There are many positive factors expected for cryptocurrencies in 2024: the approval of a Bitcoin spot ETF, the Bitcoin halving, and the Federal Reserve’s interest rate cut. Will these factors lead to a bull market? This article, sourced from the author’s research at Chain Research Society and compiled by PANews, explores the possibilities.
Table of Contents:
Predicting the Approval Time of ETF and the Start of the Bull Market
Preview of the Bull Market Scenario
Review of the Starting Point of the Bull Market in 2020: The Process of Approval for Grayscale GBTC Trust
Possible Starting Point and Incremental Funds for the Next Bull Market
3 Necessary Conditions for the Start of the Next Bull Market
What Will Happen When the ETF is Approved? Will the Bull Market Come?
A Review of the Approval Process for the Gold ETF
Economic Environment and Monetary Policy at the Time
Performance of Gold Before and After Approval
The Historical Journey of the Bitcoin Spot ETF
Current Economic Environment and Monetary Policy
Conclusion
Predicting the Approval Time of ETF and the Start of the Bull Market
Preview of the Bull Market Scenario
Based on the time it took for Grayscale Trust to be approved, the most likely scenario is as follows:
– In January 2024, the application for a Bitcoin spot ETF will be approved (if the Federal Reserve does not raise interest rates or if there is no market expectation of an interest rate hike).
– In April 2024, the Bitcoin spot ETF will become effective (before the Bitcoin halving, which will help attract funds).
– In July 2024, the Bitcoin bull market will officially begin (after the adjustment following the halving and with the expectation of loose monetary policy in the market).
– In September 2024, the Federal Reserve will start a rate-cutting cycle and implement loose monetary policy (once the expectation of a rate cut is released, the risk market will immediately respond, typically 1-2 months in advance. We can refer to the prerequisite indicator of GDP > CPI).
Why is the official start of the bull market set around July, not when the Bitcoin spot ETF becomes effective? It is because we often experience a wave of adjustment within 2-3 months after the halving, rather than an immediate start. Considering the current market’s expected rate-cutting cycle, we set the time in July.
Review of the Starting Point of the Bull Market in 2020: The Process of Approval for Grayscale GBTC Trust
In November 2019, Grayscale submitted an application for the registration of the GBTC trust fund to the SEC.
In January 2020, Grayscale’s GBTC trust was approved for registration by the SEC, becoming the first digital asset tool to meet the standards of the U.S. Securities and Exchange Commission.
In April 2020, Grayscale’s Bitcoin Trust (GBTC) officially became effective and rapidly expanded in scale, with Three Arrows playing a key role in its arbitrage, leading to rapid growth.
During this bull market, Grayscale brought in more than $10 billion in incremental funds to the cryptocurrency market, and the total incremental funds for the market may be in the hundreds of billions.
Possible Starting Point and Incremental Funds for the Next Bull Market
In the 20-year period, Grayscale brought in more than $10 billion in incremental funds to the market, and the total market capitalization of the cryptocurrency market reached a peak of $3 trillion in 2021, compared to just over $100 billion in 2019, an increase of about 30 times.
If we follow the same bull market path, we need inflows of hundreds of billions to see results. Applying for a Bitcoin spot ETF approval from BlackRock is seen as a necessary condition for the next bull market. However, it takes about six months for an ETF to be approved (Grayscale’s application was made in November 2019, and it became effective in April 2020, a month after the Bitcoin halving).
In this case, the incremental funds from the ETF alone will exceed Grayscale’s existing fund size ($25.5 billion). But that’s not enough! Another necessary condition for a major bull market is sufficient market liquidity. The approval of a Bitcoin spot ETF is expected to bring hundreds of billions in liquidity to the cryptocurrency market, and the total market capitalization will reach trillions of dollars, surpassing the market capitalization of the world’s largest company (currently Apple).
3 Necessary Conditions for the Start of the Next Bull Market
– Approval of a Bitcoin spot ETF by the SEC
– Next Bitcoin halving
– Loose monetary policy and excess market liquidity
What Will Happen When the ETF is Approved? Will the Bull Market Come?
Referring to the process of approval for the gold ETF in the United States, I have drawn several conclusions about what will happen if a Bitcoin spot ETF is approved (for reference only):
– The market will have a continuous positive expectation before the approval of the Bitcoin spot ETF, which can be seen as a bullish factor.
