The Calm Before the Storm
Our Q4 report dives into what has been a remarkable year for the crypto industry. We look back on some of the highlights of the year, as well as look forward to the next 6-12 months.
The Calm Before the Storm
As we enter the final quarter of 2024, the crypto market and the world at large have seen significant developments. Although Bitcoin hasn’t made a new all-time high since March, the narrative around the asset class has only gotten louder.
This year has been pivotal for the crypto space, setting the stage for potential long-term transformations. Here's a comprehensive look at the year so far, covering everything from Bitcoin's ETF launch, the staying power of memecoins, and the ongoing debate between Solana and Ethereum.
ETFs: A New Era or Threat To Bitcoin’s Decentralisation?
A Bitcoin ETF has been a decade long dream in the crypto space ever since the Winklevoss twins submitted an application for it’s approval in 2013.
Even though Bitcoin started out as an alternative to the traditional financial system we’ve always craved for it’s approval from the tradfi ecosystem due to the inflows of capital it would inevitably receive.
The question is whether this comes at the cost of the network? Do we risk the decentralisation of Bitcoin in the process? Let’s take a look at some numbers…
Firstly, $IBIT, BlackRock’s flagship Bitcoin ETF product was the most successful ETF launch in history.
Prior to the Bitcoin ETFs, the record speed for an ETF to reach $10 billion in assets was held by $JEPQ who did it in 647 trading days (nearly three years). $IBIT got there in 49 days, $FBTC (Fidelity) in 77 days.
Almost 7 months later BlackRock and Fidelity are now amongst the top 10 holders of Bitcoin in the world.
Now, to return to my earlier question. Will so much value and currency be owned by these centralised asset managers who are essentially arms of the tradfi ecosystem that the underlying fundamentals of what Bitcoin is become altered?
The privacy, the immutability, the decentralisation.
Are we essentially inviting in a virus? The thing that Bitcoin was supposed to protect us from back in 2008.
Unfortunately, I don’t know the answer to this question but it’s going to be a key question that we’re going to have to face as an industry in the years to come.
Re-Evaluating the Controversy Surrounding Memecoins
Society is witnessing massive changes. The surge of populism in the Western world has caused huge political divides on both the left and right. This division seems to largely stem from a contrast in wealth and equality with a significant segment of the population lacking financial resources and opportunities.
In light of the wealth disparity, the transfer of wealth from baby boomers to millennials is poised to reach unprecedented heights, estimated at around $72 trillion (Statista, 2024).
As reported by CNN, millennials are on track to become the wealthiest generation ever, projected to accumulate approximately $90 trillion over the next twenty years (CNN Business, 2024).
This leads me to two crucial questions:
How do millennials define “value” in comparison to previous generations? And if millennials are reinterpreting the significance of their assets, how will this influence investments in emerging technologies such as cryptocurrency, artificial intelligence, and space exploration?
According to EY, millennials are 20% more inclined than the average investor to pursue alternative investments like gold and cryptocurrency.
You don’t need to be a financial expert to recognize the implications here: millennials are moving away from traditional wealth management strategies in favour of innovative opportunities.
I truly believe memecoins are just another emerging avenue for millennials to park their capital. The conversation around memes has generated considerable debate, yet their allure is straightforward: they are entertaining, devoid of superficial technological sophistication, and represent a natural reaction to the opaque insider dynamics of the current VC coin market.
Historically, the visibility and access to new assets depended heavily on centralized exchange listings. However, the landscape has evolved, with numerous ways to trade innovative assets on-chain, making the process increasingly seamless.
Altcoin trading for me always resembled a strategic heist: enter, capitalize on favorable conditions, exit swiftly, and avoid returning to the same opportunities. This strategy implies a short-term investment horizon and minimal long-term loyalty. The only true loyalty one should have in this space is to Bitcoin and to some extent Ethereum as they’ve stood the test of time.
So far, memecoins have emerged as significant winners of this cycle and at it’s core it’s a celebration of human expression, a playground of experimentation all vividly portrayed in the erratic movements of a candlestick chart.
