Fri, 12/13/2024 - 08:48
After a period of relative calm and consolidation, the crypto world was shocked last week when Bitcoin rose above its key milestone of $100,000 for the first time ever. This historic achievement for an intangible asset that was once worth fractions of a single dollar underscores a remarkable comeback for the entire industry following the collapse of several important market players in 2022. A Wednesday night high of +5% or $103,853 was followed by a slight correction to $101,590 late Thursday morning, representing a total gain for Bitcoin of more than 520% from its local low below $16,000 back in November 2022.
The original cryptocurrency is now up more than 140% YTD and looks likely to continue on its positive run. Boom and bust cycles are nothing new for BTC, but this bull cycle has a different feel about it as retail and institutional investment begin to approach a similar dynamic to most other major financial markets, one boosted by big money as opposed to small-fry hobby traders. In this piece, we'll look more closely at these two very different investor profiles and discuss how their individual dynamics are likely to affect BTC pricing into 2025 and beyond, taking into account various macroeconomic and political factors.
Retail therapy
As has often been the case with crypto, retail traders have had a major part to play in the rapid gains we've seen in Bitcoin in the final quarter of 2024. However, even this is just another leg up on a much longer bull run that has lasted since January 2023 at least. Now that the original cryptocurrency has broken through the key Fibonacci and psychological level of 100,000, we would be wise to expect another spike in retail action during or immediately after the holidays. This would align with historical BTC price data from previous bull cycles.
In fact, after Bitcoin broke $7,000 in late 2017, a raft of ICOs prompted a retail-fuelled race to $20,000, which was over and down within the next three months. A similar occurrence was observed in 2021, when BTC broke $60,000 in March on NFT hype, only for two high-scale collapses to bring the whole thing crashing down by November. This large, retail-driven spike was followed by a relatively quick drop back down to reality in what has become modern-day proof of the adage about shoeshine boys and stock picks. Once the tabloid press covers a bull market, the inevitable crash is usually imminent. This time around, there is another added level of uncertainty in the form of the incoming Trump White House vocally in support of digital assets and the wildly different distribution of institutional and retail investors in 2024 versus the pre-pandemic period.
Big money talks
As we've already touched upon, the landscape of the crypto market has changed drastically since the pandemic, most notably in the proportion of retail investors compared to institutions. Just this past month, institutional BTC inflows have topped $80 billion and show little sign of declining. The introduction of an easily tradable and familiar vehicle for fund managers in the form of the new spot Bitcoin ETFs has certainly helped supercharge this growth, but it is also an organic response to the stabilization and reduction in volatility of BTC over recent years. The extent to which this will affect the trajectory of BTC into the new year and beyond remains to be seen, but we can certainly expect some additional upside once Trump and his nominees take power and begin enacting crypto-friendly legislation, which in turn will encourage the creation of more crypto-focused firms on Wall Street.
However, the next level of institutional adoption will be even more profound than that as central banks and even state treasuries begin actively building BTC reserves. We all know about El Salvador’s ambitious aims for Bitcoin, but now regional superpower Brazil is drafting its own Sovereign Strategic Bitcoin Reserve (RESBit) Act, while China, Florida and Pennsylvania are considering similar bills. With US Federal Reserve Chairman Jerome Powell describing Bitcoin as "like gold — it's just virtual and digital" this past week, the path is being laid for a worldwide accumulation of BTC as a store of value in a way that would see BTC’s price rise and, more importantly, remain high.
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