Bitcoin enters a new stage, how will it develop in the future

As Bitcoin has reached $30,000, it has essentially entered a new stage. In a sense, the direct driving factor of this round of market is a piece of fake news about the approval of the Bitcoin ETF, but driven by the continuous emergence of good news, Bitcoin continues to break new highs in hesitation. However, judging from the on-chain data, retail investors continue to pour in, while large funds show signs of leaving the market. How should we view the deep logic behind the current rise of Bitcoin? How will Bitcoin develop in the future?

Bitcoin enters a new phase

We pointed out in a previous article: "The reason why Bitcoin's $30,000 is important is that it is likely to be the dividing point between bull and bear markets; if it effectively breaks through the previous high, it will enter the early stage of the bull market, and if it fails to effectively break through, it will still be in the tail of the bear market." Judging from the current trend of Bitcoin, it has undoubtedly entered the early stage of the bull market. Let's introduce this new stage from different dimensions.

From the perspective of Bitcoin halving cycle, Bitcoin has indeed entered a new stage. According to PlanB 's S2F model, Bitcoin has entered the "6 months before halving - 18 months after halving" period. At this stage, the returns of buying and holding are very good.

PlanB even said, “In my opinion, the Bitcoin bull market (green) is inevitable. The only question is: when will FOMO start, how high will this bull market go, and how long will it last?”

In addition to the approaching Bitcoin halving, the road to regulatory compliance of crypto assets has reached an important turning point. The launch of Bitcoin ETF seems to be imminent. Faced with the potential huge market dividends, the investment sentiment in the crypto market is high. In the Ripple case, on October 3, Judge Torres rejected the SEC's appeal; on October 19, the SEC withdrew all charges against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen, canceling the trial scheduled for next year. In August 2023, court documents showed that a three-judge appeal panel in Washington overturned the decision of the U.S. Securities and Exchange Commission (SEC) to block the Grayscale ETF. On October 19, Grayscale posted on the X platform that it had submitted an S-3 form as part of its efforts to convert GBTC into an ETF. "On November 9, according to people familiar with the matter, the U.S. Securities and Exchange Commission (SEC) has opened a dialogue with Grayscale Investments (Grayscale) on the details of its application to convert its trust product GBTC into an ETF.

Bloomberg ETF analyst James Seyffart wrote on the X platform: “We still believe that there is a 90% chance that the spot Bitcoin ETF application will be approved by January 10. But if it is approved in advance, we will enter a window period. The window period will end on November 17. But in theory, the SEC can make a decision on the first nine on the list at any time between now and January 10, 2024.”

From the perspective of the macro cycle, the Fed's economic policy has also begun to show signs of a certain shift, and the interest rate hike may come to an end. On November 1, local time in the United States, the Federal Reserve announced its latest interest rate decision, announcing that it would maintain the benchmark interest rate unchanged (between 5.25% and 5.5%). This is also the second consecutive time that the Federal Reserve has suspended interest rate hikes after the September meeting. In a statement issued on the same day, the Federal Reserve said that recent indicators show that economic activity in the United States expanded at a strong pace in the third quarter, job growth has slowed since earlier this year, but it is still strong, and inflation remains high. In determining the extent of further tightening policy, the Federal Reserve will consider the cumulative tightening of monetary policy, the lag in the impact of monetary policy on economic activity and inflation, and economic and financial developments. The Federal Reserve will continue to reduce its holdings of U.S. Treasury bonds, agency debt, and agency mortgage-backed securities, and is firmly committed to restoring the inflation rate to the target of 2%.

Huatai Securities pointed out that Powell did not rule out the possibility of subsequent rate hikes, saying that he had not yet decided whether to raise interest rates in December, but his statements on the tightening of financial conditions and the decay of the effectiveness of the dot plot over time suggested that the Fed may have ended the rate hike cycle, and the overall statement released a dovish signal. It is highly likely that the Fed will not raise interest rates at the December meeting. However, if inflation exceeds expectations significantly in the near future, especially if core inflation and inflation expectations rebound significantly, the possibility of the Fed raising interest rates again may increase. CICC pointed out that if the overall financial conditions reflected by the current US Treasury bond interest rate and the economic situation maintain the current balance, then the Fed may continue to suspend interest rate hikes in December, but if one side breaks this balance, such as a sharp decline in US Treasury bonds or economic data exceeding expectations, then interest rate hikes may still be on the table.

Bitcoin still needs a test of support

There are indeed many positive factors in this round of Bitcoin's rise, but overall the degree of capital speculation is still very high, and Bitcoin may still need to fall to test support.

The direct stimulus for this round of Bitcoin rise was mainly caused by a piece of fake news about the approval of the Bitcoin ETF. Subsequently, with the continuous release of positive news about the Bitcoin ETF, market sentiment continued to mobilize, and funds began to pour in. This part of funds was mainly from retail investors, which reflects the market's FoMo sentiment.

Judging from the on-chain data, small-scale investors (holding less than 10 BTC) are not only in a state of increasing their holdings, but also in the strongest trend of increasing holdings. In particular, investors holding less than 1 BTC have the largest increase on the chain. Except for super whales holding more than 100,000 BTC, whales are generally in a state of reducing their holdings, and the intensity of the reduction is still very large.

