Annual Reflection, Outlook and Predictions

Friends and associates,

Reflecting on 2024 and our predictions at the start of the year, it’s clear that 2024 was another transformative year for decentralized financial technology in our quest for a sounder financial system and solutions to the worlds biggest challenges. Institutions are allocating to the asset class, capitalizing on the technology, and longstanding regulatory barriers are being removed. We foresee a quieter start to 2025 relative to expectations but crypto will power ahead, outperforming expectations again by year-end supported by constructive regulation, institutional adoption and integration between real world assets and crypto.

Spot Bitcoin ETF Approval: A Monumental Moment

One of the key predictions we made was the approval of a Spot Bitcoin ETF, which did indeed come to fruition. This event marked a monumental moment for cryptocurrency markets. However, as anticipated, the approval followed a "buy the rumor, sell the news" dynamic, with some post-announcement weakness in Bitcoin's price.

Despite this, ETF flows and Bitcoin’s performance in 2024 were exceptional. Starting the year at around $42,000, it broke through our price target of $80,000 and even surpassed the psychologically significant $100,000 milestone. Bitcoin ETFs amassed over $100 billion worth of capital, which probably makes them the most successful ETFs in history.

Bitcoin dominated Asset Class Returns again in 2024 with 120% gains, following 156% gains in 2023. Gold and the S&P500 both experienced strong years, but Bitcoin outperformed them by almost 100%. This is absolutely remarkable given the incredible historical returns and the widely held expectation of diminishing future returns.

The question now is whether the cycles of 2015–2017 and 2019–2021 will repeat with three consecutive years of positive returns.

Gold is in the Headlights

I am often asked about Bitcoin valuation metrics. As a reminder, here is an article and a podcast detailing our approaches (I received a lot of positive feedback on this podcast so it is well worth a listen). "Comparison to alternatives" is one of the methods we use. If Bitcoin were to grow to the same size as gold, the market cap would still 5X from here. We expect this outcome to be very likely over the next 2-3 years. It is not out of the realms of possibility that market cap doubles again in 2025 as we navigate this potential scenario. Below is a thought provoking chart from Bitwise Asset Management comparing BTC ETF flows versus gold.

The Growth of Stablecoins: A $200 Billion Milestone

We predicted continued growth in stablecoin supply and adoption, and by the end of 2024, the market exceeded $200 billion in supply. Stablecoins also maintained their strong share of trading volumes relative to the rest of the crypto market.

Stablecoins outperformed expectations, with transaction volumes surpassing $8.5 trillion in Q2 2024 compared to Visa’s $3.9 trillion during the same period. Numerous fintech companies, like Stripe, integrated stablecoins into their back-end infrastructure, and several new stablecoin products launched. While the regulatory framework for stablecoins in the U.S. remains unresolved, I’m optimistic about progress in 2025 under the Trump administration’s more favorable stance toward crypto.

Looking ahead, I wouldn’t be surprised if U.S. banks begin entering crypto in 2025 (initially in stablecoins), leveraging this technology for settlement and financial services. Meanwhile, remittance apps reliant on outdated technology, like Western Union and MoneyGram, are losing traction, highlighting the disruptive potential of stablecoins.

The Regulatory Pendulum Swings: An End to Operation Chokepoint

While we weren’t entirely on the mark in expecting stablecoin regulation in 2024, one drum we’ve been banging over the last 12 to 24 months is the shift in the regulatory pendulum. The very negative regulatory environment under the Biden administration and SEC Chair Gary Gensler created significant headwinds for the industry. However, this began to change steadily through 2024, starting with US courts holding the SEC to account, ending with the election of Donald Trump and his remarkable support for the crypto industry. An anti-crypto stance was a clear component of Biden’s leadership and I think it is fair to say that this harmed the Democrat cause. Will politicians perhaps be wary of an anti-crypto stance in the future?

The importance of this regulatory shift cannot be overstated. The anticipated appointments of positive, pro-crypto individuals across key positions—SEC Chairperson, Treasury Secretary, Chief of Staff, Deputy President, and FDIC leadership—mark the end of Operation Chokepoint, which has been a thorn in the side of crypto for years (information is now emerging that the FDIC was engaged in a specific disinformation campaign against its PR adversaries in crypto)

This shift sets up an encouraging 2025. While the markets have priced in much of the election news from November and December, I believe the execution of these appointments and a move toward more constructive regulation could be incredibly bullish over the coming 12 months. Stablecoin regulation, a crypto market structure bill, and clear application of securities law in crypto are all possible in this new era of policymaking.

ETH Fragmentation hampering ETHBTC

A prediction that proved particularly difficult to digest was our expectation that Ethereum would briefly touch 0.046 BTC before rebounding and rising above 0.08 BTC later in the year. This turned out to be wildly incorrect.