Tokens are the new content
The buy button is the new like button
Marketcap is the new engagement metric
Trading fees are the new ad revenue
.webp)
The Macro Climate
Macro was a word that many didn’t want to hear after 2022. Yet here we are 2 years later still talking about interest rates, inflation, and war. It almost feels like I’m writing about a dystopian world, you have to pinch yourself sometimes because the world seems like such a different place post 2020 than it did pre.
Narratives drive markets, not the other way around. Let’s take a look at some of the current exo-endogenous factors to consider in relation to Bitcoin.
+ Institutional adoption reaching new heights with ETFs
+ Strong US economy signalling no immediate recessionary risks
+ Most central banks around the world have begun their easing cycle
+ Potential Trump victory
+ India becoming more accommodative for the first time since 2020 (Binance unbanned)
+ Russia embracing BTC and allowing mining
+ Global liquidity beginning to breakout (m2) and macro cycle oscillating upward similar to late 2020
– Global geopolitical turmoil (Iran/Israel/Palestine)(Ukraine/Russia/NATO)(China/Taiwan)
– Mt Gox distributions
– US gov wallet movements
– Altcoin distributions/unlocks
I mean, how can you even keep up with all of that?! Might I add that 90% of these points have just emerged over the last couple of months too.
This is why I have labelled 2024 as the year of narratives. People need something to latch onto, they need a reason to buy into something.
Narratives drive markets, not the other way around
To break it all down and save you the confusion of keeping up with a million different narratives and events the macro picture looks good for the next 12 months.
Interest rates are being cut, global liquidity is on the rise and the largest nation on the planet is becoming more accommodative towards crypto. Whether Trump wins or not is just noise in my opinion. A lot of the factors mentioned in that list are just noise in fact and likely won’t matter come Q1 2025. This market will test your resolve to the maximum before it rewards you.
One of the biggest risks popping up on people’s radar right now is the risk of recession and while that is a valid point to take into account, I ask you what has happened every other time in history when the US has entered a recession or feared the risk of an impending recession? The Federal Reserve lowers interest rates and becomes far more accommodating to the economy and financial markets.
Central banks are the only game in town. We’re living in a post-2008 world where the Fed no longer has control over the economy and markets like they once did. They’re a slave to the markets, and if it decides to throw a tantrum the Fed and the government are always on hand to rock the cradle.
VC Funding in Crypto: A Mixed Bag
Over the past few years, raising capital has been an uphill battle for crypto start-ups. The collapse of several crypto companies in 2022, along with plummeting stock valuations and token prices, left investors hesitant to jump back into the fray. The demand from investors remained lukewarm, as many were wary of getting burned again.
However, there’s a growing sense that the tide might finally be turning. According to Galaxy Research, investments in crypto businesses surged to $3.2 billion in the second quarter of this year marking the highest quarterly investment total since 2022. This is a significant increase from the $2.5 billion raised in the first quarter and is a much-needed boost for the digital asset industry. The renewed enthusiasm can be largely attributed to the rising price of Bitcoin, which has made investors more willing to open their wallets once again. Despite a recent dip, Bitcoin remains up 34% this year, outperforming the S&P 500 index, and buoyed by the approval of spot Bitcoin ETFs in January.
The size of the deals being made is also on the rise, with the median deal size climbing from $3 million in the first quarter to $3.2 million in the second quarter. Even more striking is the sharp increase in company valuations. Median pre-money valuations representing a company’s worth before it receives outside funding have jumped from $19 million to $37 million. This surge underscores how crypto companies are positioning themselves for a comeback and suggests that the industry is regaining momentum.
Interestingly, it’s the web3, NFT, metaverse, and gaming sectors that attracted the most investment in the second quarter, despite being among the hardest hit during the previous downturn. Infrastructure companies followed closely behind. The resurgence in these areas might be seen as a return to the heady days of market excitement, especially since the metaverse and NFTs were once among the most hyped sectors before their valuations were slashed.
