For cryptocurrencies, there are many major positive expectations for 2024: the approval of a Bitcoin spot ETF, the Bitcoin halving, and the Federal Reserve (Fed) interest rate cut. Will the bull market really come when all of this gradually unfolds? This article is sourced from the author’s Chain Research Society and compiled and written by PANews.
Table of Contents:
Predicting the timing of ETF approval and the start of the bull market
Preview of the bull market script
Review of the starting point of the 20-year bull market: 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?
Looking back at the approval process of the gold ETF
The economic environment and monetary policy at that time
Historical performance before and after approval
The historical process of the Bitcoin spot ETF
Current economic environment and monetary policy
Conclusion
Predicting the timing of ETF approval and the start of the bull market
Preview of the bull market script
Referring to the time it took for the approval of the Grayscale Trust, I believe the most likely script at present is as follows:
January 2024: Approval of Bitcoin spot ETF application (the Federal Reserve will no longer raise interest rates or there will be no market expectation of interest rate hikes)
April 2024: Bitcoin spot ETF becomes effective (before the Bitcoin halving, which helps attract funds)
July 2024: Official start of the Bitcoin bull market (after the adjustment following the halving and the market’s expectation of loose monetary policy)
September 2024: The Federal Reserve starts an interest rate cut cycle and implements loose monetary policy (once the expectation of interest rate cuts is released, the risk market will immediately respond, usually 1-2 months in advance. We can refer to the prerequisite indicator of GDP>CPI).
Why do I predict that the bull market will officially start around July, not when the Bitcoin spot ETF becomes effective? It’s because we usually experience a wave of adjustment within 2-3 months after the halving, rather than an immediate start. Considering the current market’s expectation of an interest rate cut cycle, I set the time in July.
Further reading:
PlanB reveals the upcoming “Bitcoin frenzy” and shows the RSI index, suggesting a decreasing risk.
Review of the starting point of the 20-year bull market: the process of approval for Grayscale GBTC Trust
November 2019: Grayscale submits the GBTC Trust fund registration application to the SEC.
January 2020: Grayscale GBTC Trust is approved for registration by the SEC, becoming the first digital asset tool to meet the standards of the U.S. Securities and Exchange Commission.
April 2020: Grayscale Bitcoin Trust GBTC becomes effective and rapidly expands in scale. The Three Arrows also quickly grow through arbitrage with GBTC.
During this bull market, Grayscale brought in more than $10 billion in incremental funds to the crypto market, and the total market’s incremental funds may be in the hundreds of billions.
The GBTC secondary market premium rate once reached more than 30%. Since February 2021, Grayscale has not continued to accumulate BTC. The previous holding of 654,885 BTC is estimated to have cost $8.931 billion, with an average cost of about $13,700.
Possible starting point and incremental funds for the next bull market
In the past 20 years, Grayscale brought in approximately hundreds of billions in incremental funds to the market with $10 billion. In 2021, the total market value of the crypto market reached a peak of $3 trillion, which is about 30 times higher than the hundreds of billions in 2019.
If we follow the same bull market path, the influx of funds needs to be in the hundreds of billions to be visible. Applying for a Bitcoin spot ETF approval from BlackRock is considered a necessary condition for the next bull market, and it will take about six months for the ETF to be approved (Grayscale applied in November 2019, became effective in April 2020, and Bitcoin halving occurred in May 2020).
Therefore, the incremental funds from the ETF alone will exceed the existing funds of Grayscale ($25.5 billion), but that’s not enough! Another necessary condition for a real bull market is that the market has sufficient currency liquidity. After the approval of the Bitcoin spot ETF, it is expected to bring hundreds of billions in liquidity to the crypto market, and the total market value will at least reach the trillion-dollar level, surpassing the market value of the world’s largest company (currently Apple).
3 necessary conditions for the start of the next bull market
SEC approval of a Bitcoin spot ETF
The next Bitcoin halving
Loose monetary policy and surplus market liquidity
What will happen when the ETF is approved? Will the bull market come?
I have referred to the process of approval for the gold ETF in the United States and made the following conclusions regarding what will happen if the Bitcoin spot ETF is approved (for reference only):
The market will continue to have positive expectations before the approval of the Bitcoin spot ETF, which can be seen as a positive factor.
