Author: Cosmo Jiang, Partner at Pantera Capital; Translation: Golden Finance xiaozou
We believe that this year has been a very constructive year for the crypto industry, with significant progress 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 ever pro-cryptocurrency U.S. president, we have seen capital, innovation, and regulatory environments turn positive again.
Here’s a look back at the biggest crypto events of 2024.
After a strong 2023, prices continue to rise as the market anticipates several positive catalysts in the first half of 2024:
- The much-anticipated Bitcoin ETF launch in January was the most notable event. Strong inflows began to appear soon after the ETF launch, leading to strong price action throughout February and March.
- In February, on-chain activity surged amid a new wave of retail participation, primarily meme coin trading activity on Solana.
- Over the next month, a major Ethereum upgrade, EIP-4844, significantly reduced transaction costs for Ethereum L2s.
Subsequently, the market encountered some challenges as risk assets retreated across the board in April. Headwinds emerged, mainly in the form of changes in macro expectations, and higher inflation data suggested that interest rates were likely to move higher in the long term. In addition, the conflict between Israel and Iran raised geopolitical concerns. The end of April ushered in the third Bitcoin halving, but surrounded by these headwinds, this halving event did not bring much short-term excitement.
In May, we began to see the first signs of a positive political climate for cryptocurrencies. It began with Trump’s turn in favor of cryptocurrencies in a speech on May 8. This was soon followed by some positive legislative developments, including the House of Representatives passing the FIT21 bill and the unexpected approval of an Ethereum ETF.
But the reality is that progress was sporadic, and there were fewer tangible catalysts to get excited about after May. This continued, and we saw a sharp pullback across asset classes throughout the rest of the summer. Ethereum ETFs began trading in July, but they failed to become a positive catalyst for the market due to weak market conditions.
In September, the macro environment began to improve, driven by the first rate cut by the Federal Reserve. As expectations for the US election increased, both parties began to publicly support cryptocurrencies, and the market continued to rebound from the oversold summer.
On November 5, the results of the US election came out and the market entered high-speed operation mode.
Price surge after US election
Markets have been rallying since the “US election” as pro-industry moves are expected with the Republicans controlling the presidency and both chambers of Congress. We believe the crypto industry and its supporters had a clear influence on the election. The new Congress is the most pro-crypto Congress we have ever seen, with a majority of House members and a majority of newly elected Senators holding pro-crypto positions. In terms of the popular vote, the margin of victory was less than the estimated number of single-issue crypto voters. In many ways, the digital asset industry can reasonably argue that it is the swing vote, and like the pivot security in the capital stack, it could have a huge impact in the future. An enthusiastically pro-crypto White House, coupled with supportive majorities in both chambers, should create the best environment for constructive crypto legislation.
Bitcoin has long benefited from clarity about how it is used, taxed, and regulated. This clarity sets it apart from other industries. The coveted prospect now is that entrepreneurs seeking to build serious value-added businesses leveraging tokens and blockchains may soon benefit from similar clarity, and we believe a wave of innovation should follow. While Bitcoin has dominated a large portion of the discussion since the election, aside from the potential creation of a strategic Bitcoin reserve by the United States, not much has changed about it. For other productive projects, everything could change meaningfully. In the long run, the passage of stablecoin and market structure legislation should have a much greater impact on altcoins than on Bitcoin.
As a result, we are seeing signs of retail capital re-engaging in the broader cryptocurrency market. This is evidenced by strong weekend volumes on Coinbase and a surge in the number of “last cycle tokens,” or the most recognized and accessible tokens on retail distribution platforms. As a result, Bitcoin’s dominance is seeing its first monthly decline in nearly two years. We are increasingly convinced that we are now closer to the “second phase” of the cycle, when the long tail of tokens representing innovative value-creating blockchain solutions may begin to outperform.
Entering the second stage
We observe that there are two distinct phases in the bull market cycle. The first phase is the early stage of the rally, when Bitcoin tends to outperform the rest of the market. The second phase is the late stage, when long-tail coins or “altcoins” tend to outperform the rest of the market.
We believe that the rest of the tokens are now accelerating.
It is noteworthy that the outperformance of altcoins in the second phase was so large that they outperformed Bitcoin throughout the first two cycles - non-bitcoin tokens accounted for 65% and 55% of the total market capitalization growth respectively. We are now seeing some early signs that we are in the second phase of the rise, and the US election is the catalyst for this phase.
Outlook
There are many reasons to be optimistic about the digital asset market. When I think back on the stories of the past few years:
– 2021 has been a boom time of innovation and excitement, with many people entering the cryptocurrency space for the first time.
– 2022 is a natural burst of over-speculation across all asset classes.
– 2023 is shaping up to be a year of headwinds for the industry – be it rising systemic leverage and capital outflows, fading consumer interest, or regulators being forced to overreact to the previous year’s excesses.
– 2024 is the year that headwinds turn into tailwinds. We start with a healthier positioning, capital inflows kick in (primarily from Bitcoin ETFs). User activity has started to pick up, and more importantly, regulators are starting to loosen up and get pushed back in the courts.
2025 is expected to be a year of tailwinds that will accelerate the industry’s growth:
– The election changed the paradigm for the blockchain industry. When you think about the reasons for rejection from potential investors and innovators, the answer is often a lack of regulatory clarity. This pessimistic scenario may soon be over.
– Fundamentals will ultimately drive prices higher. Fundamentals, as measured by on-chain activity and new innovations like AI agents and DePIN, are improving in real time. However, price recovery for long-tail tokens is still in its early stages.
– As digital assets become more mainstream, capital flows should improve. Bitcoin ETF issuance should continue to grow, and more ETFs are likely to follow (such as Solana). Institutional allocators and sovereign entities are reaching out to us because they can no longer ignore digital assets.
The risk/reward for new investments in this area has improved. Yes, asset prices rise from the bottom, but risk reward and reward are probability functions, and the likelihood of a rise increases significantly. While Bitcoin may be closer to midgame, I believe we are still in the early stages of digital asset price performance.
