Editor's note: The world's largest cryptocurrency – bitcoin (BTC) – had a volatile 2023... but it finished the year with a bang. Now, it's continuing its run higher in the new year. In today's piece, adapted from an October Stansberry Digest, we'll turn things over to my colleague Stephen Wooldridge II – an analyst on the Crypto Capital team. Stephen explains how bitcoin got the push it needed back in October... and discusses what to expect in cryptos this year.
On the surface, I believe the recent crypto rally is directly tied to the imminent approval of a bitcoin exchange-traded fund ("ETF") by the U.S. Securities and Exchange Commission ("SEC").
And I'm not alone. Some analysts think that an accidental tweet on X, previously known as Twitter, sparked this run higher back in October...
The tweet came from Cointelegraph – a relatively trusted source in the crypto community. It claimed that the SEC had approved BlackRock's request for launching a bitcoin ETF.
The famously volatile bitcoin market price broke out of four days of remarkable stability on October 16 following this report. Check it out...
That same day, the media outlet publicly apologized for what it said was a "false" post derived from misinformation.
But the market's rally held up through the backtrack. It even climbed in the days that followed.
And as I'll explain, that's a tell about crypto sentiment right now...
A rally over this news – real or not – makes a lot of sense...
A regulated bitcoin ETF would help bring more crypto exposure to a wider range of investors who don't want to trade in BTC directly. Against the backdrop of 12 months filled with regulatory uncertainty surrounding cryptocurrencies in the U.S., and popular centralized exchanges like FTX and BlockFi going bankrupt, that covers a lot of people.
But to end the discussion there would be an oversimplification of what's really going on with the crypto markets.
In truth, this rally is a small part of a slow climb that was building throughout 2023. The crypto market at large is recovering from a deep bear market that lasted throughout 2022.
We've been in an accumulation phase since January 2023. And in October, bitcoin broke past a key technical resistance level at $30,000 that had lasted since 2022's drawdown... so the future is as bright as it has been in quite a while.
This may sound like a bold claim, but it's not a stretch to say that we may very well be on the cusp of a historic bull market in cryptos unlike anything we've ever seen.
A number of factors support this optimistic prediction...
SEC Chair Gary Gensler indirectly made a bullish case for crypto's future value after his speech at the Securities Enforcement Forum event in Washington, D.C. in October.
The speech itself presented a grim view of crypto investing, which is "rife with noncompliance," according to Gensler. But when fielding questions afterward, he said that the U.S. capital market is valued at upward of $110 trillion on its own, whereas the total crypto market cap was valued at just above $1 trillion at the time.
Thus, cryptos made up less than 1% of U.S. capital markets. (Since then, the total crypto market cap has risen to $1.7 trillion, just under 2% of U.S. capital markets.)
Gensler used this to indicate that people are talking about cryptos too much when they're still such a small sector of the overall market.
But we look at it a different way...
Considering the value of blockchain – the ledger that tracks a crypto's transactions – this ultimately means that the prices we've seen thus far are wildly undervalued, and we're still very early in the development of cryptocurrencies.
And if that idea doesn't excite you, maybe this will...
Bitcoin may have jumped from $27,000 to $29,000 on October 16, but since then, it has rallied higher than $45,800 on January 2nd. Anyone expecting a pullback has been on the wrong side of the trade... BTC has offered little indication that its price could be dropping significantly anytime soon.
One of the biggest reasons to expect a surge of value over the next 12 months comes from a technology built into bitcoin's code since its origin. You see, bitcoin is due for another "halving," estimated to occur sometime in April.
Every four years, bitcoin miners start receiving half of their previous rewards for processing bitcoin transactions. Halvings significantly slow down bitcoin's inflation rates. And historically speaking, these halvings are always followed by a substantial rally.
The most recent halving took place in May 2020, when BTC was priced around $8,600. It was followed by a significant bull run that left BTC priced at $56,900 in May 2021. That's an increase of 561% in one year. And the previous halving, in July 2016, saw gains of 287% in the same time frame.
Because of bitcoin's dominance in the crypto markets, currently making up about 49% of the total crypto market cap, BTC's halvings are a good predictor of an incoming bull run. But alternative cryptocurrencies, coined "altcoins," often see the biggest gains.
For example, our publication Crypto Capital closed out five separate 1,000%-plus gains in 2021, near the peak of the last BTC halving bull run.
But even without the "halving indicator," there are other unseen factors influencing the markets that are setting it up for a successful run over the next year...
Back in October, Arthur Hayes, co-founder of the centralized exchange BitMEX, offered a view from left field concerning the then-recent rally that made a lot of sense. He claimed the rally wasn't from the looming bitcoin ETF approval, but instead was an unexpected consequence of the ongoing wars in Ukraine and Israel.
As the U.S. beefs up its military spending, which could rapidly increase if war breaks out in more corners of the globe, U.S. inflation will be gearing up to hit an all-time high. And scarce commodities, like precious metals and cryptos, can act as a hedge against that.
It's notable that bitcoin's recent rally has coincided with a rally in gold, too.
Yet beyond crypto's monetary value, which we value against U.S. dollars that are affected by inflation, utility is what really sets cryptos apart as an asset class.
Cryptocurrencies and the blockchain technology they're built on have opened up a new world of decentralized, community-run financial opportunities, coined decentralized finance ("DeFi").
This category includes self-repaying loans, loans that don't require a middleman, real-world assets like real estate and precious metals that can exist in a digital and borderless form, yield-bearing vaults on a variety of assets, and new innovations that folks haven't even conceived yet.
In short, cryptos (still) will change the way we do things...
They'll touch things like buying concert tickets to financing homes, without us even realizing that we're using them.
They will streamline complicated processes, put the power back in the hands of people, cut out unnecessary middlemen, and define the way we interact with the financial landscape of a globally connected world.
That's the real value cryptocurrencies bring. And we believe crypto's inherent usefulness will be valued much higher than it is today by individual investors and institutions. What's more, the users of DeFi protocols both benefit from its value and ultimately control its development.
But in the meantime, we'll be keeping a close eye on cryptos. And we'll prepare for the next halving as it approaches.
Stephen Wooldridge II
Editor's note: Big things are coming in the crypto market in 2024. In fact, right now, three major catalysts are converging in the crypto space that could create a massive buying opportunity...
This past Wednesday, Crypto Capital editor Eric Wade hosted an online emergency briefing to detail what he sees coming this year. He delivered an urgent analysis and shared what to do today to position yourself for the biggest returns. Plus, he issued the strongest buy recommendation of his career. Click here to learn more.
"FedNow will revolutionize the way finance works in the U.S.," Eric writes. The Federal Reserve's digital-payments platform officially launched last summer. And as more U.S. banks and blockchains adopt this system, it'll be a tailwind for the crypto industry... Learn more here.
"Smart investors know staying disciplined is critical," Corey McLaughlin writes. This is especially true when it comes to investing in volatile assets like bitcoin. But as long as you maintain your long-term mindset, volatility can end up being your friend... Read more here.