Altcoins
The rise of Bitcoin and Ethereum signals a promising year for digital assets
Last week’s approval of Bitcoin spot exchange-traded funds (ETFs) was quite an event. For a few days, our industry was the financial belle of the ball, with more than $4.5 billion in trade on Thursday. Pretty amazing to consider how long it took to get a real ETF going. Some things are worth waiting for.
Crypto Market Reality Check:
2024 sees the crypto market grow, rubbing shoulders with its larger asset class peers. Despite a difficult and uncertain economic environment over the past year, Bitcoin and Ethereum are strutting their stuff and becoming increasingly favored, serving as desirable alternatives to your run-of-the-mill stocks and bonds. Asset allocators are taking note of 2023 performance, which means demand for Bitcoin and Ethereum is on the rise.
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Spot Bitcoin ETFs – Don’t Ignore Them:
While the jury is still out on whether the Spot Bitcoin ETF launch week was a “buy the rumor, sell the news” event, in the medium to long term it will likely mark a turning point in adoption rates of cryptography. For what?
Because it is a more familiar and regulated way of allocating capital in the crypto market. Check out Coinbase and MicroStrategy stocks in 2023 – they outperformed Bitcoin, and that’s no coincidence. These ETFs will open the floodgates for registered investment advisors (RIAs), pension funds and hedge funds to get in on the action. Additionally, investment banks will begin concocting new products based on these ETFs and the CBOE is awaiting approval to begin listing options on these new ETFs.
Keep an eye on this space – it’s going to be a ride.
Influxes and big figures:
Prepare for a tsunami of money entering the crypto scene. RIAs manage around $130 trillion, and a 1-2% portfolio allocation to digital assets via ETFs could send $1-2.5 trillion into the crypto world, roughly the equivalent of the current market capitalization of the digital asset market.
Here’s the problem: this flow of liquidity is mainly going to flow into Bitcoin and Ethereum. Sorry, altcoins, you may have to wait your turn for now. But the rise of Bitcoin and Ether is expected to spill over to other digital assets, as crypto-native investors take profits on the majors and allocate their capital to smaller tokens. This will put native crypto players in the driver’s seat of Bitcoin dominance (see chart below), as they will be the investors able to play the basis and spreads between the majors and altcoins.
Now let’s talk about the recession and interest rates. If the US economy collapses at the end of 2024 due to rising interest rates, we will enter a dovish period in the interest rate cycle and guess who will benefit? Yes, digital assets.
Bitcoin, with its digital scarcity, and Ethereum, with its increasingly deflationary tokenomics post-merger, will shine brightly in a world of growing deficits, government spending, and abundant fiat liquidity. But keep your expectations moderate. There will inevitably be volatile moments of low liquidity and deleveraging within digital assets.
Play smart with portfolio construction:
In 2024, stop trying to predict the direction the market will take. Instead, focus on portfolio construction and position sizing. Price momentum indicators, such as the CoinDesk Bitcoin and Ether Trend Indicators (BTI and ETI), can be useful in moderating net exposure and managing overall market exposure.
If you want some exposure to the altcoin to take advantage of an uptrending market, consider diversified exposure. Indexes like the recently launched CoinDesk 20 (CD20) provide diversified exposure to altcoins while capping major tokens (Bitcoin at 30%, Ether at 20%, respectively) to better manage market volatility and diversify potential risks of altcoins linked to specific token adoption rates and regulatory impacts. (More information on the CD20 is available at coindeskmarkets.com And here.)
Preparing for Altcoin Season:
It’s time to consider tilting your portfolio toward altcoins while keeping a firm grip on Bitcoin and Ethereum. Altcoins shine when the rest of the crypto market is booming, and there’s no denying their growth potential. But keep in mind the benefits of portfolio construction, because markets never move in a straight line and there is always a twist in the story.