Focus Shifts to Bitcoin

Following the recent U.S. presidential elections, Bitcoin experienced a surge in growth, reclaiming its position in the spotlight after previously reaching highs of $73,000 in March. The question now is whether Bitcoin will continue its upward trend and when a sharp reversal might occur. Examining past Bitcoin market cycles, which occur every four years, it appears that we are entering new price discovery areas for Bitcoin, with potential highs exceeding the current resistance of $92,000. Based on prior supply and demand patterns, including halving cycles, Bitcoin could potentially reach highs of $140,000 or more. However, this market cycle differs from others in that the concept of Bitcoin as an inflation hedge or digital gold has largely disappeared. In theory, this was its intended purpose, as it was created after the 2008 financial crisis. The last cryptocurrency bear market cycle showed that Bitcoin does not act as an actual inflation hedge and instead performs like other risk-on assets, so sentiment may change once the inauguration takes place in January. As seen before, political developments may not have a significant impact until regulatory rollouts and a more favorable U.S. stance on cryptocurrency are implemented through policies and laws. The recent news of Gensler's resignation, effective January 20, 2025, is a step in the right direction. However, the identity of his replacement remains a concern, as the wrong person could lead to a change in sentiment and accelerate a decline in Bitcoin's price. Previously, Fed meeting minutes have had a negative impact on crypto prices. In other words, the situation is still uncertain, especially until there is clarity on who will replace Gensler. Bitcoin ETFs played a crucial role in institutionalizing cryptocurrency this year, allowing for RIA and fiduciary investment in Bitcoin. However, in a turnaround market, the same volumes that contributed to Bitcoin's current position could lead to a downfall. This can result in crippling sentiment, as the crypto bull market is not permanent and drawdowns of 70-80% can be expected. Looking at prior Bitcoin bull market cycles, drawdowns of 20-30% have been common. Can the same be expected under the current market structure? Analysts anticipate less severe drawdowns and volatility due to the BTC ETF options offered by iShares and others. However, systematic strategies still seem to be in demand, with investors taking bets on market volatility, which recently saw an equity market-like expansion in the crypto markets. With more market participants and shorting functionality across all crypto assets, including Bitcoin, this can create more volatility in the short term. Compared to the last market cycle, there are now more traditional finance players trading and market making in the space. This is offset by more institutional capital being locked up, mostly in ETFs, since the venture space in crypto has dried up. Although the market cycle of Bitcoin will always be volatile due to its decentralized nature, the influx of institutional capital can mitigate this to some extent. Regardless of one's outlook on Bitcoin's price, it is essential to recognize that this is a different market than before. The days of quick returns with inherent crypto risk factors are gone. Investors must remain cautious yet optimistic about the market cycle and structure, and there are significant opportunities for all types of investors due to the industry's immense growth. The only certainty is that the new market cycle is just beginning.