After a strong performance in 2023, bitcoin rose 157% over the year, and an eventful January 2024 with the launch of 11 spot bitcoin Exchange-Traded Funds (ETFs) in the US, the signs are looking positive for cryptocurrencies. Looking toward the remainder of the year we note that many bullish catalysts are already in place and could push the price of cryptocurrencies up:
- Adoption is on the rise with a billion users on the horizon for bitcoin
- The institutionalisation of bitcoin and cryptocurrencies is well on its way, with regulated wrappers now available across most of the world
- The macro environment is becoming supportive with the money tap reopening in a year of US elections, as well as rate cuts indicated in the US and Europe for the second half of the year
- The upcoming fourth halvings will lead to a reduction of bitcoin supply
The performance of cryptocurrencies in February and early March is clearly not leading us to review our expectations. While predicting a price target for crypto is a fool’s errand, if history is any guide, we could see a supply demand shock that could push bitcoin to reach new highs.
Crypto adoption is on the rise
When looking at the adoption of technological innovations over time, we see that they all go through the same cycle – starting from the early adopters all the way up to mass adoption. As time goes by, innovation has tended to be adopted at a faster pace. The internet went though a very fast adoption cycle going from less than 10 millions users in 1992 to a billion users in 2005; a period of 13 years. Bitcoin went already from 1 million users in 2016 to 350 million in 2021. It is expected that the billion users mark will be breached as early as 2025, only nine years after.
This exponential adoption speed is one source of extra demand that could put pressure on an already limited supply. Let’s not forget that at the time of the fourth halving, 96.9% of all possible bitcoins will have already been issued.
Figure 1: Bitcoin Adoption vs. Internet User Adoption
Sources: Our World in Data, based on International Telecommunication Union (via World Bank) and UN (2022). Raoul Pal, Global Macro Investor, Coinshares, WisdomTree
The institutionalisation of cryptocurrencies: the finish line may be in sight
In Europe, physically backed cryptocurrencies Exchange-Traded Products (ETPs) have been available for years. And, after initially feeling lonely in the cryptocurrency space, we are now seeing the finish line so to speak. With the launch of spot bitcoin Exchange-Traded Funds (ETFs) in the US on 10 January, regulated cryptocurrency investment vehicles are now available in most jurisdictions and discussions around the inclusion of crypto in portfolios has moved on from “why?” to “how much?”. Established multi-asset fund managers, such as Blackrock, are now adding Bitcoin to their portfolios. We are well past the point where managers were worried to be the first to add bitcoin to their asset allocation.
The last asset to go through an institutionalisation phase was gold. Before the launch of GLD in 2004, investors would have needed to find ways to store physical gold, creating a significant operational barrier to institutional investment. The launch of GLD opened the door to the institutionalisation of Gold and its inclusion in multi asset portfolios leading to a price rally that never really stopped. Over the last 20 years the price of gold has never dropped even close to the pre-GLD levels.
The extra demand created by investors around the world having easy access to the asset, combined with a constrained supply, likely helped lead to the recent price increase. The $7.6 billion of NET flows that poured in spot bitcoin ETF in the US in the space of eight weeks could be just the start.1
Figure 2: New investment access for investors can lead to supply/demand shock
Source: Bloomberg, WisdomTree. From 1st January 1980 to 14 February 2024. In USD. GLD stands for SPDR Gold Shares and is the biggest Gold Exchange Traded Product in the world. “Known ETF Holdings of Gold” is the total holdings of gold in troy ounces held by exchange traded product backed by physical Gold around the World. Historical performance is not an indication of future performance and any investment may go down in value.
The fourth halving could lead to a supply demand shock
The “halving” refers directly to the reward miners get for solving the proof-of-work algorithm. This reward is expected to half again in April 2024 as coded in the bitcoin “monetary policy”. Historically, previous halvings have led to price increases both before the halving itself, but mostly after it.
In the table below, we show:
- Min in the two years prior is the minimum level attained by Bitcoin in the two years preceding the relevant halving
- Date of minimum is the date on which the above mentioned minimum has been attained
- Days of min before halving is the number of days between the date of the minimum and the next halving
- Gain pre halving is the gain in percentage between the minimum level for Bitcoin pre halving and the halving
- Level on halving is Bitcoin’s price on the day of halving
- Post halving max level is the maximum level attained by Bitcoin in the two years following the relevant halving
- Date of new high is the date on which the above mentioned maximum has been attained
- Days of max after halving is the number of days between the halving and the date of the maximum
- Gain post halving is the gain in percentage between the halving and the maximum level for Bitcoin attained in the subsequent 2 years
Following the previous halvings we observed in the 15 to 18 months following percentage gains of:
- Approximately 91 times (9,106.5%) after the first
- Approximately 28 times (2,782.0%) after the second
- Approximately seven times (684.3%) after the third
Even a modest 100% gain from the current levels could lead us to bitcoin levels above $100k.
