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2024 was definitely the year of the bitcoin: The first bitcoin spot ETFs were approved in the US, the cryptocurrency reached an all-time high, and the fourth bitcoin halving occurred in April.
The price of bitcoin now sits at over $84,000, up 142 per cent since the start of the year and 60 per cent since Donald Trump was elected as US president on 5 November.
With the digital currency’s market capitalisation reaching a whopping $2.1 trillion (£1.7 trillion), it seems like the bubble can only keep growing. But where do analysts expect bitcoin to go next year?
Bitcoin and Trump
By far the most important catalyst for bitcoin’s rapid growth this year has been the election of Trump in November.
“With the incoming Trump administration, we see this as a positive catalyst for the crypto industry and crypto/blockchain assets,” said Pieran Maru, fund manager at Liontrust.
Many analysts are expecting a complete overhaul of the US government’s attitude to crypto under the new president, and for clear reasons.
In the past, Trump described the digital currency’s value as “based on thin air” and claimed that bitcoin was “a scam”.
However, he has since done a U-turn on his views, and on the campaign trail, pledged to make the US “the crypto capital of the planet”.
With the nomination of crypto advocate Paul Atkins as the chair of the US Securities and Exchange Commission, the US is likely to bring in favourable regulatory environment, as well as greater clarity around crypto rules.
Meanwhile, whispers of a strategic bitcoin reserve have been circulating round Washington, which could massively boost the price of crypto and show that the US government backs it.
Institutional investors
With plans for central bank digital currencies seemingly abandoned by central banks across the world, a further potential headwind for bitcoin has been eliminated.
“The growing integration of Bitcoin into mainstream finance through spot ETFs and institutional adoption suggests it could consolidate its position as a legitimate asset class,” noted John Plassard, senior investment specialist at Mirabaud Group.
With the introduction of spot bitcoin ETFs in the US, it has provided an easier path for investors, especially institutional investors like pension funds and banks, to gain exposure to the digital currency.
Spot ETFs hold around 1.1m bitcoin, representing just under six per cent of current supply.
Blackrock recently highlighted in their Investment Institute paper that “giving bitcoin a one per cent to two per cent weighting would produce a similar share of profile risk as the Magnificent Seven tech stocks in a standard 60/40 portfolio”.
Regulators also seem to be softening on bitcoin across the world. While the US SEC will likely soon be as pro-crypto as they come, even the Financial Conduct Authority in the UK has been taking a slightly less negative stance towards the asset.
Bitcoin’s price
“Today, with Bitcoin touching $106,000 and Tesla up 77 per cent since 5 November, there is a bandwagon feel, like so many previous momentum moves,” said Richard de Lisle, manager of the VT De Lisle America Fund.
So what will cause a peak in bitcoin? Well, while analysts agree this extreme upwards momentum can’t last long, the sharp drop-off that cryptocurrency has suffered many times before might still be a way off.
“Bitcoin has a unique HODL culture,” explained Maru, referring to the ‘hold at all costs’ meme that circulates in crypto spaces.
“Given Bitcoin’s inherent scarcity, with a cap of 21 million coins, and considered a store of value like gold, it is no surprise that more than 60 per cent of Bitcoin held has not been sold in the last 12 months,” he added.
Another clear phenomenon after the US presidential election has been the bifurcation of bitcoin and gold.
The two are both asset classes “with no real function apart from being a store of value”, said de Lisle, with “one for the new world and one from the old world”.
While the two had been closely correlated in the run-up to the US election, now it seems as if bitcoin has begun to more closely follow the Magnificent Seven, particularly Tesla.
“Looking at past moves, nothing lasts a year once escape velocity is reached except those things that turn out to be real,” added de Lisle.
“Thus you might want to get out of Bitcoin next year while considering if it is just an interim peak such as in 2017 or 2021. And for that, there is a great divide of opinion between younger and older investors.”
