Rollercoaster prices. A new ETP. Regulatory uncertainty. And now, some are wondering if we might be on the cusp of another bear market.
Crypto has had a dramatic summer. But will the drama continue? Here are a few key areas to watch as we head into the last quarter of 2024.
Will bitcoin resume its uptrend?
Since making new highs at around $73,750 in March, bitcoin's price has chopped around. In early August, it dropped to roughly $49,220 before rallying back into the range it's been trading in since March.
The question on everybody's minds is whether we will see new all-time highs again. "Anything is possible, but historically bitcoin has not traded in a range for very long, and still remains volatile," says Fidelity Digital AssetsSM Research Director Chris Kuiper. "So my guess is we could see some movement out of the range by the end of the year."
Nevertheless, for many investors, the recent price drops haven't been easy to stomach. Some are even wondering if the bull market is over. While no one can predict the future, it's worth noting that the magnitudes of these drops have not been out of the ordinary, based on past performance.
"We 'only' saw an approximate 30% pullback from all-time highs this summer. I say 'only' in quotes as bitcoin has historically had regular 20–30% or more pullbacks, even within long-term bull markets," says Kuiper.
Nevertheless, as always, investors should be prepared for the possibility of similar levels of volatility going forward.
Which factors could impact bitcoin and the crypto market's prices from now until the end of the year?
A number of things that typically influence crypto prices could have a magnified impact over the next few months.
"I believe we are seeing bitcoin trade more and more on geopolitics, as it is a global and liquid alternative, so elections may be a factor on prices," says Kuiper. He notes that Fidelity Digital Assets has seen some correlation between bitcoin's price and changes in election polls, though the correlation may be fading. Nevertheless, November's outcome could have implications regarding crypto's regulatory future.
A bigger factor may be what happens with monetary policy. "Research by Fidelity Digital Assets shows the biggest macro factors affecting bitcoin and digital assets in general continue to be liquidity factors and inflation expectations," says Kuiper.
"We have seen a distinct shift lately of broad money supply measures (like M2 in the US) going from declining year over year to increasing. Historically, bitcoin and other digital assets have responded positively to more liquidity as well as sudden changes in inflation expectations."
There has been anticipation that the Fed will cut interest rates in September, which could help boost crypto prices if historical trends repeat themselves.
Should we continue to keep an eye on the spot bitcoin ETPs?
The spot bitcoin ETPs, which launched in January, played a role in this year's bull run. They've brought in a substantial number of investors who otherwise may not have been interested in buying spot bitcoin, and we now have 3 quarters' worth of data on their impact on the market.
"Net flows have certainly slowed for the bitcoin spot ETPs, but remain positive," says Kuiper. "These have been the most successful product launches of any ETPs on nearly every metric, so it's not surprising to see some slowdown."
Kuiper believes they will continue to have an effect on the market as their investor base is now a force to be reckoned with. "For example, all of the ETPs and similar funds worldwide now hold over 1 million bitcoin, or over 5% of the current bitcoin supply."1
Will ether's performance improve?
Despite the launch of the spot ether ETPs in July, ether's price has underperformed compared to bitcoin and many other cryptocurrencies. Fidelity Digital Assets Research Analyst Max Wadington sees 2 factors that could help it break out of its slump.
The first is reducing outflows from the ETPs (broadly speaking, outflows occur when investors take money out of an ETP or fund). While net flows are currently negative as of mid-August, outflows have been falling, which is a good sign overall.
"We also saw the first day of 0 outflows from a major ether ETP fund on August 12, and the recent outflows have been substantially less than when the ETPs began trading," says Wadington. However, he also expects that outflows will continue to prove an obstacle to reaching net positivity by the end of 2024.
The second and more important factor is what upcoming Q3 13F filings might reveal. Institutional fund managers are required to file Form 13F every quarter to disclose their holdings.
"If the filings show that the investment base for the spot ether ETPs is expanding beyond just hedge funds, it could spark a healthy narrative that there's true institutional interest," says Wadington. "The first several months of ETP trading don't matter as much as the longer-term picture. If we see a wide range of institutions allocating to the ether ETPs, that would be a strong signal of the potential longer-term success of these products and their positive impact to ether price."