Last year, the cryptocurrency market saw an impressive resurgence – overall market capitalisation soared 109%, bolstered by substantial rallies in both Q1 and Q4. For this month’s newsletter, I wanted to bring you the Reserve Wealth Advisory team’s thoughts – and not just mine – as we explore the potential catalysts driving this rally, and what we expect for the asset class in 2024.

The surge towards the year's end was primarily fueled by positive sentiment regarding the approval of Bitcoin ETFs, alongside anticipation surrounding Bitcoin's next halving (we’ll go into what this means). Moreover, the broader economic landscape – characterised by strong global GDP growth and controlled inflation levels – has further supported the upward trajectory of risk assets like cryptocurrencies.This year, Bitcoin hit yet another all-time high, with prices rising above US$69,000. Ethereum’s not far behind either, with prices reaching US$3,900. With market capitalisations of US$1.3 trillion and US$455 billion respectively, BTC and ETH make up around 68% of the entire global market cap for cryptocurrency. Let’s take a closer look at each.

Bitcoin (BTC)

1. BTC has recorded a new all-time high after each halving event

The next halving is expected in April 2024. Halving is an event – set to occur every four years – where the reward for ‘mining a block’ (processing transactions on the network) is halved. Where a miner used to receive 6.25 Bitcoins for their work, starting April 2024, they’ll only receive 3.125. 

Simply put, the pace at which new Bitcoins enter circulation will decrease by 50%, and the incentive for miners to secure the Bitcoin network similarly drops in half. This inherent scarcity, coupled with the historical rise in demand seen after previous halving events, points to a digital rarity that could potentially drive prices upward.

2. BTC’s correlation with the S&P 500 has turned negative

The correlation between Bitcoin and the S&P 500 is currently negative, and at its lowest point in more than three years. This puts forward again the argument that BTC can be used as an effective diversifier in portfolios. Asset managers, such as Fidelity, suggest a 1-3% allocation to crypto within the traditional 60/40 portfolio model.

3. Approval of spot Bitcoin ETFs could create structural institutional demand

The approval of Bitcoin ETFs in early January 2024 was a landmark event – it allowed traditional players, including the asset management sector, to secure Bitcoin exposure on a larger scale. With this, overall liquidity might stabilise, and Bitcoin's price could become less prone to extreme price volatility. Blackrock’s ETF was the fastest ETF to hit an AUM of US$10 billion, reaching that figure in about 37 trading days – and we continue to see large inflow volumes.

Ethereum (ETH)

1. Strong applications for spot Ethereum ETFs

Asset managers who filed for the BTC ETF have also done the same for ETH, including BlackRock and Fidelity. The Securities Exchange Commission is set to deliberate on ETH ETFs on May 23 – a date to watch out for. Similar to when BTC ETFs were first approved, this could be the catalyst for another surge in investor interest for ETH – Standard Chartered expects a positive outcome here to propel the price of ETH to US$8,000 by end-2024.

2. Ethereum is a focal point for Decentralised finance (DeFi)

DeFi is revolutionising the financial landscape. Emerging financial technologies based on secure distributed ledgers (i.e. cryptocurrencies) can eliminate intermediaries, offer greater transparency, and ensure financial inclusion. Ethereum has continued to dominate the field, with a market share of over 50%. That’s gained the interest of financial institutions – did you know that the European Union bank used ETH to issue a digital bond sale back in 2021?

3. Ethereum is constantly upgrading itself

Ethereum just rolled out a major network upgrade last month. The update could help lower transaction costs by 50%-90%, and should help increase demand, use cases, and functionality for the blockchain. With more developers continuing to build on top of the network, there’s potentially more utility beyond just asset gathering, especially in the financial world.

Starting your Crypto portfolio with StashAway

If you’re looking to get started with this asset class, you can add crypto exposure with any General Investing portfolio – no crypto wallet required.

By opting in through our app, your portfolio will automatically rebalance its allocations to include a 1-12% exposure to crypto (depending on SRI level). This exposure is provided by two high-quality, institutional-grade ETFs that invest in Bitcoin and Ethereum, giving you equally distributed exposure to both cryptocurrencies.

Reach out to your Wealth Advisor to learn more.