All Eyes on Bitcoin

The current cryptocurrency market is distinct from previous ones, characterized by a departure from quick profits and the constant presence of risk factors. Despite the need for caution, there are significant opportunities for all investors due to the industry's growth, and the new market cycle appears to be just beginning, says Semir Gabeljic.

Nov 27, 2024, 4:42 p.m.

Bitcoin saw explosive growth immediately after the recent U.S. presidential elections, rising and retaking the spotlight from former highs of $73,000 in March. Now the question is, will bitcoin (BTC) continue its uptrend, and at what point can a sharp reversal happen?

If we take a look at former BTC market cycles, which happen every four years, then we see that we are now just starting to go into new bitcoin price discovery areas, and BTC could top out at new all-time highs, which is practically anything greater than the current resistance of $92,000. Bitcoin could even potentially see highs of $140,000+ based on prior supply and demand — i.e. halving cycles. On the contrary, what makes this market cycle a bit different than others is the vanished principle of BTC being an inflation hedge or digital gold. In theory, it was supposed to be — that is, at least, likely what Satoshi intended since bitcoin was created after the 2008 financial crisis. From what we saw in the last cryptocurrency bear market cycle, BTC is not an actual inflation hedge and performs like all other risk-on assets, so sentiment could change once the inauguration happens in January.

As we've seen before, politics could potentially just be politics until we see actual regulatory rollouts and a more favorable U.S. stance on paper with policies and laws that the markets fully embrace. Things seem to be going in the right direction with the news of Gensler resigning come January 20, 2025. The question remains on who will be his replacement; the wrong person and the smallest sentiment change in the wrong direction could fully accelerate a drawdown in BTC. We've previously seen what every Fed meeting minute has done to the price action of crypto which has, up until recently, always been negatively perceived. In other words, we are not fully out of the woods just yet, especially until there is clarity on who could be Gensler’s replacement.

The BTC ETFs played a vital role this year in institutionalizing the cryptocurrency, which allowed for RIA and fiduciary investment in bitcoin, although in a turnaround market the same volumes that helped bitcoin get to the point it is at today can be the same volumes and outflows that present a downfall. This can lead to crippling sentiment as we all know the crypto bull market does not last forever and drawdowns of 70-80% can be expected.

Looking at prior BTC bull market cycles, BTC has seen drawdowns of 20-30%. Can the same be expected with all the new factors under the current and new market structure? Analysts assume less drawdown and volatility scenarios due to the BTC ETF options offered by iShares and others, although on the contrary, systematic strategies still seem to be sought after with investors taking bets on market volatility, which only recently (in 2022) saw an equity market-like expansion in the crypto markets where enough volume, market cap, and stability existed for the shorting functionality of some coins.

With more market participants and more avenues of shorting functionality across all crypto assets, including BTC, this can create more volatility in the short-term. Compared to the last market cycle, there are a lot more traditional finance (TradFi) players trading and market making in the space now, which in a way is offset by more institutional capital locked up (mostly in ETFs since the venture space in crypto dried up from the fast money of the last bull market). Although in a way, no matter how much institutional capital enters the space, the market cycle of BTC will follow volatility— it's just in its decentralized nature.

Regardless of whatever outlook one has on the price of BTC, it's important to realize that this is a different market than before. Gone are the days of quick “hot money” returns with the inevitable crypto risk factors ever present. One must remain cautious, but optimistic, on where things are going, if not bullish on the market cycle and structure alone. Regardless, for every type of investor, there is a huge opportunity due to the immense growth of the industry, and when that window will close is anyone's guess — the only thing for certain is that the new market cycle is just getting started.

Semir Gabeljic

Semir Gabeljic is a director of capital formation and investment strategy at Pythagoras Investments, a leading absolute return crypto quant hedge fund formed in 2014. Prior to that, Semir holds experience at Pantera Capital assisting with capital formation and Goldman Sachs as an investor in their private equity/private credit group.