I often compare the growth trajectory of the crypto market with the adoption path of the internet. Last week, in client meetings in Germany and Switzerland, I was reminded why this perspective is important for ETF investors specifically.

While the overall tone toward crypto assets has shifted dramatically in the positive direction, there are still questions about the benefits of investing in the asset class broadly versus just getting single-asset exposure.

The crypto/internet analogy helps answer this question over the long term, which is important, but what about the shorter term? Is there current evidence supporting the case for a broad investment in a crypto index as opposed to just gaining exposure to Bitcoin?

Our team believes the answer is unequivocally yes. 

The coming “altseason,” a term used to describe the outperformance of crypto assets ex-bitcoin, will help set the stage for the longer-term investment case for crypto. Let’s look at the five near-term signals that have been gaining the most steam this year. 

 

1. Altseason on the Horizon

Crypto assets generally follow a four-year cycle: a bull phase (~12 months), a significant bear market (~12 months), and a two-year recovery phase. The recovery phases of crypto market cycles often coincide with "altseason," where altcoins (everything except bitcoin) experience significant surges in price. This year, the timing aligns with the US elections and potential Federal Reserve rate cuts (Q4), possibly fueling a parabolic move in the crypto market.

 

Altcoin’s Lead Crypto’s Bull Market Phases

_{Source: Hashdex Research with data from Messari (from January 1, 2017 to February 22, 2024). Performances correspond to year-over-year variations of market capitalizations. Altcoins comprise the combined market capitalization of the top 1,500 tokens indexed by Messari after removing bitcoin, ether and the largest stablecoins in crypto. *2024 is only two months in. Past performance is not a guarantee of future results.}

 

2. Macroeconomic Tailwinds

The global increase in monetary liquidity presents a highly positive backdrop for risk assets, including crypto. The market anticipates the Federal Reserve initiating rate cuts by Q4, further fueling this momentum. This environment favors risk-on strategies, potentially leading to significant gains in crypto assets beyond just bitcoin, particularly those in smart contracts, Layer-2 solutions, and decentralized apps because they tend to have a higher beta compared to BTC, which has acted as both a risk-on and risk-off asset.

 

3. US Election

The upcoming US election is driving a crucial shift in the regulatory landscape. Recognizing the growing political influence of crypto voters, both major parties are adjusting their stances. Former President Trump's acknowledgment of crypto-supportive voters and some recent actions by Democrats, including the advancement of ether ETFs, a bipartisan vote to overturn the onerous SAB 121 rule, and support from both parties for comprehensive digital asset infrastructure legislation, all point toward a more favorable regulatory landscape for crypto in 2025 regardless of the election outcome. And, with Europe’s MiCA regulation going into place very soon, the global public policy environment is inching toward further clarity.

 

4. Institutional Floodgates

The recent crypto ETF progress in the US marks a pivotal moment, opening the doors to the vast wealth management market (estimated at $50 trillion in the US alone). This trend is in its early stages, with most demand coming from retail and more short-term oriented investors. Platforms and advisors are still figuring out how to integrate these products into their systems and institutional investors carefully considering their options. There is speculation that the largest wirehouses in the US will allow bitcoin ETFs on their platforms very soon, and pension funds and RIAs are beginning to explore and adopt crypto investments. The influx of institutional capital is poised to significantly impact the crypto market in the coming years and this may happen faster than many people expect. 

 

5. Cyclical Timing

Investor psychology plays a crucial role in market cycles and crypto is no different. If we use bitcoin as a proxy for price behavior in the crypto market, in past cycles, buying near the current stage of the cycle (60 to 90 days following each Bitcoin halving) resulted in substantially higher upside then if an investor bought BTC after that period. Maybe more importantly, buying during this window also shielded investors from losses, even if they sold BTC at the cycle's lowest point. The most recent halving—Bitcoin’s fourth—took place on April 19, so this 30-day window has just opened. 

Bitcoin Performance in the 60-90 Day Post-Halving Window

 

The importance of a strategic entry

Crypto index ETPs have been at the heart of Hashdex’s mission because we believe gaining access to crypto through a regulated, familiar structure will allow more investors to benefit from the promise of this asset class. 

History shows us that investors in an institutional-grade benchmark benefit from having exposure to the long-term winners in an asset class and diversification within an asset class is a time-tested investment strategy. For example, if you look at the top 10 largest stocks in the Nasdaq 100 in 1999, only Microsoft still remains 25 years later. Crypto will evolve similarly, and the dominant assets will change over time. Just like there were many ways to benefit from investing in internet companies two decades ago (e.g., email, browsers, e-commerce, etc.), there are many ways crypto investors can benefit from diversifying their exposure to this technology (e.g., payments, decentralized apps, gaming, etc).

Our commitment to index investing in this space is why we recently decided to waive the fees for the Hashdex Nasdaq Crypto Index Europe ETP until it hits $1 billion. We strongly believe that a crypto benchmark like the Nasdaq Crypto IndexTM is well-positioned to outperform any one single asset as the cycle turns from recovery to bull market, especially given the current price consolidation which is creating an attractive entry point for a strategic long-term allocation.

 

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