Bitwise Q4 2023 report summarized

In this post, I bring out the key slides from Bitwise’s excellent Q4 2023 report, organized into the following sections: Cycles, Diversification, Risk and return, Miners, Institutions, ETFs and ETPs. The most critical data point for a crypto index provider like Vinter is that the net inflows to crypto exchange-traded products (ETPs) are up by almost $2.5 billion in Q4 2023 after six slow quarters — it’s almost back to the +$3 billion inflows in Q4 2021.

Cycles

2024 and 2025 will be bull runs if the historical pattern of four-year cycles stay intact

The four-year cycles show up again when we compare BTC to other asset classes (gold, US REITs, US bonds, US equity, commodity, DM equity, EM equity).

Diversification

Crypto diversifies an existing portfolio since the correlation to other asset classes are low: rangin from -0.12 to 0.12 for a top ten index, which is exactly the kind of return stream a portfolio managers should love.

Correlations change over time. For most periods, it’s been inside the green zone -0.25 to 0.25, which is where we want it to be. I was concerned during 2022 when the correlation grew too high. Fortunately, we’re now back in the green zone.

Risk and return

A classic simulation: Add x% of BTC to a traditional portfolio and see what happens to risk and return measures during a certain sample period, here 2014–2023. The shape ratio goes from 0.414 to 0.644 with a 2% BTC allocation, rebalancing back to 2% quarterly.

The 30-day realized volatility has been declining for a long while now. That’s great for investors, as high volatility has been a key concern to not invest.

Miners

In 2023, Miners held on to their bitcoin: sold < mined.

Institutions

The institutions are here.

ETFs and ETPs

Net flows of ETPs are up by almost $2.5 billion in Q4 2023 after six slow quarters. Almost back to the +$3 billion inflows in Q4 2021.

AUM predictions for spot ETFs range from $30B by NYDIG and $25B by JPMorgan, up to $100B by Standard Chartered and Bloomberg Intelligence. The lower 25–30 billion estimates are accurate as of 2024–02–06.

Bitwise publishes excellent research, neatly packaged in a friendly way. Matt is a nice guy, which matters too. Read the full slide deck on their website

Crypto Market Quarterly Review (Q4 2023)