Figure 3: Pre- and post-halvings price patterns. What could they mean for 2024 and 2025?
| Min in the two years prior | Date of minimum | Days of min before halving | Gain pre halving | Level on halving | Gain post halving | Days of max after halving | Date of new high | Post halving max level | |
| First halving | 0.2 | 06/12/2010 | 723 | 6075.0% | 12.35 | 9106.5% | 366 | 29/11/2013 | 1137.0 |
| Second halving | 183.1 | 14/01/2015 | 542 | 260.9% | 660.7 | 2782.0% | 526 | 17/12/2017 | 19041.6 |
| Third halving | 3156.9 | 14/12/2018 | 514 | 173.6% | 8636.21 | 684.3% | 547 | 09/11/2021 | 67734.0 |
| Fourth halving | 15632.0 | 21/11/2022 | 511 |
Source: Bloomberg.
The next wave of killer applications may be enabled through planned Ethereum upgrades
Moving on to other cryptocurrencies, in 2024 Ethereum is expected to make the ‘proto-dank sharding’ upgrade, which will enable cheaper and faster transactions for layer 2 solutions. Layer 2 solutions are protocols that run on top of Ethereum and handle transactions off-chain, bundling and settling them on Ethereum, reducing the congestion and fees on the main network.
With these upgrades, Ethereum aims to solve the scalability problem that has plagued many blockchain platforms and to gain an edge over its competitors, such as Solana, which claims to offer higher throughput and lower costs. Ethereum’s vision is to become the base decentralised blockchain that supports a variety of layer two solutions and decentralised applications (dApps), creating a web3 world where users have more control, privacy, and freedom over their online activities. This is a compelling scenario for Ethereum investors.
Bitcoin investments, and other cryptocurrencies, are highly speculative and involve a high degree of risk, including the potential for loss of the entire investment. An investment in bitcoin involves significant risks (including the potential for quick, large losses) and may not be suitable for everyone.
Sources
1 Source: WisdomTree, Bloomberg. As of 1st March 2024
Crypto assets, such as bitcoin and ether, are complex, generally exhibit extreme price volatility and unpredictability, and should be viewed as highly speculative assets. Crypto assets are frequently referred to as crypto “currencies,” but they typically operate without central authority or banks, are not backed by any government or issuing entity (i.e., no right of recourse), have no government or insurance protections, are not legal tender and have limited or no usability as compared to fiat currencies. Federal, state or foreign governments may restrict the use, transfer, exchange and value of crypto assets, and regulation in the U.S. and worldwide is still developing.
Crypto asset exchanges and/or settlement facilities may stop operating, permanently shut down or experience issues due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC/AML (know your customer / Anti-Money Laundering) procedures, non-compliance with applicable rules and regulations, technical glitches, hackers, malware or other reasons, which could negatively impact the price of any cryptocurrency traded on such exchanges or reliant on a settlement facility or otherwise may prevent access or use of the crypto asset. Crypto assets can experience unique events, such as forks or airdrops, which can impact the value and functionality of the crypto asset. Crypto asset transactions are generally irreversible, which means that a crypto asset may be unrecoverable in instances where: (i) it is sent to an incorrect address, (ii) the incorrect amount is sent, or (iii) transactions are made fraudulently from an account. A crypto asset may decline in popularity, acceptance or use, thereby impairing its price, and the price of a crypto asset may also be impacted by the transactions of a small number of holders of such crypto asset. Crypto assets may be difficult to value and valuations, even for the same crypto asset, may differ significantly by pricing source or otherwise be suspect due to market fragmentation, illiquidity, volatility and the potential for manipulation. Crypto assets generally rely on blockchain technology and blockchain technology is a relatively new and untested technology which operates as a distributed ledger. Blockchain systems could be subject to internet connectivity disruptions, consensus failures or cybersecurity attacks, and the date or time that you initiate a transaction may be different then when it is recorded on the blockchain. Access to a given blockchain requires an individualized key, which, if compromised, could result in loss due to theft, destruction or inaccessibility. In addition, different crypto assets exhibit different characteristics, use cases and risk profiles. Information provided by WisdomTree regarding digital assets, crypto assets or blockchain networks should not be considered or relied upon as investment or other advice, as a recommendation from WisdomTree, including regarding the use or suitability of any particular digital asset, crypto asset, blockchain network or any particular strategy.
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