Article source: Jinse Finance
Source: Kaiko Research
Translation: Deng Tong, Jinse Finance
I. The road to Bitcoin's $100,000 milestone
2024 is a successful year for Bitcoin. As the spot BTC exchange-traded fund launched in January, the market gradually matured, and the fourth halving proceeded smoothly.
Even several tens of billions in liquidations and sell-offs could not stop BTC's success this year. In USD terms, the price of BTC has risen nearly 140% year-to-date, a larger increase compared to other fiat currencies, some of which experienced significant devaluation in 2019.
II. The US elections stimulate bullish bets
The 2024 US elections are of great significance for cryptocurrencies. Bitcoin or digital assets have never received so much attention on the world stage—at least not such positive attention.
President Trump expressed support for progressive regulation and open dialogue with the industry during the summer. Shortly after someone attempted to assassinate him, he even appeared at the Bitcoin Nashville conference. Most in the cryptocurrency community gathered around Republican candidate and eventual Democratic candidate Kamala Harris, beginning to take some positive steps regarding cryptocurrency.
Before the election on November 5, Bitcoin saw market participants engage in a 'Trump trade'. A special election contract on Deribit attracted billions in trading volume and open interest before the election, and shortly after the election, traders betting on historical highs showed significant bullish tendencies. They were correct, as by November, BTC's trading volume had exceeded $75,000.
The overall Senate voting results and the final votes were widely seen as favorable to cryptocurrencies. As a result, BTC led the post-election surge of crypto assets, breaking through $80,000 by November 11.
As we have shown above, the increasingly bullish sentiment has continued from the remainder of November into December, with Bitcoin's current historic peak exceeding $107,000.
III. Bitcoin fees surge ahead of the fourth halving
Bitcoin's fourth halving occurred on April 19 this year. On Saturday, the average transaction fee for Bitcoin surged to a historic high of $146. This was significantly higher than Ethereum's average fee of $3 on the same day.
The historic surge in Bitcoin network fees may be the most significant development in its fourth quarter. Despite warning signs, it surprised many market participants.
Casey Rodamor, the founder of Ordinals, announced plans to launch Runes, a protocol that makes it easier to issue fungible tokens on Bitcoin. However, based on Ordinals' impact on transaction fees, users may have already anticipated the rise in fees, though the historic increase still surprised many.
Ordinals allow node operators to inscribe data and images onto newly created Bitcoin blocks. These so-called 'registrations' are similar to NFTs, increasing demand for Bitcoin block space and raising the fees earned by BTC miners.
The launch of Runes also proceeded in a similar manner. The protocol's introduction led to increased demand for block space, which in turn affected fees.
IV. BlackRock surpasses Grayscale
The BTC ETF has broken various records this year, with the total assets managed by 11 funds rising to over $100 billion.
BlackRock is the big winner, indicating significant institutional interest in Bitcoin and digital assets. The assets managed by its spot BTC ETF exceeded $55 billion, surpassing Grayscale's GBTC within months. GBTC, launched by digital asset management company Grayscale in 2013, is largely a cryptocurrency-first product, with a massive premium/discount in its net asset value meaning limited institutional buying. Thus, after the ETF launch this year, it was quickly surpassed by BlackRock.
After the company decided to maintain fees at 1.5%, GBTC has been losing assets for most of this year. In the ETF space in the US, companies are accustomed to low fees, so most firms on Wall Street prefer BlackRock and Fidelity over GBTC.
V. ETH/BTC ratio declines
Since the merge, the ETH/BTC ratio has continued to decline, showing no signs of slowing down in 2024. This ratio compares the performance of the two assets, and it decreases when Ethereum underperforms Bitcoin.
Other factors contributing to the decline include the rise of Solana, as users migrated to a cheaper network during speculation in March and the fourth quarter of this year. Meme tokens (which we will discuss later) were the driving force behind many speculations, sometimes pushing Solana DEX trading volume above Ethereum this year.
In November, it fell to 0.033, the lowest level since March 2021. What is behind the poor performance? Since the merge, ETH has faced significant regulatory pressure, as staking in the US is under close scrutiny, drawing the ire of the SEC.
VI. Slow start: ETH ETF launch
The ETH ETF has had a slow start since its launch in July. Similar to the launch of the BTC ETF, Grayscale's fund has once again pressured the market, as the digital asset management company maintained fees at 2%.
However, after the outflows from Grayscale's ETHE decreased, newly launched funds began to see inflows towards the end of 2024. Since the November US elections, inflows have surged, and traders have flocked to CME's ETH futures. This reflects similar activity seen when traders executed arbitrage trades on BTC futures in May and June.