– There will still be a small surge after the approval of the Bitcoin spot ETF.
– Shortly after the Bitcoin spot ETF starts trading, there will be a larger decline, even falling below the price before the ETF was approved.
Next, let’s analyze rationally. Will there be a bull market just because the Bitcoin spot ETF is approved?
Based on the current analysis, I don’t think the approval of the Bitcoin spot ETF will directly trigger a major bull market. The approval will mainly affect market sentiment and the inflow of funds, but it will be difficult for funds to flow continuously due to the ongoing economic crisis and extremely tight monetary policy.
Of course, it is possible to maintain a high-level oscillation, but it will not last long. We cannot expect the cryptocurrency market to have an independent trend, as the probability is very small. Moreover, it would be a loss to introduce such a heavyweight positive factor during a bear market. In a bull market, there may be a 100% increase, but in a bear market, it may only be 30%. Let’s take a look at the performance of the US stock market recently. If the US stock market declines, then the chances are very slim.
Therefore, based on the current information, I don’t believe that the approval of the Bitcoin spot ETF will directly trigger a major bull market.
A Review of the Approval Process for the Gold ETF
In March 2003, Australia launched the world’s first gold ETF.
In October 2004, the SEC approved the first gold ETF, GLD, in the United States.
In November 2004, the U.S. gold ETF, GLD, was officially launched and began trading.
Economic Environment and Monetary Policy at the Time
Economic Environment: In 2004, the macroeconomic environment in the United States was relatively stable. The country’s GDP showed a growth trend, the unemployment rate was relatively low, and the inflation rate was moderate. Although there were some economic challenges, the U.S. economy was not in a crisis.
Monetary Policy: In 2004, the monetary policy implemented by the Federal Reserve in the United States was relatively loose. The Federal Reserve gradually raised interest rates (from 1% to 1.75% in 2004), but short-term interest rates remained relatively low. Loose monetary policy supported the performance of gold, as gold is often seen as a hedge against inflation and currency depreciation.
Performance of Gold Before and After Approval
Gold experienced a significant increase after the approval of the first gold ETF and continued to rise until the start of trading of the U.S. ETF.
The U.S. gold ETF, GLD, continued to experience a small surge after the approval.
Shortly after the U.S. gold ETF started trading, the market experienced a decline of about 9% within the next two months, falling below the price before the ETF was approved.
The approval of the gold ETF allowed more traders to invest through ETFs without the need to store physical gold or custody in banks. In the following years, more funds entered this market, and the financial crisis in 2008 pushed gold to $1,000.
The Historical Journey of the Bitcoin Spot ETF
In February 2021, the world’s first Bitcoin ETF was approved in Canada. Bitcoin surged to a high of $65,000 in the following two months but then started to decline, experiencing the 519 event.
In October 2021, the first Bitcoin futures ETF was launched in the United States. After a surge to over $69,000 in the following month, it started a year-long decline.
In July 2023, BlackRock, one of the world’s largest asset management companies, started applying for a Bitcoin spot ETF. Bitcoin reached a high of $31,800 that month but then began to decline.
Current Economic Environment and Monetary Policy
Economic Environment: The macroeconomic environment in the United States in 2023 is not stable. At the beginning of the year, it experienced a banking crisis. The inflation rate is relatively high, the U.S. GDP growth is weak and has not fully recovered from the recession trend, the unemployment rate is relatively low, and long-term and short-term bond rates are inverted. It faces economic challenges, and although the Federal Reserve wants a soft landing, it has not yet escaped the crisis.
Monetary Policy: The monetary policy implemented by the Federal Reserve in the United States in 2023 is in a tight monetary policy phase. To control inflation, it has implemented extremely aggressive interest rate hikes, with the Federal Reserve rate reaching 5.25%, although interest rate hikes are still ongoing but nearing the end. The market expects a rate cut in September 2024.
The approval of a Bitcoin spot ETF will allow tens of millions of new investors and traders to invest through ETFs, further legitimizing Bitcoin. It is expected that more funds will enter this market.
Conclusion
The three necessary conditions for the start of the next bull market are:
– Approval of a Bitcoin spot ETF by the SEC
– Next Bitcoin halving
– Loose monetary policy and excess market liquidity
Currently, the timing is not right, but I will adjust my judgment based on changes in market information and fundamentals. Let’s witness the historic moment of the approval of the Bitcoin spot ETF and the next grand bull market together.