Ethereum’s roll-up-centric roadmap promised a lot but resulted in significant fragmentation within the ecosystem. Many rollups themselves are centralized and suffer from poor privacy, creating additional headwinds for Ethereum’s value proposition. Meanwhile, projects with simpler architectures, such as Solana, have been able to move faster and meet market demand more effectively.

That said, Ethereum’s achievements over the years remain undeniable. It has been the foundation for revolutionary innovations such as stablecoins, decentralized lending, and prediction markets. Ethereum retains a significant early mover advantage, a large user base, and the confidence of many of the world’s largest companies, which continue to choose Ethereum as their preferred blockchain. For example BlackRock launched its first tokenized fund in March 2024, on the Ethereum network, representing investments in U.S. Treasury bills and repurchase agreements.

While Ethereum’s roll-up-centric roadmap has yet to translate into price performance, we remain optimistic about its prospects in the latter stages of this crypto cycle. The scaling solutions being implemented could eventually unlock significant value, and Ethereum is still well-positioned to remain one of the most important blockchains in the world.

Binance’s Market Resilience Amid Regulatory Challenges

Another prediction was that Binance, despite facing ongoing regulatory challenges since 2023, would lose market share. This proved accurate, but the exchange was perhaps more resilient than we anticipated.

DEX Volume Rose Relative to CEX Volume

While decentralized exchange (DEX) volume rose relative to centralized exchange (CEX) volume, it didn’t quite hit the 25% mark we predicted. Nevertheless, it’s encouraging to see the trend toward decentralization intact, particularly in the face of the centralizing force of ETFs.

Solana Failed to Gain Significant Traction in Stablecoins

Solana saw an increase in market share but did not make significant inroads into the stablecoin market. Rather it emerged as a hotspot for meme coin launches. It is encouraging to note that while memecoins dominated crypto trading volumes and performance in H1 2024, this trend tailed off in H2. Attention is returning to areas of long term value creation.

Erroneous Bitcoin Mining Narrative Remains

Throughout 2024, there continued to be a consistent narrative in the media highlighting Bitcoin mining’s significant energy consumption and its environmental implications (evidence can be seen HERE, HERE and HERE). Reports scrutinized the industry’s reliance on fossil fuels and its substantial carbon footprint.

While these concerns are not new, it’s important to maintain perspective. For those interested, I previously addressed these points in an article and video from 2022:

• Article on Bitcoin Energy Consumption: Ignore the Alarmists: Bitcoin’s Energy Consumption is Justified

• YouTube Video on Energy Consumption: Bitcoin Energy Debate

We expect bitcoin will have a profoundly positive impact on the environment through lowering debt fueled consumption. Additionally, the social impact of more equitable access to financial services continues to have a profound impact on marginalized communities around the globe. My visit to bitcoin Ekasi in South Africa in November renewed my confidence in this belief.

Cautious Start to Strong Year

Despite our expectations for a strong 2025, we expect it could be a soft start. Often the market follows a "buy the rumour, sell the fact" dynamic and this could prove prescient when it comes to the Trump inauguration, confirming numerous pro crypto policymakers in Washington. However, the strong gains at the end of 2024 might be difficult to repeat in early 2025.

Macro conditions are not as favourable as they were in mid-2024. The dollar has strengthened, real rates have increased and the yield curve steepening has stalled. We still believe that we are in a constructive phase for macroeconomic conditions through 2025 on account of interest rate cuts, but the recent trajectory in the aforementioned variables suggest current conditions are just not as supportive.

Profit taking is rising again and long-term holder profit taking has risen relative to short-term holder profit taking

On-chain demand has taken a breather now that price has hit $100K

Perpetual funding rates aren't at crazy levels but they are also elevated, suggesting there is a fair amount of speculative froth.

All-in-all, we expect the market might need to take a little time to digest, consolidated and find renewed strength into Q2. Broadly speaking, financial markets like to surprise relative to expectations and with so many expecting Trump to be pro-business and constructive to risk assets, a short-term surprise relative to expectations could be in order.

 Looking Ahead to 2025

As we look forward, 2025 holds immense potential for continued progress in the cryptocurrency space. The foundation laid in 2024, coupled with this new regulatory environment, presents exciting opportunities for innovation, adoption, and market growth. We foresee a quieter start to 2025 relative to expectations but crypto will power ahead, outperforming expectations again by year-end supported by constructive regulation, institutional adoption and integration between real world assets and crypto. Here are a few predictions we have our eyes on:

• US stablecoin regulation

• US banks enter crypto

• US market structure bill

• US Bitcoin strategic reserve not implemented

• Nation-state adoption outside of El Salvador

• Explicit swap of gold reserves into bitcoin

• Corporate Bitcoin treasury adoption continues

• Deeper integration between tradfi & crypto brings tradfi liquidity on-chain

• Bitcoin continues 4-year pattern with 3 strong years post bear market

• Another strong year with Bitcoin gaining >50%

• SOL ETF ushers in numerous non-BTC non-ETH crypto ETFs

• Total crypto market cap surpasses $5 trillion

Rob Price, CFA

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