In the coming years, financial experts and advocates of Cryptocurrency will look back at 2024 and agree that it was the year Bitcoin gained widespread popularity and received significant acceptance in traditional finance. The successful launch of the spot Bitcoin ETF, CEO of MicroStrategy Micheal Saylor's plan to purchase $42 billion in Bitcoin, and the significant price surge of Bitcoin to new record highs are just a few of the key milestones of the year.
Bitcoin (BTC) has officially entered the big leagues, and the integration of BTC into every aspect of finance is a frequent topic of discussion among analysts and leaders at Cryptocurrency conferences and on social media. To better understand the impact of integrating Bitcoin and Cryptocurrency into traditional finance, TinTucBitcoin spoke with Brian Russ, investment director at 1971 Capital.
TinTucBitcoin: Institutional and individual investors are buying shares of the spot Bitcoin ETF, but in the future, how do you see BTC being integrated into portfolios?
Brian Russ: I absolutely believe that asset management firms and investment management companies will start showing their clients that if they have diversified into Bitcoin or combined Bitcoin and Ethereum in a 60/40 ratio, it will significantly enhance returns. When these studies are published, major investment advisors will push their clients not to leave assets at zero.
VanEck is one of the first organizations to take a stand on this issue. They published a research report about six months ago, right after the Bitcoin ETF launched. Unsurprisingly, the spot Bitcoin ETF has proven this. The report presented a chart showing that a traditional 60/40 ratio yields about 9% returns. But if you allocate a combination of Bitcoin and Ethereum (ETH) at varying allocation levels, the highest allocation is 7%. If you invest 60% in equities, 33% in bonds, and 7% in Bitcoin and ETH, instead of getting a 9% return, you would receive a 17% return.
Results of Cryptocurrency allocation for a traditional 60/40 portfolio. Source: Brian Russ
That's really convincing, isn't it? And I think as more studies like this emerge, you will see more and more individual investors, family offices, institutional investors, those who are on the sidelines saying: look, let's put half a percent or 5% in here.
TinTucBitcoin: What will it take to push the price of Bitcoin to $100,000 and beyond?
BR: I think you really need a catalyst to see such price increases. I don't think that happens purely because demand surpasses supply. That could happen, and we might quickly surpass $70,000, but I don't think we will see a boom without some sort of catalyst. The election could be a catalyst. I am skeptical because it is a known event with predictable outcomes that is being factored into the market right now. So, I think if the outcome of the election will be the driving force, we will see the explosion happen right now rather than on November 5 or 6, but that could be something that happens after the election. It could be policy following the election or something else. So, for me, it's a big eye-opening situation about what the catalyst is to push Bitcoin higher in the broader market. I do not expect that we will just see it break the new all-time high and then run away as we have seen in the past.
TinTucBitcoin: Why did gold and silver also reach new highs alongside Bitcoin?
BR: I think you have to separate speculative commodities like precious metals from utility commodities like gold and copper. For example, if we focus on the precious metals market, I think it is truly an important part of the anti-U.S. dollar trend. What confuses many people is that we often think of gold and silver as hedging tools and safe-haven assets. But if you look back through history, that has not always been the case.
The precious metals market experienced significant sell-offs in 2008, as well as in March 2020. Therefore, they may serve as a source of liquidity during times when assets are sold off in crisis situations. I have noticed over the years that gold and silver have their own set of driving factors. They are not really effective hedges; they are not truly insurance. Often, we see that the bond market and the U.S. dollar serve better as protective tools in crises or recessions. What interests me about the precious metals market is that if you look back to when the U.S. dollar decoupled from gold in 1971, I think we are now in the midst of the third bull market in precious metals.
See more: Bitcoin reaches $62K: Is buying pressure pushing prices higher?
It's hard to say exactly when the start of this bull market in precious metals began, but I think it might be reasonable to say that March 2020 was a reasonable time, right? Because we went through the pandemic crisis for the first time in 100 years, followed by massive stimulus like a bazooka. That was a huge amount of money pumped into the system. I think we expanded M2 by about 50% in the last 18 to 24 months with all the stimulus packages and monetary policy that the Federal Reserve has engaged in. And I think this story is still in the middle of its path.
So, that puts us around 4 to 5 years into what could be a multi-decade bull market in precious metals. When you combine the factors surrounding COVID-19 and the stimulus response, the financial deficits we've mentioned, the presidential election, which we anticipate will be a driving factor for deeper financial deficits, the kind of momentum 'nothing stops this train' from Lyn Alden, and the ever-deepening deficits, this move becomes reflexive. I think there is a significant shift regarding the U.S. dollar as a store of value. And thus, there is more competitive space here. Precious metals are part of that competition. And of course, Bitcoin is also an interesting part of that competition.
TinTucBitcoin: At ETHDenver, you introduced a remarkable analytical framework for the current and future pricing of Ethereum. ETH has lagged in value in this cycle, but based on your methodology, do you think ETH is still on the right track?
BR: Yes, I think so. I actually like it here more than I liked it at ETHDenver, which was in February this year. I try to look at the interplay of various factors, from fundamentals, sentiment, positioning, liquidity, and technicals. As I look through those factors, I think the current situation is a little better. The fundamental story, for me, remains intact. If you look at the number of active daily wallets on the L1 network, they have increased by about 800% over the past 3 to 4 years. That was a study Dan Tapiero conducted. If you look at the recent State of Crypto report by A16z, they reported that L1 has the number of active monthly wallets transacting with L1 reaching 220 million, which is a record high and is rapidly increasing.
The number of active Cryptocurrency wallets per month reached 220 million. Source: a16zcrypto
If you look at some developments related to Ethereum's infrastructure, transaction fees have decreased significantly. Clearly, the transition from proof-of-work to proof-of-stake is crucial. That happened a few years ago, so if you look at the fundamentals, this story is getting better. If you look at the price, like technical factors, it has been quite weak compared to, say, Bitcoin. At this time, sentiment just follows the price, so I think we are in a phase of negative sentiment for Ethereum.
And there is a narrative that L2 is parasitic and there are some real challenges to Ethereum's roadmap. There are tough and good questions being raised. However, despite presenting a traditional pricing model and having spent most of his career in traditional finance, I am not convinced that the fundamentals are truly the main driving factors at this time.
I think we are still in the early stages with this technology, where it requires a bit of the skill of 'seeing in the dark'. There is a possibility that a 'memetic premium' can be added to many of these assets. Ethereum can be seen as a solid collateral asset that can be used in DeFi or other segments of the blockchain ecosystem in general. And then, I think you could go further to say that there is a memetic premium that could be added to many of these assets.
So what is the memetic premium of Vitalik and the Ethereum ecosystem? What is its community? I mean, if you go to any of these conferences, many of them are sold out. There is a huge amount of sponsorship, a lot of money, a lot of people, a lot of energy, a lot of developers. All those indicators, by every fundamental measure, everything is growing better in the ecosystem. I think the roadmap will take time. Time will tell whether L2 scaling solutions are the right solution for Ethereum. And if not, I think the protocol and platform are smart enough to know that they will pivot.
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