There’s also been a notable increase in the intersection of crypto and artificial intelligence (AI), with some companies pivoting towards AI to capitalize on its current popularity. This strategy seems to be paying off, as investors are eager to get in on the AI boom. For example, Sentient Labs, a blockchain-based AI company founded this year, managed to raise $85 million from high-profile investors, including Pantera Capital and Peter Thiel’s Founders Fund.
However, not all is smooth sailing. There may be challenges ahead, particularly with regulatory scrutiny intensifying. Ari Paul, the chief investment officer of BlockTower Capital, recently noted on a podcast that the U.S. Securities and Exchange Commission (SEC) is targeting crypto venture capitalists in a series of investigations, accusing them of acting as unregistered securities dealers.
So while the outlook for crypto start-ups is looking brighter, it’s clear that the storm clouds of the past few years haven’t completely cleared just yet.
The 2024 U.S. Election: Crypto in the Political Spotlight
In recent weeks, the odds of a Trump win have soared to over 56% as we get closer and closer to what will be a historic US election.
Now that we’re less than a month away let’s run with the idea that Trump did win. What would that look like for the broader macro market and crypto?
The first thing we need to consider is the policies Trump might implement. His return is expected to lead to higher inflation due to tax cuts, increased spending, and a renewed trade war with China, reminiscent of 2018.
Hedge funds are already capitalising on this in what is being dubbed the "Powell x Trump trade." Expectations that the Fed will continue to take a looser approach to monetary policy will decrease short-term yields and spur on risk markets like tech and crypto, which we’ve been seeing since the first 0.50% cut in interest rates.
As someone who's been entrenched in the crypto space since 2017, it's astonishing that we (potentially) have a future president who is pro-crypto.
When I look at the Trump movement, it reminds me of a conversation between Paul Tudor Jones and Stanley Druckenmiller, two absolute behemoths in the macro hedge fund space.
When Bitcoin dropped from $17,000 to $3,000, Druckenmiller admitted, "So here’s something with a finite supply and 86% of the owners are religious zealots. I mean, who the hell holds something through $17,000 to $3,000? And it turns out none of the 86% sold it."
The key word there for me is "religious zealots."
When I saw Trump appear days after an assassination attempt at the Republican National Convention to accept his nomination for President of the United States, I had never seen such admiration, loyalty, and belief in a person.
The Trump movement is a religion, much like the Bitcoin movement. His supporters have seen him fight off court case after court case, and seen him survive an assassination, this is bigger than just a political movement and it’s for that reason I believe Trump remains the favourite to regain his seat in the Oval Office.
The question is what does the country look like after a Trump win? How do the left respond?
.webp)
Solana vs. Ethereum: The Battle for Number 2
One of the biggest narratives during this current cycle has been Solana vs Ethereum.
Let’s put the spotlight on Ethereum first as it’s rightfully held onto that number 2 spot for consecutive cycles now.
Each crypto cycle has an outperformer, our job as traders/investors is to spot that opportunity early enough to gain maximum reward.
2016-17 was labelled the ICO cycle as it was the first time when altcoins really emerged and started to take dominance and market share away from Bitcoin.
You can see in the chart below Bitcoin went from having 95% dominance over the crypto market in March 2017 to just 37% in December 2017.
This was money flowing out of Bitcoin into Altcoins. Ethereum was one of the biggest gainers of this seeing it’s price go from $50 in March 2017 to $1400 in December 2017.
During 2020-2021 Ethereum’s price saw a direct network effect from the rise of NFTs. Pretty much cementing itself as the number 2 to Bitcoin.
However, in that same cycle, another token emerged which outperformed ETH and garnered a lot of attention through it’s quirky branding and affiliation with Sam Bankman-Fried. Now, that affiliation with SBF came back to hurt SOL at the pits of the bear market, and it ended up falling over 90% providing investors with a discount sub $10. But it’s comeback since 2023 is a testament to it’s strong community and developer network.
It’s evident that retail investors aren’t as excited by Ethereum as they were in the past. I think a little bit of this has to do with psychology and diminishing returns. Ethereum is much more expensive than it was in the last cycle. Imagine, you could have bought 1 Ethereum for under $100 during the Covid crash.
