Author: Cosmo Jiang, Partner at Pantera Capital; Translation: Jinse Finance xiaozou
We believe that this year is a highly constructive year for the crypto industry, with significant progress made in price action, market structure milestones, and major regulatory and political shifts. From the passage of the FIT21 bill, to the successful launch of ETFs, to the election of the first U.S. president supporting cryptocurrency, we have seen a renewed positive environment for capital, innovation, and regulation.
Here is a recap of major crypto events for 2024.
Following a strong 2023, prices have been rising continuously due to market predictions of several positive catalysts in the first half of 2024:
- The highly anticipated Bitcoin ETF launched in January was the most notable event. Shortly after the ETF was launched, it began to show a strong inflow trend, leading to robust price movements throughout February and March.
- In February, against the backdrop of a new wave of retail participation, on-chain activity surged, primarily driven by meme coin trading on Solana.
- In the coming month, Ethereum's major upgrade EIP-4844 significantly reduced transaction costs for Ethereum L2s.
Subsequently, as risk assets fully retraced in April, the market faced some challenges. Adverse factors emerged primarily in the form of changing macro expectations, with higher inflation data indicating that interest rates could rise for the long term. Additionally, the conflict between Israel and Iran raised geopolitical concerns. Bitcoin experienced its third halving at the end of April, but under the shadow of these adverse factors, this halving event did not generate much short-term excitement.
In May of this year, we began to see the first signs of political goodwill for cryptocurrencies. It started with Trump's pivot to support cryptocurrencies in a speech on May 8. Soon, there were some positive legislative developments, including the House passing the FIT21 bill and unexpectedly approving the Ethereum ETF.
But the reality is that progress has been sporadic, and after May, the exciting tangible catalysts have diminished. This situation continues, and we saw significant pullbacks across all asset classes for the rest of the summer.
In September, driven by the Federal Reserve's first rate cut, the macro environment began to improve. As expectations for the U.S. elections increased, both parties began to publicly support cryptocurrencies, and the market continued to rebound from the oversold conditions of the summer.
On November 5, the results of the U.S. elections were announced, and the market entered a high-speed operation mode.
Price surge after the U.S. elections
Since the 'U.S. elections', the market has been on the rise, as the Republicans control the presidency and both houses of Congress, leading to expected supportive measures for the industry. We believe that the crypto industry and its supporters had a significant impact on the election. The new Congress is the most crypto-friendly we have ever seen, with most House members and newly elected senators supporting crypto. In terms of the popular vote, the winning margin was lower than estimated for single-issue crypto voters. In many ways, the digital asset industry can reasonably argue that this is a swing vote, capable of having a huge influence in the future, much like the pivotal security in a capital stack. The White House's enthusiastic support for crypto, coupled with the majority support in both houses, should create the best environment for constructive crypto legislation.
For a long time, Bitcoin has benefited from its clear usage, taxation, and regulatory approach. This clarity sets it apart from other industries. Now, the tantalizing prospect is that entrepreneurs seeking to leverage tokens and blockchain to build serious value-added businesses may soon benefit from similar clarity, and we believe that a wave of innovation should follow. Although Bitcoin has dominated much of the discussion since the election, there haven't been many significant changes for Bitcoin itself, aside from the possibility of the U.S. establishing a strategic Bitcoin reserve. For other productive projects, meaningful changes may occur. In the long run, the passing of stablecoin and market structure legislation should have a much larger impact on altcoins than on Bitcoin.
Thus, retail capital's re-engagement with the broader cryptocurrency market has begun to manifest. Coinbase saw strong trading volumes over the weekend, and the number of the most recognized and easily accessible tokens on 'retail distribution platforms' from the last cycle surged, which is evident. Therefore, for the first time in nearly two years, Bitcoin's dominance showed a monthly decline. We are increasingly convinced that we are now closer to the 'second phase' of the cycle, when long-tail tokens, representing innovative value-creating blockchain solutions, may begin to outperform the market.
Entering the second phase
We have observed that there are two distinct phases in the bull market cycle. The first phase is the early rebound stage, during which Bitcoin often outperforms other markets. The second phase is the later stage, during which long-tail tokens or 'altcoins' tend to outperform other markets.
We believe that the remaining tokens are now accelerating their development.
It is noteworthy that the performance of altcoins in the second phase is so significant that throughout the entire process of the first two cycles, altcoins outperformed Bitcoin—non-Bitcoin tokens accounted for 65% and 55% of total market value growth, respectively. We are now seeing some early signs that we are in the rising second phase, with the U.S. elections serving as a catalyst for this phase.
Outlook
There are many reasons to be optimistic about the digital asset market. When I reflect on the stories of the past few years:
- 2021 was a period of innovation and excitement, with many entering the cryptocurrency space for the first time.
- 2022 was a natural explosion period of speculation across all asset classes.
- 2023 has become a year of headwinds for the industry—whether due to rising systemic leverage and capital outflows, declining consumer interest, or regulatory agencies being forced to overreact to the previous year's excesses.
- 2024 is a year of headwinds turning into tailwinds. We are starting from a healthier positioning, with capital inflows beginning (mainly from Bitcoin ETFs). User activity has started to rebound, and more importantly, regulators are beginning to ease regulations and are being pushed back in court.
2025 is expected to be a tailwind year that accelerates the development of the industry:
- The elections changed the paradigm of the blockchain industry. When you think about the reasons potential investors and innovators have rejected it, the answer is often a lack of regulatory transparency. This pessimistic situation may soon pass.
- Fundamentals will ultimately drive prices higher. The fundamentals, measured by on-chain activity and new innovations like AI agents and DePIN, are improving in real time. However, the price recovery of long-tail tokens is still in its early stages.
- As digital assets become more mainstream, capital flows should improve. The issuance of Bitcoin ETFs should continue to grow, and there may be more follow-up ETFs (such as Solana). Institutional allocators and sovereign entities are reaching out to us, as they can no longer ignore digital assets.
The risk/reward of new investments in the field has improved. Yes, asset prices have risen from the bottom, but risk-reward and returns are probability functions, and the likelihood of an increase has significantly risen. While Bitcoin may be closer to the mid-game, I believe we are still in the early stages of digital asset price performance.