After the approval of the Bitcoin spot ETF, there will still be a small surge.
Shortly after the Bitcoin spot ETF starts trading, there will be a larger decline, even below the price before the ETF approval.
Next is a rational analysis. Will there be a bull market just because of the approval of the Bitcoin spot ETF?
If the Bitcoin spot ETF is approved now, I don’t think it is good news overall. The approval mainly affects market sentiment and drives internal funds, but due to the world economy not yet recovering and monetary policy being extremely tight, it is still difficult for funds to flow in continuously.
Of course, it is possible to maintain high-level fluctuations, but it is difficult to sustain them for a long time. We cannot expect the crypto market to have an independent market trend, which is very unlikely. Moreover, it would be a loss to announce such a heavyweight positive news during a bear market. In a bull market, it may rise by 100%, but in a bear market, it may only rise by 30%. Take a look at the performance of the US stock market in the near future. If the US stock market falls, then there will be basically no chance.
Therefore, based on the current information, I don’t believe that the approval of the Bitcoin spot ETF will directly trigger a bull market.
Further reading:
Tim Draper, Silicon Valley venture capitalist: Bitcoin has the potential to reach $250,000, comparable to Microsoft.
Looking back at the approval process of the gold ETF
March 2003: The world’s first gold ETF was launched in Australia.
October 2004: SEC approves the first gold ETF, GLD, in the United States.
November 2004: The US gold ETF, GLD, is officially effective and starts trading.
The economic environment and monetary policy at that time
Economic environment: In 2004, the macroeconomic environment in the United States was relatively stable. The US GDP showed a growth trend, the unemployment rate was relatively low, and the inflation rate was moderate. Although there were some economic challenges, the US economy was not in a crisis state.
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. The loose monetary policy created support for gold, as gold is usually seen as a hedge against inflation and currency depreciation.
Historical performance before and after approval
Gold experienced a significant increase after the approval of the first gold ETF and continued to rise until the US ETF started trading.
The US gold ETF, GLD, continued to make small surges after SEC approval.
Shortly after the US gold ETF started trading, the market experienced a decline of about 9% in the following two months, falling below the price before the ETF approval.
The approval of the gold ETF allowed more traders to invest through ETFs without the need to store metal or custody with banks. In the following years, more funds entered this market, and the 2008 financial crisis pushed gold to $1,000.
The historical process of the Bitcoin spot ETF
February 2021: The world’s first Bitcoin ETF was approved in Canada, and BTC reached a high of 65,000 before starting to decline in the following two months, experiencing the 5/19 event.
October 2021: The first Bitcoin futures ETF was listed in the United States, and after a month of surging to over 69,000, it began a year-long decline.
July 2023: BlackRock, one of the world’s largest asset management companies, started applying for a Bitcoin spot ETF, reaching a high of 31,800 that month before starting to decline.
Current economic environment and monetary policy
Economic environment: The macroeconomic environment in the United States in 2023 is unstable. At the beginning of the year, it experienced a banking crisis. The inflation rate is high, the US 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 interest rates have 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 state with interest rate hikes and balance sheet reduction. To control inflation, an extremely aggressive interest rate policy was implemented, with the Federal Reserve interest rate reaching 5.25%, still not stopping interest rate hikes but nearing the end. The market expects interest rate cuts in September 2024.
The approval of the Bitcoin spot ETF will allow tens of millions of new investors and traders to invest through ETFs, further increasing the legitimacy of Bitcoin. There will definitely be more funds entering this market.
Further reading:
Tom Lee, Wall Street analyst: Interest rate cuts by the Federal Reserve are favorable for Bitcoin and may return to highs this year.
Conclusion
The three necessary conditions for the start of the next bull market are:
SEC approval of a BTC spot ETF
The next Bitcoin halving
Loose monetary policy and surplus market liquidity
Currently, the timing is not right, but I will adjust my judgment based on market information and changes in fundamentals. Let us witness the historic moment of the approval of the Bitcoin spot ETF and the grand bull market ahead.
Related Reports
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