Aside from that, it’s still a very expensive network to transact on, people are opting for where the attention is, and they’re opting for a cheaper more efficient network in Solana.
Memecoins for Solana have been the equivalent of NFTs on Ethereum. The price saw a direct network effect and was immediately re-priced higher. You have to remember each cycle has the new shiny toy that everyone loves to play with.
2016-17 it was ICO’s
2020-21 it was NFTs and metaverse tokens
2024-25 it’s Memecoins
The SOL/ETH chart tells you everything you need to know about what’s going to outperform over the next 12 months. This isn’t about picking a favourite or being tribalistic, it’s about going where the attention is and I think that has been made abundantly clear over the last 18 months.
Final Thoughts
After navigating the crypto market for the better part of 7 years I’ve come out looking a lot like some of these economies at the end of this monetary tightening cycle - bruised and battered, however very much numb to any swings in volatility.
It’s very hard for me to give a bearish take on where the crypto market is heading in the next 12 months. The system will be awash with liquidity, monetary policy will be considerably easier and the US economy looks to be avoiding a recession.
The time to be risk on is now, not after Bitcoin starts breaching its all-time highs and entering escape velocity.
If you’re confused as to what escape velocity is see the chart below…
This current cycle and the next will be the most defining for Bitcoin as it enters the maturity phase of its S curve. The ETF was just the first stepping stone, BlackRock and Fidelity have already confirmed that pension funds and sovereign wealth funds are exploring their Bitcoin products.
Since the ETF launched the record inflows caught everyone by surprise but this recent lull shouldn’t be alarming for investors as it’s very likely the next leg up in inflows will be led by a different type of investor.
When introducing Bitcoin to newcomers in the crypto realm, I often simplify its essence to a fundamental principle of economics: supply and demand, Economics 101. Consider an asset that grows scarcer with time, coupled with an ever-increasing demand, naturally leading to a continuous uptrend in price.
In February 2022 I wrote a report which highlighted a pivotal insight—that over time, the emphasis shifts from the overall supply of Bitcoin to the dynamics of EXISTING supply.
Let’s not forget that 78% of Bitcoin’s circulating supply rests in the hands of long-term holders. Even during the tumultuous plunge from $17,000 to $3,000, a staggering 86% of holders didn’t sell.
Fast forward to the present day and we have a dynamic where 450 Bitcoin are being brought onto the market daily by miners and demand through ETFs at its peak this year was in excess of 10,000 BTC.
Now, contemplate the implications as this daily supply dwindles to 225 in four years, then halving further in subsequent years. The trajectory is clear—supply will become a mere afterthought as it approaches infinitesimal levels. The crux lies in understanding demand dynamics over the next decade. From sovereign wealth funds, family offices, pension funds, and even governments, all eyes are on Bitcoin as the singular life raft amidst a brewing sea of monetary inflation.
This year has been pivotal for the crypto space, setting the stage for potential long-term transformations. Here's a comprehensive look at the year so far, covering everything from Bitcoin's ETF launch, the staying power of memecoins, and the ongoing debate between Solana and Ethereum.
ETFs: A New Era or Threat To Bitcoin’s Decentralisation?
A Bitcoin ETF has been a decade long dream in the crypto space ever since the Winklevoss twins submitted an application for it’s approval in 2013.
Even though Bitcoin started out as an alternative to the traditional financial system we’ve always craved for it’s approval from the tradfi ecosystem due to the inflows of capital it would inevitably receive.
The question is whether this comes at the cost of the network? Do we risk the decentralisation of Bitcoin in the process? Let’s take a look at some numbers…
Firstly, $IBIT, BlackRock’s flagship Bitcoin ETF product was the most successful ETF launch in history.
Prior to the Bitcoin ETFs, the record speed for an ETF to reach $10 billion in assets was held by $JEPQ who did it in 647 trading days (nearly three years). $IBIT got there in 49 days, $FBTC (Fidelity) in 77 days.
