8DC February 2024 Market Update
[Originally posted on March 1, 2024]
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
We’re only two months into 2024, and we’ve already seen plenty of fireworks! Strap in because it looks like we’re in for an exciting ride.
Foundation
At this point in the cycle, Bitcoin continues to lead the way (with Ethereum close on its heels as ETH is currently outperforming BTC by 2% in the quarter). As such, we’re happy to be more skewed towards Foundation, although we’re starting to build out bigger positions in our Frontier.
Bitcoin ETFs
We thought we were done talking about Bitcoin ETFs, but they continue to steal the limelight. The amount of inflows has been nothing short of impressive. We just set a new record for trading volume, blowing day one volumes out of the water.
Consistently we’ve been seeing Bitcoin ETF Net Inflows 10x the daily supply of new Bitcoin. This demand surge shows no signs of stopping, especially since we’re about 50 days away from the Halving when daily Bitcoin produced gets cut to ~450.
And for some perspective on how these ETFs are performing relative to the rest of the ETF market, $IBIT alone recently had more trades than the famed tech ETF $QQQ. In just more than a month of trading, Bitcoin ETFs are quickly approaching 50% of Gold ETFs which launched in 2004… probably nothing.
On top of all this, in many ways the party hasn’t even truly started yet. Many financial institutions are prohibited from trading or marketing an ETF until after it has 90 days of trading volume. The primary net new accessible market for these ETFs are wealth managers and financial advisors, who have not had a real way to allocate client capital to Bitcoin exposure. The total US Wealth Management AUM is over $48T, and when you have Fidelity recommending all their clients have 1–3% crypto allocation, and reportedly Blackrock suggesting a 28% crypto allocation, it’s only a matter of time before this $48T wave of wealth management capital comes crashing into crypto.
Alex Thorn, Head of Research at Galaxy, poetically said,
A wave of new demand is smashing against a programmatically scarce asset of which 75% is held by long-term holders, many of them diamond-handed zealots forged in the fire of several volatile market cycles.
Another quote from Matt Hougan, Bitwise CIO (Bitwise launched one of the BTC ETFs in Jan), in a memo to advisors and institutional clients mid-Feb:
The price of bitcoin is rising. How high can prices go? We are entering a new era of price discovery for bitcoin.
Previously, only a fraction of the world’s investors could access bitcoin — mostly self-directed retail investors and technologists. That group drove the price above $40,000. Now, thanks to the ETFs, every investor in the world — financial advisors, family offices, institutions, endowments, and others — can access bitcoin. It’s like we went from 10 normal people bidding on a house to 100 very wealthy people bidding on a house, overnight. Not surprisingly, the price is going higher.
How big a deal is this?
Globally, asset and wealth managers control $115 trillion of capital, according to PWC. Almost none of this money could access bitcoin in 2023. Today it can. If we see a 1% allocation to bitcoin, that’s more than $1 trillion of buying … a figure that exceeds bitcoin’s current market capitalization.
To put it differently, it’s like bitcoin had its initial public offering and the market is now finding its true price.
You can hear more from him in an interview with CNBC around this same topic: https://x.com/matt_hougan/status/1763259177198391656?s=46&t=d5FByQtDzMnWmn4ssPM3kw
We’ve never seen Bitcoin price run so fast so quickly in a cycle. For context, ~50 days before previous halvings, Bitcoin was 60–70% off its previous ATHs. Currently we’re less than 12% off the 2021 ATH of 69K. Truly — this time is different since the introduction of Bitcoin ETFs into the game.
At our SOTU Event in January we predicted we would see $100K BTC in 2024. At this rate, we might get there in the first half of 2024!
Ethereum
We’ve spent a lot of time talking about Bitcoin, but let’s not forget the Queen of Crypto. With Ethereum ETFs highly likely this year (could be as soon as May), we’re prepared to run the Bitcoin ETF playbook again, but likely with higher volatility.
Bitcoin has been center stage, but Ethereum has been quietly waiting in the wings for its time to shine. This current quarter ETHBTC is up ~2% which represents the first positive quarter since Q4 2022.
Back on November 13, we posted the following:
Many have been frustrated by the lagging performance of Ethereum this year. Many have been too ready to dance on ETH’s grave or think it’s too early to have ETH exposure with Bitcoin’s dominance. Many BTC Maxis were doing victory laps celebrating that there would only be a Bitcoin spot ETF. Don’t look now, but Blackrock just filed for a spot Ethereum ETF and sent ETH rocketing to $2100.
ETH just broke out of its 18 month ascending triangle (which has over 4K as a target in the medium term).
ETH is up over 66% since we posted this reaching just shy of $3500. And the best part is that ETH is just warming up. It’s still 30% from its all time highs.
Frontier
Frontier will continue to be a more and more important area of focus for us as this cycle develops. However, for the time being we are still dipping our toes in the water when it comes to Altcoins. A lot of this goes back to how Bitcoin ETFs could alter the market this time around.
Everyone knows the famous crypto money waterfall:
However, now that a huge amount of new crypto investors are entering through the ETFs, the profile of crypto investors changes with it. In previous cycles, if a crypto trader buys Bitcoin on an exchange, when he/she realizes gains on a Bitcoin pump, it’s a few clicks to roll those gains into the next up-and-coming Altcoin. The Bitcoin ETFs change that, as investors won’t have ready access to the underlying BTC that they purchased. There is more friction to rotate into Altcoins and move farther down the risk curve. This, coupled with the fact that ETF investors are likely more buy-and-hold as opposed to day traders, means that potentially we see a decline in some of the rotation plays that have typically happened in crypto.
That said, degens are still going to degen, and we’re going to be along for the ride.
Let us know if we can be helpful in any way.
~ 8DC Team
