Article Author: Koo Wai Chi, Investment Director at Shibi Investment Management, Professional Application Professor in Finance at Lingnan University, Founder of Hong Kong Digital Asset Society
Article Source: Hong Kong Economic Journal
As of this Sunday (17th), Bitcoin has risen 113% this year, with the surge mainly concentrated at the beginning of the year and the past month, while most of the remaining time has been consolidated between $50,000 and $70,000. As the author expected last year, the catalyst for the rise at the beginning of the year was the approval for ETF listings and the four-year supply halving mechanism (Bitcoin Halving).
As for the recent surge, it is attributed to Trump being elected president, as the crypto space had high hopes for U.S. cryptocurrency policies. The start of the interest rate cut cycle has certainly supported Bitcoin's trend.
ETF Listing Attracts Traditional Investors
Since the Bitcoin ETF was launched in the U.S. at the beginning of the year, it has attracted nearly $30 billion in new funds. The latest data shows that the ETFs listed in the U.S. hold over a million Bitcoins, accounting for more than 5% of the total supply, and this number continues to increase. According to the quarterly 13F filings from the U.S. Securities and Exchange Commission, there are thousands of sizable financial institutions globally that hold Bitcoin ETFs.
It is particularly noteworthy that the list includes not only general funds and investment advisors but also the Wisconsin State Government Fund and the Michigan State Government Pension Fund, which have invested over $100 million in Bitcoin. This shows that many traditional investors and even government institutions have begun to allocate part of their assets to Bitcoin, providing support for the medium to long-term price trend.
Regarding the four-year supply halving, Bitcoin’s trend aligns closely with past cycles. Since April 20 of this year, Bitcoin's supply every 10 minutes has been reduced to 3.125 coins. According to the past three cycles, the price has shown considerable increases around the halving time, so it is believed that there will still be good momentum in the coming months.
The total market value of cryptocurrencies is $3 trillion, of which Bitcoin accounts for $1.8 trillion, with a market share of 60%, significantly up from 39% two years ago. Bitcoin has outperformed other cryptocurrencies over the past two years, primarily due to institutional investors entering the market, as well as significant developments in Bitcoin on the application side, particularly in infrastructure and Layer 2 solutions, which are beginning to challenge other public chains like Ethereum and Solana, highlighting the increasing importance of Bitcoin in the decentralized world.
Trump Supports Cryptocurrency Development
At the beginning of last month, the news of Trump being elected as President of the United States led Bitcoin to achieve a historical high of over $90,000. The Biden administration has been suppressing cryptocurrencies, and many major institutions in the crypto space have been prosecuted by this government, including Binance, Coinbase, ConsenSys, OpenSea, and Ripple Labs. The crypto community views the Democratic Party and SEC Chairman Gary Gensler as adversaries. On the Trump side, although he previously referred to cryptocurrencies as illegal activities, he has portrayed himself as a supporter of cryptocurrencies during this campaign to gain donations from the crypto space and the votes of young people.
During his campaign in July, Trump made the following promises to the crypto space:
Make the U.S. a Global Cryptocurrency Center
Let Bitcoin Become Part of National Reserves
Establish a Cryptocurrency Advisory Committee
Switch Current SEC Chairman
Trump has received considerable campaign funding from the crypto space, and his son recently raised funds by issuing tokens for a new company.
In addition, incoming Vice President Vance (J.D. Vance) is also enthusiastic about cryptocurrencies; he has previously pushed for relevant bills and has declared his ownership of Bitcoin. As for Trump’s top supporter, Tesla founder Elon Musk, he is a heavyweight in the crypto space, owning a large amount of Dogecoin and often linking it to his rocket and electric vehicle businesses. Last week, Trump appointed Musk to lead the newly established Department of Government Efficiency, whose abbreviation DOGE coincidentally matches the symbol for Dogecoin, causing a surge in Dogecoin's price and making it the seventh largest cryptocurrency, showing that the craziness in the crypto space knows no bounds. The entire new U.S. government leadership has intricate ties to the crypto space, and it is believed that cryptocurrencies will have great prospects in the U.S.
What readers are most concerned about is the future trend of Bitcoin. As mentioned above, traditional financial institutions have gradually accepted Bitcoin as a formal investment product and part of asset allocation, with even the most conservative pension funds getting involved. The author believes that this is just the beginning; if every investment portfolio allocates 1 to 3% to Bitcoin, there will definitely be an imbalance in supply and demand, leading to what the crypto community calls 'To the moon!'. Timmer, the macroeconomic director of Fidelity Investments, even estimated through a mathematical model that Bitcoin will rise to $1 billion each by 2038!
Hong Kong's Foreign Reserves Should Consider Allocating to Bitcoin
The crypto space has begun to exert influence in U.S. politics, reversing the past disadvantage of being suppressed by the government and becoming part of the political elite. The U.S. government has arrested many cryptocurrency criminals in recent years, seizing over 200,000 Bitcoins, making it one of the largest holders in the world. Trump previously stated that he would convert this batch of Bitcoins into national reserves to demonstrate his emphasis on cryptocurrencies.
Hong Kong has been striving to compete with Singapore and the Middle East to become the third-generation Internet hub. Now that the U.S. has joined the fray, it is believed that we need to step up our efforts and intensify our promotion. Hong Kong has $420 billion in foreign exchange reserves, and the author suggests that the Hong Kong government allocate a small portion of its reserves to Bitcoin. If 0.5% of the reserves are allocated, it would allow for an investment of $2.1 billion, letting the world know of Hong Kong's emphasis on web3. For foreign exchange reserves, this can both diversify risks and reduce dependence on the U.S. dollar, as well as enhance investment returns!
Regarding risks, if the U.S. faces renewed inflation and the Federal Reserve stops cutting interest rates, it will reduce investors' risk appetite, which will also affect cryptocurrency performance. Additionally, if Trump fails to fulfill his commitments after taking office or even dismisses Musk, it will raise concerns among investors about the U.S. government's stance on cryptocurrencies. Based on past cycles, Bitcoin's halving bull market will also end in the latter half of next year. Let's see if traditional financial institutions and the U.S. government can create a super bull market!
