The bill states that “A strategic Bitcoin reserve fund aligns with the state's commitment to fostering innovation in digital assets and providing Ohioans with enhanced financial security”
- Merrin anticipates a national reserve, and argues “As the US dollar undergoes devaluation, Bitcoin provides a vehicle to supplement our state's portfolio and preserve public funds from losing value”
- Whilst state-level reserves are being proposed, federal-level reserves shall have to wait until a change in regulations, as Federal Reserve chair Jerome Powell stated this week “We’re not allowed to own bitcoin. The Federal Reserve Act says what we can own, and we’re not looking for a law change. That’s the kind of thing of thing for Congress to consider, but we are not looking for a law change at the Fed”
- Over to the east, a deputy in Russia’s state Duma also proposed creation of a strategic reserve
- Anton Tkachev requested the finance minister “assess the feasibility of creating a strategic Bitcoin reserve in Russia by analogy with state reserve in traditional currencies”
- In terms of countries that already hold large amounts of Bitcoin, El Salvador pledged to continue buying Bitcoin for its reserves, whilst Bhutan continues a phased expansion of its hydroelectric mining infrastructure
What happened: Japanese crypto exchange Coincheck goes public on Nasdaq
How is this significant?
- Coincheck, a Japanese digital asset firm, became the second crypto exchange to float on the Nasdaq last week, following in the footsteps of Coinbase and Bakkt (both 2021)
- Although Coincheck went public three years after Coinbase, it has reportedly been working on the filing since 2022, via a de-SPAC merger with Thunder Bridge Capital
- This process was hit by numerous delays, including “months of [regulators] revising the document needed for foreign companies to list on an exchange in the US”
- Coincheck explained its decision to go public, stating “will enable us to gain exposure to international investors and to utilize Nasdaq-listed shares as effective currency for recruiting talent and making global acquisitions, thereby further expanding our crypto asset business”
- According to its holding company, the firm’s initial implied market valuation will be around $1.3bn
What happened: Euro-denominated share of digital asset trading rises
How is this significant?
- According to new research from blockchain data firm Kaiko, Eurozone trading of digital assets has increased substantially this year
- The report revealed that Euro-denominated trading pairs have grown in number and volume across exchanges, as “2024 marked a transformative year for the European crypto asset market with euro-denominated trade volumes surging to a multi-year high in November”
- This growth was particularly pronounced in recent months, as European investors committed to the asset class following the US election; November Euro-denominated volumes surged to €12bn; almost twice October’s levels
- In total, the Euro was the third-most-commonly listed fiat currency in digital asset trading pairs (behind the US Dollar and Korean Won), but saw the most new pairs listed (331)
- Monthly Euro trading volumes more than doubled year-to-date, up 116% from January to November
- In other Euro-relevant news, stablecoin leader Tether invested in Malta-based stablecoin issuer StablR, in order to leverage the latter’s MiCA compliance and European access
- Tether CEO Paolo Ardoino told industry publication Coindesk “The European stablecoin market is at a turning point, with regulation finally catching up to innovation. The company sees the evolving regulatory landscape as a positive step forward but is concerned about the systemic risks it introduces, particularly within the already vulnerable European banking sector”
What happened: Australia’s largest pension fund reveals Bitcoin exposure
How is this significant?
- Australian superannuation fund AMP Ltd this week revealed exposure to Bitcoin within its investments for the first time, putting it within the vanguard of retirement firms to do so
- Senior portfolio manager Steve Flegg wrote on Linkedin that the firm “took the plunge and made a modest allocation to Bitcoin” earlier this year
- The allocation is indeed modest ( $17.2m, or 0.05% of the firm’s assets towards Bitcoin futures), but it signals a change in attitudes
- AMP chief investment officer Anna Shelley told Bloomberg that the industry underwent “structural changes” this year
- She added “Following testing and careful consideration by our investment team and committee, we included a small and risk-controlled position in digital assets through our Dynamic Asset Allocation program in May… our super[annuation] members have benefited from this exposure”
What happened: MicroStrategy added to Nasdaq 100
How is this significant?
- Following prolonged speculation, enterprise software firm MicroStrategy—better known as the largest corporate holder of Bitcoin and a stock market proxy for crypto exposure—was added to the Nasdaq 100 this week as part of the index’s regular reshuffling
- MicroStrategy was amongst three firms added to the index, as of December 23rd
- The firm’s shares are up around 500% this year (compared to 30% for the Nasdaq 100), as its close links with Bitcoin (and vast Bitcoin reserves) benefitted from the digital asset market’s rally
- Interactive Brokers chief strategist Steve Sosnick told Bloomberg “Adding MicroStrategy offers the possibility for truly increased volatility. Not only is it the most volatile of the newcomers—Palantir is no slouch, by the way—but it is essentially a leveraged play on Bitcoin”
- Following the announcement on Friday, MicroStrategy celebrated by announcing a major Bitcoin purchase for the sixth Monday running; this time totalling 15,350 Bitcoin at an average price of approximately $100,386
- Despite the Nasdaq accolade and growing reserves, it hasn’t all been smooth sailing for MicroStrategy and its chairman Micahel Saylor lately; he failed to convince Microsoft shareholders to adopt a Bitcoin reserve, and its “intelligent leverage” strategy of financing Bitcoin purchases via equity and fixed-income securities has drawn criticism and scrutiny alike
What happened: Bitcoin miners confirm major Bitcoin purchase
How is this significant?
- Alongside generating Bitcoin through their core mining operations, Bitcoin miners are increasingly turning to a simpler means of boosting their reserves; direct purchases from the market
- Following this year’s Bitcoin halving event, the total network hash rate (the amount of computational power competing to mine new Bitcoins) has steadily increased, making it a more competitive market with a lower total block reward; thus leading some miners to secure additional exposure
- On Thursday, major miners Hut8 and Marathon Digital both confirmed large Bitcoin buys
- Florida-based Hut8 confirmed a $100m purchase of 990 bitcoin for an average price of $101,710, bringing its total holdings to around $1bn—placing it in the top 10 of corporate Bitcoin holdings
- Meanwhile, Marathon Digital went even further, purchasing over one and a half billion dollars of Bitcoin when the asset dipped back below $100,000 on Thursday
- Marathon’s $1.53bn buys netted them 15,574 Bitcoin at an average price of $98,529
- This brought Marathon’s Bitcoin reserves to around $4.3bn at the time of writing