Graphing Digital Assets

Month in Review — November 2024

Bitcoin Crystal Ball?

At the time of publishing, on December 5, 2024, bitcoin had hit a significant milestone, reaching a new all-time high of roughly $103,900. Read on to learn how this asset has exceeded expectations throughout the decades and what may be to come.

In a monumental month for digital assets, bitcoin climbed 37.42%, ether rose 47.38%, and altcoins (SPCLXM) saw gains of 53.87%. This bullish momentum coincided with the results of the U.S. presidential election, which sparked optimism among investors anticipating a crypto-friendly U.S. government and regulations under a Trump presidency (top graph). In the weeks following the election, Bitcoin surpassed previous expectations, coming within $200 of $100,000 before closing the month at $96,465.

This is not the first time bitcoin exceeded experts’ expectations. Let’s look at some previous price predictions that were surpassed (bottom graph).

  • 2013: Bitbond’s Radoslav Albrecht calculated bitcoin’s “price potential” to be $1,820 by 2020. Yet bitcoin passed the $1,820 mark in May 2017. By January 1, 2020, bitcoin price was at $7,195.

  • 2017: Galaxy’s Mike Novogratz predicted that bitcoin would hit $10,000 by year-end. His assumption was nearly doubled: in December 2017, bitcoin’s price hit an all-time high of $19,783.

  • 2020: Bloomberg Intelligence’s Mike McGlone reasoned a bitcoin price of $50,000 in 2021. In less than three months, in March 2021, bitcoin surpassed this level, reaching a new all-time high of $69,000.

  • 2023: The team at Bitwise expected bitcoin would trade above $80,000 in 2024, setting a new all-time high. This month, bitcoin shot past $80,000, reaching a new all-time-high of nearly $99,800.

This year, experts have predicted new milestones for the growth of this asset.

  • Tim Draper anticipates bitcoin will reach $120,000 by year-end and $250,000 in 2025.

  • In March, Cathie Wood’s bitcoin price targets for 2030 included a base case price of $682,000.

  • In October, VanEck’s Matthew Sigel explained how bitcoin can reach $3 million by 2050.

While no one can predict the future, the outlook remains undoubtedly positive, with growing optimism of a crypto-friendly administration in the U.S. Notably, the announcement of Gary Gensler’s resignation when Trump takes office in January 2025, as well as pro-crypto Scott Bessent as Trump’s pick for Treasury Secretary, signal a potential shift and continued positive momentum for digital assets in the U.S.

Source: Samara Alpha Management and Investing.com (bitcoin daily open price).

Institutional Engagement with Digital Assets

As we noted earlier in November, institutional investors are increasingly recognizing digital assets as a valuable addition to diversified portfolios, driven in-part by structural innovations like the introduction of spot cryptocurrency ETFs. These ETFs have not only helped legitimize digital assets from a regulatory standpoint but have also enhanced accessibility. Their success contributed to a significant rally in the price of bitcoin over the past year, further fueling investor interest.

By Q3 2024, U.S. spot bitcoin ETFs amassed $59.6 billion in assets, with 1,332 institutional investors accounting for more than $21.2 billion of this total—predominantly through investment advisors, hedge funds, and market makers (top graph).

Despite these inflows, some large traditional institutions are hesitant to engage with digital assets. While spot ETFs and crypto-related equity investments offer simplicity, they often fall short in mitigating downside risk or capturing the full potential of the asset class. Furthermore, aligning direct crypto exposure with pre-defined portfolio allocations remains a challenge.

Actively managed digital asset hedge funds may provide an attractive alternative. These opportunities are often a flexible and sophisticated way to access the digital asset market, with tailored exposure that aligns with institutions’ predefined portfolio allocations and risk parameters.

•  Market-Neutral Hedge Funds: Focus on generating alpha across all market conditions, benefiting from arbitrage opportunities, volatility, dispersion, and inefficiencies inherent in the digital asset space.

• Quant Directional Hedge Funds: Deliver upside exposure while minimizing or even profiting from downside risk, leveraging advanced strategies to capitalize on market inefficiencies.

• Fundamental Hedge Funds (Long-Only and Long/Short): Offer targeted, researched-backed exposure to digital assets by focusing on the underlying value of assets.

Digital asset hedge funds have demonstrated the ability to generate significant returns for investors. Even a modest allocation of 3-5% can meaningfully enhance a traditional 60/40 portfolio, as represented by Galaxy’s VisionTrack Composite Index (bottom graph).

Actively managed digital asset hedge funds stand as a credible component of institutional portfolios, offering diversification and targeted exposure. Talented managers now have longer track records, institutional-grade infrastructure, and high-quality custodial and trading partners. As the space continues to evolve, we anticipate sustained adoption driven by performance and innovation.

Top graph: 21Shares Insights, “New Highs in Institutional Interest: Q3 13F Filings Highlight Strong Demand for Spot Bitcoin and Ethereum ETFs,” Nov. 19, 2024.
Bottom graph: Data from January 2018 through September 2024, most recent available for all benchmarks. Traditional Portfolio defined as 60% allocation to equities and 40% allocation to bonds. Equities as represented by S&P500 TR Index; Bonds as represented by by iShares Core US Aggregate Bond ETF, which seeks to track the Bloomberg US Aggregate Bond Index; Digital Asset Hedge Funds as represented by VisionTrack Composite Index.

The Return of the Basis Trade

In November, digital assets experienced a significant rally, driving heightened investor demand and trading activity. These market dynamics created ideal conditions for seasoned traders to capitalize on straightforward yet highly profitable strategies, including the reemergence of attractive basis trades.

Here are two basis trades to watch:

  1. Futures v. Spot: This strategy capitalizes on the spread between futures prices and spot prices of an asset. A significant rally, like the one seen in November, typically drives the futures prices higher than spot prices, creating a profitable opportunity for traders to exploit the price differential.

    In November, Bloomberg described this strategy as a “just-about-risk-free trade” and noted that the rally drove the spread between bitcoin futures and the spot price to its highest level highest since March. This surge attracted significant hedge fund participation, including traditional funds. Many traditional funds traded spot bitcoin ETFs alongside bitcoin futures contracts on the CME, contributing to CME bitcoin futures achieving record monthly volumes and open interest (top graph).

  2. Swap v. Spot: This strategy leverages the funding rate of perpetual swaps. When the funding rate is positive, long positions pay shorts periodically. Elevated funding rates increase the trade’s profitability. Traders capitalize on this by taking long positions in the underlying asset while shorting the perpetual swap to collect funding payments.

The on-chain protocol Ethena, which offers investors access to this type of basis trade, saw significant dollar inflows in November—roughly $1.64 billion (bottom graph)—as ETH’s funding rate climbed and investors recognized the growing profitability of this trade in the current environment.

Experienced traders remain well-positioned to continue capturing attractive profits from these trades if the current market conditions persist, further underscoring the appeal of market-neutral digital assets trading in today’s volatile environment.

Source for top graph: The Block: Volume and OI of Bitcoin Futures as of Nov 30, 2024.
Source for bottom graph: DeFi Llama as of Nov 30, 2024.