According to Bitpush, Glassnode data shows that on November 2, Bitcoin saw its fourth major inflow, with a capital scale of $300 million. As soon as the capital flowed in, Bitcoin began to fall. In a sense, this shows that large funds do show signs of cashing out, but judging from the proportion of long-term holders, it is still at a high level.

In this round of Bitcoin's rise, options have a huge boosting effect, which also means that its bubble is still very large. Alex Thorn, head of research at crypto financial services company Galaxy Digital, posted on the X platform: "As BTC spot prices rise, option market makers are increasingly shorting Gamma. When you short Gamma and spot px rises, you need to buy back spot to maintain Delta neutrality. This should amplify the explosiveness of any recent short-term rises. After the price reaches $32,500, market makers need to buy $20 million of Delta for every subsequent 1% increase." Note: Gamma: a measure of the sensitivity of option Delta. The larger the Gamma, the greater the Delta volatility; Delta: a measure of the sensitivity of option prices to the underlying price. For example, if a BTC option has Delta = 0.6, then BTC rises by 1 U and the option price rises by 0.6; Delta neutrality: If an investment portfolio consists of related financial products and its value is not affected by small price changes of the underlying asset, such an investment portfolio has the property of Delta neutrality.

The current rise of Bitcoin is mainly affected by the passing of spot ETFs, but as a risky asset, Bitcoin is difficult to get out of the bull market directly in the context of the global economy still facing many challenges. The most important thing is that the Federal Reserve is still in a rate hike cycle. The Federal Reserve has always emphasized that the US inflation rate should be controlled at 2%, but it is still far from this goal. Although the market has seen some positive signals, it may not be appropriate to be too optimistic too early. According to Bitpush, Federal Reserve Governor Bowman said that we expect that we will still need to further increase the federal funds rate.

In addition, we can also learn from gold ETFs. In March 2003, Australia opened the world's first gold ETF. In October 2004, the SEC approved the first gold ETF in the United States, GLD. In November 2004, the US gold ETF GLD officially took effect and began trading. At that time, the Federal Reserve implemented a relatively loose monetary policy. Gold rose sharply after the first gold ETF was approved, and it continued until the US ETF began trading. The US gold ETF GLD continued to sprint slightly after the SEC approved it. After the US gold ETF began trading, it fell by about 9% in two months, falling below the price when the ETF was approved. However, with the gold ETF not needing to keep metals and custody, more traders can easily invest through ETFs. In the following years, more funds entered this market. The financial crisis in 2008 pushed gold to $1,000. History does not repeat itself simply, but it is often surprisingly similar. Will Bitcoin play the same story?

Cryptocurrency Outlook for 2024

Although we believe that Bitcoin may still test support in the short term, this test will become insignificant in the face of the huge opportunities in 2024. From various signs, the passage of Bitcoin ETF and Bitcoin halving will undoubtedly become the main driving force for the next round of Bitcoin bull market. The US wealth management industry may be the most accessible and direct market, and a new wealth creation effect is about to begin.

Galaxy estimates that the potential market size of the US spot Bitcoin ETF in the first year after its launch is approximately $14 trillion. It believes that the US wealth management industry may be the most accessible and direct market for accessibility reasons and gain the most net new accessibility from approved Bitcoin ETFs. As of October 2023, broker-dealers ($27 trillion), banks ($11 trillion), and RIAs ($9 trillion) manage a total of $48.3 trillion in assets.

The Bitcoin ETF access cycle across these segments could continue for several years as channels open up for access. We assume that the RIA channel will start growing from 50% in year 1 and increase to 100% in year 3. For the broker-dealer and bank channels, we assume slower growth, starting at 25% in year 1 and steadily increasing to 75% in year 3. Based on these assumptions, we estimate the potential market size of a U.S. spot Bitcoin ETF to be approximately $14 trillion in year 1, $26 trillion in year 2, and $39 trillion in year 3.

A crypto V Chain Research Society believes that referring to the time when the last round of Grayscale Trust was approved, I think the most likely scenario at present is: the Bitcoin spot ETF application is approved in January 2024 (the Federal Reserve no longer raises interest rates or the market has no expectation of interest rate hikes); the Bitcoin spot ETF takes effect in April 2024 (before the Bitcoin halving, it helps to attract funds); the Bitcoin bull market officially starts in July 2024 (after the adjustment after the halving and the expectation of monetary easing is realized in the market); in September 2024, the Federal Reserve begins to enter a rate cut cycle and implements a monetary easing policy. (Once the expectation of interest rate cuts is released, the risk market will immediately realize it, 1 to 2 months in advance. We can refer to the prerequisite indicator that GDP is greater than CPI).

Summarize

In the short term, Bloomberg analysts' research shows that the Bitcoin ETF is likely to be approved in January next year. Combined with the current SEC's measures, this is becoming the consensus of most people in the market. The crypto market is bullish and the price of Bitcoin continues to be supported. At the same time, with the continuous rise of Bitcoin, affected by the options market, this further amplifies the rise of Bitcoin. This article believes that in the context of macroeconomic uncertainty, this bubble will eventually cause Bitcoin to form a bottom test. In the long term, the Fed's interest rate hike cycle is about to end or has ended, and with the advent of Bitcoin halving (April), we are expected to see the arrival of a big bull market in 2024. With the clarification of US supervision and the influx of capital from large institutions such as Wall Street, a new round of bull market seems to be in the near future.