Source: Grayscale; compiled by Deng Tong, Golden Finance
Summary
The results of the U.S. elections drove Bitcoin to reach an all-time high. Although cryptocurrency is a bipartisan issue, Grayscale Research anticipates that the Republican unified control of the White House and Congress should lead to legislative and regulatory oversight that is more favorable to industry innovation. The nominations for key cabinet positions by President-elect Trump appear to align with a pro-cryptocurrency policy agenda.
Other major developments in the cryptocurrency market include the launch of Bitcoin ETP options, MicroStrategy's large purchases of Bitcoin, a surge in trading volume on South Korean cryptocurrency exchanges, innovations in AI agents, and market attention on Dogecoin.
2024 is a favorable period for cryptocurrency returns, and Grayscale Research believes the bull market may continue next year.
Prior to November of last year, Bitcoin had appreciated by 60% in 2024, but last month's surge brought its year-to-date return to 110%. Unlike previous months, the favorable crypto market environment in November far exceeded Bitcoin: our Crypto Sector Market Index (CSMI) measures the returns of various digital assets, which rose by 59% that month and now also has positive returns for the year (Table 1).
Chart 1: Bitcoin has appreciated by 110% this year
Although cryptocurrency is a global phenomenon, Grayscale Research believes that the recent U.S. election results represent a potential turning point for the digital asset industry. The next president and Congress may enact comprehensive crypto legislation and help shape institutional oversight through the appointment and confirmation of key regulatory bodies. These decisions could impact many aspects of blockchain adoption and development in the U.S., including asset tokenization, the use of stablecoins, and the integration of decentralized finance (DeFi) applications with traditional systems.
At the voter level, polls show that cryptocurrency is a bipartisan issue, with Democrats having a slightly higher Bitcoin ownership rate than Republicans. However, among current and incoming members of Congress, Republicans have been more steadfast in supporting digital asset innovation, and President-elect Trump has also publicly supported the industry. Therefore, we believe Republican control of the White House and Congress is a positive outcome for the crypto market (see our previous election report for details). Given the past statements and expertise of the two candidates in cryptocurrency, the nominations of Scott Bessent as Treasury Secretary and Howard Lutnick as Commerce Secretary are encouraging early signs for the incoming administration. [2]
Despite many assets appreciating after the U.S. elections, Bitcoin and the broader cryptocurrency market are among the best-performing segments on a risk-adjusted basis (i.e., considering the volatility of each asset). The stock market broadly appreciated, driven by financial stocks, likely due to expectations of lower tax rates and easing of regulatory burdens for certain industries (Chart 2). Meanwhile, the renminbi depreciated, possibly due to threats from the U.S. to raise tariffs [3], and gold prices also fell, possibly reflecting a reduction in tail risks associated with the contested election results.
Chart 2: The cryptocurrency market outperformed traditional assets in November
Like many physical commodities, Bitcoin's price returns exhibit high momentum (statistical persistence), which can present the appearance of 'cycles' in its price. While each period has its specific drivers, past Bitcoin cycles may be partially related to the four-year halving schedule. As Bitcoin matures and is adopted by a broader base of traditional investors, and as the supply impacts of the four-year halving decline, the cyclical nature of Bitcoin's price may diminish. While Bitcoin's price may always exhibit some momentum—like many physical commodities—the changes may not occur every four years.
Nevertheless, past cycles may provide some guidance on Bitcoin's typical statistical behavior. Bitcoin's price reached a cyclical low in November 2022 and has appreciated for about two years since. The average duration of the last four Bitcoin price cycles was 2.2 years, with the most recent two cycles averaging nearly three years. For the current cycle, the cumulative return so far looks roughly comparable to the previous two bull markets (Chart 3). While fundamental variables such as economic conditions and U.S. strength will ultimately drive Bitcoin's price, history suggests that the recent price increase may continue.
Chart 3: Bitcoin price tracking before the cycle
In November, the broader financial market structure around Bitcoin continued to mature. There was another $6.5 billion in net inflows into Bitcoin exchange-traded products (ETPs) listed in the U.S., part of which may have flowed into spot/futures 'basis trading'. Bitcoin ETP options also began trading last month. As of November 30, the open contracts for Bitcoin ETP products with listed options totaled $7 billion, with about 70% being call options and 30% being put options. The improvement in the market structure around spot Bitcoin ETPs may eventually impact proxy investments such as MicroStrategy stock. MicroStrategy is a publicly traded company nominally engaged in software business but primarily serves as a Bitcoin investment vehicle. [4] In November, the company purchased $12 billion worth of Bitcoin for its balance sheet and announced plans to buy a total of $42 billion worth of Bitcoin over the next three years. [5]
From the perspective of the crypto industry, the best-performing segment is consumer and culture, primarily due to the strong performance of Dogecoin (DOGE), which rose 161% this month (Chart 4). Although Dogecoin originated as a meme coin, its blockchain is a fork of Bitcoin [6] and boasts faster block times than Bitcoin, Bitcoin Cash, and Litecoin, as well as trading volumes comparable to Bitcoin [7].
By market capitalization, Dogecoin is the largest asset in the consumer and culture sector. On November 12, Trump announced plans to establish the Department of Efficiency in Government, abbreviated as DOGE, co-led by Musk, drawing more attention to blockchain. [8] This department aims to reduce government waste and push for structural reforms. Although there is no direct connection between the proposed departments, the heightened attention on Musk and the DOGE meme may have stimulated demand for the token and elevated its price.
