Graphing Digital Assets

Month in Review — September 2024

Bitcoin Defying Historical Trends

September, the worst month for bitcoin in years past (top graph), surprised with a 7.35% asset gain. Ether also rose by 3.53% and altcoins, as represented by SPCLXM, posted a 13.21% gain. The S&P 500 TR Index followed suit with a relatively modest 2.14% increase.

Risk assets faced early headwinds during the month but rallied as macroeconomic developments shifted in their favor. On September 18th, the U.S. Federal Reserve began its anticipated rate-cutting cycle with a 50-basis-point cut — twice what experts expected. Subsequently, on September 23rd, the People’s Bank of China (PBoC) injected 234.6 billion yuan ($33.29 billion) into the banking system. Then, on September 24th, the PBoC unveiled its most significant stimulus measures since the pandemic, which included plans to free up approximately $142 billion in liquidity. Concurrently, the Bank of Japan held rates steady, alleviating concerns of further unwinding of the yen carry trade.

Markets responded positively to these developments. Bitcoin outpaced both gold and U.S. equities in September, surging 9.25% between September 18th and 28th (bottom graph). However, geopolitical tensions toward month-end, notably the escalation of Israeli airstrikes leading to the death of a Hezbollah leader, dampened market enthusiasm, contributing to a pullback in BTC prices at the close of September.

The resilience of bitcoin throughout this September reinforces its potential for exponential growth amidst ongoing global uncertainty and evolving macroeconomic conditions.

Sources: Investing.com, Yahoo Finance, and Coinbase as of September 30, 2024. Assets as represented by BTC/USD price, SPDR Gold Shares, S&P 500 TR Index, and iShares Core U.S. Aggregate Bond ETF. To capture historical behavior of BTC, top graph does not include September 2024 returns.

Indicators of a Bullish Market

Following a significant rally at the end of 2023 and into the first quarter of 2024, bitcoin has traded sideways for more than six months. However, digital assets could be poised for a breakout in late 2024 and early 2025. Here are key factors suggesting a bullish outlook:

Increasingly Favorable Macroeconomics
The easing cycle has begun, with rate cuts in the U.S. and other countries expected to boost risk appetite among investors. Additionally, global stimulus efforts aim to inject liquidity into the financial system. Historically, increased liquidity has led to eventual gains in risk assets. Furthermore, Goldman Sachs forecasts a weakening dollar as the Fed shifts its policy, and Grayscale has positioned Bitcoin as a top investment for those concerned about dollar depreciation.

Bullish Sentiment in the Crypto Community
September marked a more than three-year high in long-term bitcoin holders increasing their BTC positions, according to VanEck (top graph). Concurrently, U.S. spot bitcoin ETFs saw net flows of $1.26 billion in September following noticeable outflows in August. The balance of BTC held on centralized exchanges dropped to its lowest level since November 2018, suggesting users are holding these asset in wallets off exchanges with no immediate intent to sell. Further, Standard Chartered’s head of digital asset research recently characterized any BTC price dip below $60,000 as a good buying opportunity for investors.

Historical Trends Suggest Potential Growth Ahead
Bitcoin’s sideways trading after April’s halving mirrors past cycles, which has historically been followed by substantial price breakouts (bottom graph). Additionally, bitcoin, like equities, tends to perform well after a U.S. presidential election, regardless of the outcome.

Political Clarity in the U.S.
Former President Donald J. Trump, Jr. has been campaigning on his pro-crypto policies, while the digital asset community eagerly awaited Vice President Kamala Harris’s stance. In September, she expressed support for digital assets and promised clear regulations if elected.

These converging factors paint a favorable picture for digital assets. However, caution is warranted as uncertainties remain. Geopolitical tensions could radically disrupt the markets, inflation concerns persist, and a soft landing is never guaranteed.

Top graph sourced from VanEck.
Source for bottom graph: Investing.com as of September 30, 2024.

BlackRock Paving the Way for Crypto

BlackRock, the world’s largest asset manager by AUM, has recently surpassed Grayscale as the world’s largest cryptocurrency asset manager (top graph). In September, BlackRock received approval from the SEC for options trading for their iShares Bitcoin Trust (IBIT), the largest spot bitcoin ETF with more than 365,000 BTC in assets, worth nearly $24 billion, at month-end. BlackRock has emerged as crypto’s greatest institutional proponent, most recently publishing a report recommending bitcoin to investors as a “unique diversifier” (bottom image).

BlackRock has strategically positioned themselves to be a leader in the digital asset space. How did they get here?

Why Did Blackrock Go All-in On Digital Assets?
Robert Mitchnick, BlackRock’s Head of Digital Assets, highlighted three main factors driving the firm’s commitment:

  1. Future adoption: A shift from a global regulatory perspective signaling this was an asset class and a technology that was here to stay.

  2. Institutional infrastructure: The evolution of institutional-grade infrastructure allowed BlackRock to develop products that met their standards.

  3. Client demand: BlackRock clients’ increasing interest in the space was the “final piece that helped push [the firm] over the top.”

What Has This Journey Looked Like?
BlackRock began exploring blockchain in 2016, with a focus on improving internal efficiencies and service offerings. The appointment of Robert Mitchnick in 2018 marked a shift towards creating a dedicated digital assets team. By 2022, BlackRock launched a spot bitcoin private trust for U.S. clients and, in 2023, filed with the SEC for a spot bitcoin ETF, which was approved in January 2024. The firm introduced its first tokenized fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), in March 2024, and a spot ether ETF in July 2024. This is likely just the beginning of their broader ambitions in digital assets.

What Lies Ahead?
Despite its position as a market leader, BlackRock still views digital assets as an early-stage opportunity and anticipates greater adoption across end investors, wealth advisory, and institutional channels. Currently, digital assets contribute a small fraction of BlackRock’s overall revenue, but their aggressive stance reflects confidence in the long-term growth and returns potential of this asset class.

Source for top graph: Bitcoin Treasuries by BitBo. Bottom table sourced from BlackRock.