Crypto enthusiasts often refer to October as “Uptober” given that it has historically been a month of strong performance for bitcoin, ether, and other crypto assets.
This October has not disappointed, as crypto assets—as measured by the Nasdaq Crypto Index Europe (NCIE)—are up 21.6%. Year to date, the NCIE has returned 84.3% with bitcoin more than doubling. By comparison, year to date the Nasdaq 100 and Euro Stoxx 50 have returned 31.5% and 7.4%, respectively.
Source: Hashdex Research with data from CF Benchmarks and Bloomberg (December 31, 2022 to October 25, 2023).
There are several factors contributing to crypto’s outperformance, including widespread speculation around a spot bitcoin ETF being approved in the US, but an outstanding question remains for investors: is this the start of the next bull cycle?
We believe there’s mounting evidence that supports this perspective. Beyond the spot bitcoin ETF hype in the US—which we believe has now become a matter of “when” not “if”—is the combination of both secular factors, such as crypto regulation advancing globally, and cyclical dynamics including the forthcoming Bitcoin halving. The halving is the scheduled event every four years when the supply of bitcoin is systematically reduced. Typically these events have resulted in significant outperformance on either side of the event.
500 days before and after Bitcoin’s halving events
Source: Hashdex Research with data from Messari (accessed October 25, 2023) and expected halving date by Clark Moody. Since the halving date is probabilistic rather than deterministic, the evolution of returns with respect to the next event may change over time.
Together, longer-term trends and shifting shorter-term forces are presenting a unique opportunity for long-term investors to start allocating to crypto, but the very recent environment is also contributing to the case for a new bull market. Macro uncertainty has increased since mid-September, when US Treasuries spiked to levels not seen since the great financial crisis, putting pressure on bond and equity markets worldwide. Additionally, the new conflict in the Middle East will have far-reaching consequences in geopolitics and potentially inflation and the economic outlook. Despite this challenging backdrop, bitcoin and the NCIE have outperformed. This is, at least in part, due to bitcoin increasingly being viewed as “digital gold.” BlackRock CEO Larry Fink recently supported this perspective, stating that bitcoin is benefiting from a “flight-to-quality.”
A report this week suggested that the next bull cycle began in June of this year and is being driven by the institutional adoption of these technologies. The acceleration of institutional adoption is something we have been emphasizing for years and, even in the recent crypto winter, traditional institutions have been rapidly expanding their partnerships, investments, and overall exposure to crypto assets.
Institutional adoption has continued in 2023, including very recently with Visa announcing it would allow customers to use its cards to pay the transaction fees associated with Ethereum. PayPal announced its own stablecoin, Deutsche Bank plans to offer digital asset custody services for corporate and institutional clients, and Solana (SOL)—an NCIE constituent—announced the integration of its payment platform with Shopify, a company that accounts for 10% of total US e-commerce.
We know well from investing in these markets for a long time that specific price predictions are a wasted effort. However, the maturation of the crypto asset class has allowed for a better understanding of price patterns and behavior and we do believe that forces are aligning that support a bull market for crypto assets. The path will certainly be volatile, but we continue to emphasize to investors that the current environment may be an ideal time to make a first-time allocation to crypto assets.
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