Chart 4: The consumer and culture cryptocurrency industry excels due to meme coin demand
Aside from Bitcoin and Dogecoin, the largest market cap gainers last month were XRP and Stellar Lumens (XLM), two projects in the crypto space that initially focused on cross-border remittances but later expanded to other use cases like asset tokenization and supporting central bank digital currencies (CBDCs). Since the end of October, XRP has risen by 281%, and XLM has risen by nearly 470%. The results of the U.S. elections could provide more regulatory clarity for cryptocurrency projects engaged in remittance applications, which could improve the fundamentals of these two projects. However, recent gains may also be driven by specific capital flows. Notably, the significant appreciation of XLM corresponds with a surge in trading volume on the South Korean exchange Upbit, which could indicate that South Korean investors have engaged in large-scale speculative trading of XLM (Chart 5). Therefore, XLM's short-term outlook may depend on whether the demand from these sources can be sustained rather than the fundamentals of the project.
Chart 5: Surge in trading volume on the South Korean exchange Upbit
With the help of smart contract platforms, the performance of the crypto industry Solana continues to outperform that of Ethereum networks, partly due to extensive Meme coin trading on Solana. [9] The fees generated by Solana are now comparable to Ethereum Layer 1, but its market capitalization is only about one-fourth. [10] If Solana can continue to expand its adoption beyond Meme coins into categories such as decentralized physical infrastructure (DePin) or stablecoin payments, Grayscale Research believes it may continue to experience higher fee growth and token price performance. Among larger smart contract platform blockchains [11], the best performers are Cardano (+216%), Polkadot (+127%), and Sui (+77%). [12]
Although Ethereum's performance this year has lagged behind Bitcoin and Solana, it is roughly consistent with the overall performance of the smart contract platform cryptocurrency industry (Chart 6). Ethereum has certain competitive advantages that may support adoption over the next year, including a solid lead in asset tokenization efforts and a broad network of application developers. Grayscale Research believes Ethereum is in a 'long game': guiding network effects by maintaining lower fees on Base and other Layer 2 solutions. In the post-election regulatory environment, the trend of institutional adoption of digital assets may help determine whether Ethereum's scaling strategy will continue to support its lead in the smart contract platform over time.
Chart 6: Ethereum's performance this year lags behind Solana
Developers continue to explore innovative applications of blockchain technology, with recent market focus concentrated on projects related to decentralized artificial intelligence (deAI). This is a diverse category, but many projects focus on utilizing blockchain-based economic incentives to develop components of AI technology in a decentralized manner, including data collection and storytelling, computation, and model training and inference. In a recent report, Grayscale Research introduced the latest experiment of 'AI influencers': autonomous AI agents active on social media capable of using blockchain wallets to make and receive payments. Another innovative market area is decentralized science (DeSci), where projects use blockchain technology to help create transparent, accessible, and collaborative scientific research environments. Early November saw a DeSci event attended by major industry figures, which drew more attention to applications in this segment market. [13]
In November, cryptocurrency valuations surged significantly, with a range of market signals indicating that speculative traders' positions are currently relatively long. Absent further fundamental news, the cryptocurrency market may experience more range-bound volatility in the short term.
However, looking ahead to next year, Grayscale Research believes the bull market may continue, particularly if the macro backdrop remains favorable (i.e., the economy avoids recession and the Federal Reserve lowers interest rates). Investors around the world are adopting Bitcoin as a unique form of currency, offering digital scarcity and resistance to censorship. We believe that as long as governments fail to control the rising debt burden and policymakers create frictions in the fiat monetary system through sanctions and other capital controls, the demand for these functions will continue to grow. Beyond Bitcoin, market structures are continually evolving to allow investors to access crypto assets more effectively, and the incoming Congress may bring greater regulatory transparency to the U.S. market, as developers continue to push exciting new applications to market, such as those related to decentralized artificial intelligence. While 2024 is expected to be a very good year for the crypto market, we believe there is no reason why 2025 cannot be just as good or better.
References
[1] The FTSE/Grayscale Crypto Sectors series index is weighted by the square root of the market capitalization of its constituent stocks, thus reducing the relative weight of Bitcoin and other large-cap tokens.
[2] Source: DL News, AP, WSJ.
[3] Source: Reuters.
[4] Source: Financial Times.
[5] Source: Financial Times.
[6] Dogecoin is a fork of Lucky Coin, which is a fork of Litecoin, which in turn is a fork of Bitcoin.
[7] The average block interval time over the past year has been: Dogecoin (1.1), Bitcoin (9.9), Bitcoin Cash (10.3), and Litecoin (2.5); the average daily transactions per second over the past year have been: Dogecoin (6.2), Bitcoin (6.2), Bitcoin Cash (0.8), and Litecoin (3.3). Source: Coin Metrics, Grayscale Investments. Data as of November 29, 2024. For illustrative purposes only.
[8] Source: X.com.
[9] Source: Dune Analytics. Please note that this does not include Dogecoin, which has its own blockchain.
[10] Source: Artemis. Data as of November 30, 2024.
[11] Defined here as companies with a market capitalization of over $5 billion.
[12] Source: Artemis. Data as of November 30, 2024.
[13] Source: Unchained Crypto.
