Source: Grayscale; compiled by Deng Tong, Golden Finance
Summary
The results of the U.S. election drive Bitcoin to a historic high. Although cryptocurrency is a bipartisan issue, Grayscale Research predicts that the unified control of the White House and Congress by the Republican Party should lead to legislation and regulatory oversight more favorable to industry innovation. President-elect Trump's nominations for key cabinet positions 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-scale purchases of Bitcoin, a surge in trading volume at South Korean cryptocurrency exchanges, innovations in AI agents, and market attention to Dogecoin.
2024 is seen as a favorable time for cryptocurrency returns, with Grayscale Research believing that the bull market may continue into next year.
Before November of last year, Bitcoin had appreciated by 60% in 2024, but last month’s increase brought its year-to-date return to 110%. Unlike previous months, the favorable cryptocurrency market environment in November far exceeded Bitcoin: our Cryptocurrency Market Index (CSMI) measures the returns of various digital assets, and the index rose 59% during the month, now also showing 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 adopt comprehensive crypto legislation and help shape institutional oversight through the appointment and confirmation of key regulatory agencies. These decisions could affect 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 concern, with slightly higher Bitcoin ownership among Democrats than Republicans. However, among current and incoming members of Congress, Republicans have consistently shown stronger support for digital asset innovation, and President-elect Trump has also openly supported the industry. Therefore, we believe that 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 in cryptocurrencies of the two candidates, the nominations of Scott Bessent as Secretary of the Treasury and Howard Lutnick as Secretary of Commerce are encouraging early signs for the incoming administration. [2]
Although many assets appreciated following the U.S. election, on a risk-adjusted basis (considering the volatility of each asset), Bitcoin and the broader cryptocurrency market were among the best-performing segments. The stock market generally appreciated, driven by financial stocks, possibly due to expectations of lower tax rates and the easing of certain industry regulations (Chart 2). Meanwhile, the devaluation of the Chinese yuan may be due to threats of increased tariffs from the U.S. [3], and gold prices also fell, possibly reflecting a reduction in tail risks associated with the contentious election results.
Chart 2: Cryptocurrency market outperformed traditional assets in November
Like many physical commodities, Bitcoin's price returns exhibit a high degree of momentum (statistical persistence), presenting an appearance of price 'cycles'. While each period has its specific drivers, past Bitcoin cycles may be partly related to the four-year halving timetable. As Bitcoin matures and is adopted by a wider range of traditional investors, and as the supply impact of the four-year halving diminishes, the cyclical nature of Bitcoin's price may reduce. While Bitcoin's price may always show some momentum—like many physical commodities—the changes may not occur every four years.
Nonetheless, past cycles may provide some guidance on Bitcoin's typical statistical behavior. Bitcoin's price reached a cyclical low in November 2022 and has been appreciating for about two years. The average duration of the past four Bitcoin price cycles has been 2.2 years, with the most recent two cycles averaging nearly three years. In terms of the current cycle, the cumulative return so far looks roughly comparable to the previous two bull markets (Chart 3). While fundamental variables like economic conditions and U.S. strength will ultimately drive Bitcoin's price, history suggests that the recent price increases 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 spot 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 amounted to $7 billion, with about 70% being call options and 30% being put options. Improvements in the market structure surrounding spot Bitcoin ETPs could eventually impact proxy investments like MicroStrategy stock. MicroStrategy is a publicly traded company nominally engaged in software business but primarily serves as a Bitcoin investment tool. [4] In November, the company purchased $12 billion worth of Bitcoin for its balance sheet and announced plans to acquire a total of $42 billion in Bitcoin over the next three years. [5]
From the perspective of the cryptocurrency industry, the best-performing segment is consumer and culture, mainly 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 has faster block times than Bitcoin, Bitcoin Cash, and Litecoin, with transaction volumes comparable to Bitcoin's. [7]
By market capitalization, Dogecoin is the largest asset in the consumer and cultural sector. On November 12, Trump announced plans to establish a Department of Government Efficiency, abbreviated as DOGE, co-led by Musk, drawing more attention to blockchain. [8] The department aims to reduce government waste and push for structural reform. Although there is no direct connection between the proposed departments, the surge in attention toward Musk and the DOGE meme may have spurred demand for the token and elevated its price.
Chart 4: The consumer and cultural cryptocurrency sector performed well due to demand for meme coins
Aside from Bitcoin and Dogecoin, the assets that have seen the largest market cap increase in the past month are XRP and Stellar Lumens (XLM), two currency-related projects in the crypto space that originally focused on cross-border remittances but later expanded into 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. election may provide more regulatory clarity for cryptocurrency projects engaged in remittance applications, which could improve the fundamentals of these two projects. However, recent returns may also have been driven by specific capital flows. Notably, XLM's substantial appreciation corresponds with the surge in trading volume at the South Korean Upbit exchange, which may indicate large-scale speculative trading by South Korean investors in XLM (Chart 5). Therefore, XLM's short-term outlook may depend on whether demand from these sources can be sustained, rather than the fundamentals of the project.
Chart 5: Surge in trading volume at Upbit exchange centered in South Korea
With the help of smart contract platforms, the performance of the cryptocurrency Solana continues to outperform Ethereum's network, partly due to the 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-quarter. [10] If Solana can continue to expand its adoption beyond meme coins, such as in categories like 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 has been roughly in line with the overall performance of the smart contract platform cryptocurrency industry (Chart 6). Ethereum has certain competitive advantages that may support adoption in the coming year, including a strong lead in asset tokenization efforts and a broad network of application developers. Grayscale Research believes Ethereum is 'playing the 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 support its leading position in the smart contract platform over time.
Chart 6: Ethereum's performance this year has lagged behind Solana
Developers continue to explore innovative applications of blockchain technology, and the recent market focus has concentrated on projects related to decentralized artificial intelligence (deAI). This is a diverse category, but many projects focus on utilizing economic incentives based on blockchain infrastructure to develop components of artificial intelligence 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 experiments 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 utilize blockchain technology to help create transparent, accessible, and collaborative scientific research environments. Early November saw a DeSci event attended by major industry players, raising more awareness of applications in this niche market. [13]
In November, cryptocurrency valuations surged significantly, with a series of market signals indicating that speculative traders' positions are currently relatively long. Without more 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, especially 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 that offers digital scarcity and resistance to censorship. We believe that as long as governments fail to control the rising debt burden and policymakers create friction in the fiat currency system through sanctions and other capital controls, the demand for these functions will continue to grow. Beyond Bitcoin, the market structure is evolving to allow investors to access crypto assets more effectively, and the incoming Congress may bring greater regulatory clarity to the U.S. market, while 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 see no reason why 2025 cannot be just as good or better.
References
[1] FTSE/Grayscale Crypto Sectors series index is weighted by the square root of the market capitalization of constituent stocks, thereby 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 Luckycoin, which is a fork of Litecoin, which is a fork of Bitcoin.
[7] The average block interval time over the past year was: Dogecoin (1.1), Bitcoin (9.9), Bitcoin Cash (10.3), and Litecoin (2.5); the average daily transactions per second over the past year were: 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. 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 exceeding $5 billion.
[12] Source: Artemis. Data as of November 30, 2024.
[13] Source: Unchained Crypto.