The increase in ETH futures open interest and the changing regulatory outlook have reversed the trend of the ETH ETF, with net flows turning positive at the end of November and December. Since its launch, net flows have now exceeded $2 billion, including over $3 billion flowing out of ETHE.
ETH is set to be one of the biggest winners of the regime change in Washington, D.C. While it lagged behind Bitcoin this year, the regulatory shifts brought about by the change in the US government will greatly benefit the second-largest asset by market capitalization. Clarity on ETH classification, commodities or securities, and staking may be two major drivers of growth next year.
VII. Trendsetter MicroStrategy purchased more BTC than ever before
In purchasing BTC, MicroStrategy has experienced its busiest year to date. The business software company has transformed in many ways from its core business this year. Chairman and former CEO Michael Saylor even referred to his company as the world’s first 'Bitcoin financial company' in the third quarter earnings report in November.
Since January, MicroStrategy has purchased over 249,850 Bitcoins, accelerating its purchasing pace since the US elections, nearly doubling its holdings in the past month. The company has issued multiple convertible bonds to fund its acquisitions, raising concerns among some market participants that a price collapse could adversely affect the company and potentially lead to forced selling.
Currently, this strategy is paying off. The rapid rise in BTC prices and bullish market sentiment has led MSTR's value to soar to an all-time high. MSTR has reached a new high for the first time in 24 years since the dot-com bubble burst in March 2000.
While MicroStrategy is a pioneer in corporate purchases of Bitcoin, some Republican lawmakers hope the US government will follow suit. Senator Cynthia Lummis has pledged to establish a strategic Bitcoin reserve after Donald Trump wins the US presidential election.
VIII. After the ETF listing, the Alameda gap has narrowed
This year, the crypto market has finally left the collapse of FTX in the past. The liquidity gap left by the collapse of FTX and its sister company Alameda Research (also known as the Alameda Gap) has narrowed this year.
Driven by rising prices and increasing market share, Bitcoin's 1% market depth has exceeded about $120 million before FTX. The recoveries of Kraken, Coinbase, and LMAX Digital are most notable. It is worth mentioning that the Bitcoin market depth of institution-focused LMAX reached a record $27 million this week, briefly surpassing Bitstamp to become the third largest liquidity Bitcoin market.
IX. Meme token frenzy
As mentioned above, meme tokens have skyrocketed at various times this year. In particular, due to the launch of Pump dot fun, tokens on Solana have seen significant growth, a protocol for launching meme tokens that allows anyone to issue tokens and build liquidity from scratch through word of mouth and participation.
However, familiar assets largely dominated the trading volume on centralized exchanges. Similar to the pre-2021 surge, Dogecoin has once again become a favorite among traders—also due to post-election bullish sentiment. After President Donald Trump revealed plans to establish a 'Department of Government Efficiency' (D.O.G.E.) led by Elon Musk and Vivek Ramaswamy, Dogecoin surged.
One of the new tokens launched on Solana this year is PNUT, which has captured the imagination, inspired by Peanut the Squirrel (a pet influencer from New York), whose untimely death led to significant online support (and token issuance).
One trader even turned a $16 investment in PNUT into $3 million in realized profits. PNUT is currently being traded on several major centralized exchanges, including Binance, Crypto.com, and OKX.
X. Regulation triggers changes in the stablecoin market
Since June, European regulation has been reshaping the stablecoin market. The landmark European Markets in Crypto-Assets Regulation (MiCA) has triggered a wave of major exchanges delisting stablecoins and adjusting product offerings.
Throughout 2024, the trading volume of the euro against cryptocurrencies has remained above last year's average, indicating a growing demand. Three months after the enactment of MiCA, the euro-backed stablecoin market underwent a significant transformation, driven by the rise of MiCA-compliant alternatives. By November 2024, MiCA-compliant euro stablecoins (including Circle's EURC, Société Générale's EURCV, and Banking Circle's EURI) accounted for a record 91% market share.
After listing EURI at the end of August, Binance has become a major player in the euro stablecoin market, on par with Coinbase. Nevertheless, with the support of Circle's EURC, Coinbase remains the largest market, holding a 47% share.
Conclusion
This year is significant for establishing digital assets as viable assets for Wall Street investors. Time will tell whether the industry can sustain growth in the coming months and years, but this rebound feels different.
The rebound in 2024 is built on the arrival of established companies with risk frameworks (currently including BTC and ETH). With regulatory shifts and changes in market structure, next year's rally is expected to surpass Bitcoin and extend to other assets.
