Is the Crypto Bull Market Over?
Since Bitcoin reached highs of $73,000 in March, it has been slowly sliding to $60,000, with the rest of the market following market catalysts like the halving. This price drop, along with regulatory uncertainty and unfavorable macroeconomic conditions, leads some to believe that the 2023–24 bull market has ended abruptly. Let’s analyze the facts and better understand where the market may go.
Traditionally, the crypto market has operated in 4-year cycles centered around the halving. In the Fall and Winter after the halving, the market shoots upward wildly before correcting downwards significantly to start the next bear market that lasts three years. This has happened in 2013, 2017, and 2021, leading many to believe that this same price pattern is now taking place and that new all-time highs will be seen near the end of 2024.
While this may be a fun narrative to believe, numerous other considerations for this market were previously not in play. Primarily, the institutionalization of Bitcoin through ETFs has allowed large market entrants and companies to buy Bitcoin in quantities we have never before seen. This certainly dampens the volatility of Bitcoin a bit, as it is no longer dominated by emotional retail traders with immature market strategies. This bull market was kicked off last fall as speculation about the approval of the ETF began to rise, ultimately peaking in March after a few months of massive inflows, which made the Bitcoin ETFs the fastest-growing ETFs of all time. To date, they have seen over $10 billion in inflows and custody over $60 billion BTC. With large financial institutions like BlackRock, Franklin Templeton, and VanEck all joining the Bitcoin bandwagon, two arguments must be made. On one hand, this is just the beginning of the Bitcoin rally, and numerous firms will still join the revolution as both buyers and evangelists. On the other, with four months between today and the ETF’s release, most initial purchases may have taken place, and we may simply see a few big entrants join the market per year as they complete their due diligence and train their employees on how to trade Bitcoin. The ETF certainly raises the ceiling for Bitcoin’s market cap but calls into question whether its floor was artificially raised by retail investors speculating about this demand.
Though Bitcoin’s commodity status is well-established, every other cryptocurrency still lies in uncharted territory, and none is more crucial than Ethereum. Recently, the US Securities and Exchange Commission has been aggressively pursuing crypto companies and protocols, including the Ethereum Foundation, to attempt to regulate them under traditional rules that simply do not apply. For example, Uniswap Labs, the software company behind the Uniswap decentralized exchange, is being sued for operating as an unlicensed broker since it allows anyone to list and provide liquidity on Ethereum tokens via their smart contracts. Ethereum wallet MetaMask is facing the same charges. Ether ETFs, slated for decision in late May, are all expected to be denied as long as the current SEC leadership remains in power and continues its battle against crypto.
The industry hopes that most of these lawsuits are baseless and frivolous. This might be good in the long run since it will provide regulatory clarity and a path forward for innovation and responsible development. In the short term, however, they cause uncertainty and fear about these tokens’ future price and status, inhibiting further growth.
The relatively poor macroeconomic conditions for high-risk assets cannot be ignored. The Federal Reserve is keeping interest rates around 5%, meaning that the risk-free rate on US dollars is at 5%, making risk-on assets like stocks and cryptocurrencies less appealing. In the 2021 bull market, the interest rates were near 0% and investor tolerances for risk were significantly higher — a factor that cannot be overstated in the rise of trends like the NFT bubble and memecoin mania. It seems like the Fed will keep interest rates stable as they attempt to fight stagflation. Though this may seem like a positive sign for crypto and its role as a store of value separate from the US dollar, it trades closer to a high-growth tech stock and high-risk asset than anything else. The main way that could change is if a shock to the dollar causes investors to realize that it may not be as safe as they thought, in which case they may flock to Bitcoin as a safe haven asset. If Bitcoin were currently perceived this way, it would have a similar rally to gold, which has not occurred.
The market’s current sentiment is best exemplified through memecoins, which had a massive run at the beginning of the year and are now fairly stagnant or declining. Since memecoins are the most speculative sector in the industry, their price direction is generally a good indicator of how the rest of the market feels and how willing they are to gamble versus hold more stable assets.
The market is in completely uncharted territory, with new headwinds and tailwinds that are simply too complex to tell whether one is stronger. Though the market has had a significant rally since its October 2023 lows, there could be more room to run if institutional interest stays high, the halving causes FOMO and squeezes the available supply, and the market follows its traditional cycle. On the other hand, regulatory uncertainty, combined with a lack of institutional interest, poor macroeconomic conditions, and memecoin fatigue from retail could stop the bull market in its tracks until further notice. The best strategy for long-term believers is to continue dollar-cost averaging into high-conviction positions, keep a well-diversified portfolio of more than just crypto, and not get caught up in the day-to-day stressors of the market.
By Lincoln Murr
