In 2024, the crypto ETF market experienced a lot of growth, with Bitcoin ETFs leading the charge. Now, analysts suggest a potential tactical bottom for Bitcoin, driven by shifting macroeconomic conditions. On the other hand, Arthur Hayes is a bit more skeptic about the impact of upcoming Federal Reserve rate cuts. Meanwhile, central banks have increased their gold reserves to record levels this year, which suggests that these banks are still more cautious toward newer assets like Bitcoin despite its strong performance this year.
Bitcoin ETFs Dominate 2024
The crypto exchange-traded fund (ETF) market has seen some impressive growth in 2024. 13 of the 25 largest ETF launches by year-to-date inflows are crypto-related, according to the president of The ETF Store Nate Geraci.
Among the roughly 400 new ETFs that were launched this year, the four biggest by inflows have all been spot Bitcoin ETFs. BlackRock’s iShares Bitcoin Trust (IBIT) leads with almost $21 billion in inflows, followed by the Fidelity Wise Origin Bitcoin Fund (FBTC) with close to $10 billion. ARK 21Shares' Bitcoin ETF (ARKB) and Bitwise's Bitcoin ETF Trust (BITB) also made the top four, each attracting around $2 billion in net inflows.
2024 top ETF launches (Source: X)
Additionally, the iShares Ethereum Trust ETF (ETHA) has been the most successful among Ethereum ETFs, with its net inflows passing $1 billion in August, according to Morningstar. In total, net assets in spot Bitcoin and Ethereum ETFs have exceeded $60 billion.
The market for crypto ETFs is expected to continue expanding, with new types of digital asset funds and diversified crypto indexes on the horizon. Dave LaValle, Grayscale Investments' global head of ETFs, pointed out that there is a growing interest in both single-asset products and index-based offerings, which signals a broader adoption of crypto ETFs.
He also shared that net inflows into spot crypto ETFs have already exceeded three times the largest one-year inflow of any ETF in history, which also proves the massive adoption underway in the market. Numerous other proposed crypto ETFs, including Solana ETFs and diversified indexes like the Hashdex Nasdaq Crypto Index ETF, are currently waiting for regulatory approval.
Bitcoin Finds Tactical Bottom?
In addition to the impressive performance from Bitcoin ETFs, some analysts predict that a BTC price jump may be around the corner. The crypto markets were hit with a big downturn in early August, which may have created conditions for a “tactical bottom for Bitcoin,” according to asset manager ETC Group.
The market sentiment around crypto assets reached its lowest point since the FTX collapse in November of 2022, fueled by concerns over a potential recession in the United States and a sudden appreciation of the Japanese yen. However, these recession fears quickly shifted towards expectations of a reversal in the Federal Reserve’s monetary policy, which could involve lowering interest rates or injecting more money into the economy. This shift can be seen as a potential catalyst for a more favorable environment for Bitcoin, as looser monetary policies generally promote risk-taking and investment in assets like cryptocurrencies.
André Dragosch, ETC Group’s head of research, believes that the combination of macroeconomic conditions and a capitulation in crypto sentiment likely signaled a tactical bottom for Bitcoin in early August, setting the stage for a renewed bull run. This outlook was reinforced by Federal Reserve Chair Jerome Powell’s remarks at a meeting in Jackson Hole, Wyoming, where he indicated that a policy reversal is likely imminent.
Bitcoin vs monetary policy expectations (Source: ETC Group)
Dragosch also pointed out that market-based measures of monetary policy expectations now signal positive outcomes, which could provide a tailwind for Bitcoin and other crypto assets in the coming months. Despite a recent drop in Bitcoin’s price, which now stands at about $58,927 after dropping by 5+% over the past week, the asset still achieved a 31% return in 2024.
Overall, ETC Group’s analysis suggests that concerns over an economic slowdown in the US are less likely to impact Bitcoin’s price. The crypto’s sensitivity to global growth expectations is decreasing, with its performance increasingly correlated with monetary policy and the strength of the US dollar. According to Dragosch, Bitcoin’s recent performance was driven more by these macro factors, like monetary policy expectations and the US dollar, rather than changes in global growth expectations.
Fed Rate Cuts May Not Boost Bitcoin
Arthur Hayes, co-founder and former CEO of BitMEX, is a bit more skeptical about the potential impact of interest rate cuts by the United States Federal Reserve on Bitcoin prices. In an X post on Sept. 2, Hayes shared that despite Federal Reserve Chair Jerome Powell's strong indication of a rate cut in September during his speech at Jackson Hole, Bitcoin prices have struggled and declined since then.
After Powell's speech, Bitcoin briefly spiked to $64,000 but then dropped by 10% to a low of $57,400 on Sept. 2. It has since recovered slightly to $59,900. Hayes believes this was caused by reverse repurchase agreements (RRPs), which are paying 5.3% interest, higher than the yields offered by Treasury bills at 4.38%. This higher yield led large money market funds to move their cash from Treasury bills into RRPs, reducing the liquidity available for risk-on assets like Bitcoin.
Hayes explained that the RRP program serves as a safe haven for big banks and money managers as it offers a higher return than other secure investments. As a result, capital is being parked in RRPs rather than flowing through the economy, which diminishes the expected positive impact of lower interest rates on high-risk assets like Bitcoin.
Since the Federal Reserve signaled the likelihood of a September rate cut, an additional $120 billion has been placed into reverse repurchase agreements. This trend, according to Hayes, challenges the common belief that lower interest rates should be beneficial for high-risk assets like Bitcoin.
Typically, low interest rates encourage borrowing and spending, which then increases market liquidity as safer, interest-bearing accounts become less attractive, and a weaker dollar potentially strengthens Bitcoin's appeal.
The CME Fed Watch tool indicates a 69% chance of a 25 basis point cut and a 31% chance of a 50 basis point cut at the Fed's Sept. 18 meeting. A larger rate cut could suggest a more aggressive approach by the Fed that could potentially lead to a stronger market reaction and a bigger boost to economic activity. However, Hayes' analysis suggests that the current dynamics involving RRPs may temper the expected benefits for Bitcoin.
Central Banks Boost Gold Reserves
In 2024, the gold reserves of central banks are reaching record levels as they shift towards store of value assets. According to a report by the Kobeissi Letter, global net gold purchases by central banks hit 483 tonnes in the first half of 2024, the highest amount on record and a 5% increase from the previous record of 460 tonnes in the first half of 2023. In the second quarter alone, central banks bought 183 tonnes of gold.
The largest purchasers during this time were the National Bank of Poland, the Reserve Bank of India, and the Central Bank of Turkey. Adam Glapinski, the president of the National Bank of Poland, stated that the bank will continue its gold buying spree. Its goal is to have gold make up 20% of its reserves.
According to Spencer Hakimian, the founder of Tolou Capital Management, the fact that banks are stocking up on gold reflects the broader mistrust among countries like China, India, Russia, and Saudi Arabia towards Western reserve assets. He believes that gold is now seen as the only neutral and non-volatile reserve asset.
Tech entrepreneur Kim Dotcom also speculated that a new gold-backed stablecoin from BRICS nations could lead to a decline in USD trade and contribute to dollar instability. He suggested that this could cause a big shift in global GDP away from the United States by 2030.
Gold has had a very strong year, with prices reaching an all-time high of $2,525 per ounce on Aug. 27, and has risen 23% year-to-date, outperforming the S&P 500, which gained 18%. In comparison, Bitcoin has appreciated 37% in 2024, despite a 22% drop from its March all-time high.
While Bitcoin has outperformed gold so far this year, central banks are still cautious about the relatively new asset class, and still favor the long-established value of gold.
