Author: Cosmo Jiang, Partner at Pantera Capital; Translation: Jinse Finance xiaozou
We believe that this year has been a very constructive year for the crypto industry, with significant progress in price action, market structure milestones, and major regulatory and political shifts. From the passage of the FIT21 Act, to the successful launch of ETFs, to the election of the first US president in history to support cryptocurrency, we have seen another positive turn in the capital, innovation, and regulatory environment.
Here is a review of the major crypto events of 2024.
After a strong 2023, prices continue to rise as the market predicts several positive catalysts in the first half of 2024:
- The launch of the highly anticipated Bitcoin ETF in January was the most noteworthy event. The ETF began to show a strong inflow trend shortly after its launch, leading to strong price movements throughout February and March.
- In February, on-chain activity surged amid a new wave of retail participation, mainly meme coin trading activity on Solana.
- In the following month, Ethereum’s major upgrade EIP-4844 significantly reduced the transaction costs of Ethereum L2s.
The market then encountered some challenges as risk assets retreated across the board in April. Headwinds emerged, mainly in the form of changes in macro expectations, and higher inflation data suggested that interest rates were likely to move higher in the long term. In addition, the conflict between Israel and Iran raised geopolitical concerns. The end of April ushered in Bitcoin’s third halving, but surrounded by these headwinds, this halving event did not bring much short-term excitement.
In May of this year, we began to see the first signs of political favorability for cryptocurrencies. It began with Trump’s turn in favor of cryptocurrencies in a speech on May 8. Soon there were some positive legislative developments, including the passage of the FIT21 bill by the House of Representatives and the unexpected approval of an Ethereum ETF.
But the reality is that progress was fitful and there were fewer tangible catalysts to get excited about after May. This continued as we saw a sharp pullback across asset classes throughout the rest of the summer. Ethereum ETFs began trading in July but they failed to be a positive catalyst for the market due to weak market conditions.
In September, the macro environment began to improve, driven by the first rate cut by the Federal Reserve. As expectations for the US election increased, both parties began to publicly support cryptocurrencies and the market continued to rebound from the oversold summer.
On November 5, the US election results came out and the market went into high gear.
Price surge after the US election
Since the "US election", the market has been rising as the Republicans control the presidency and both houses of Congress, and supportive measures for the industry are expected. We believe the crypto industry and its supporters had a clear influence on the election. The new Congress is the most pro-crypto Congress we have ever seen, with a majority of the House of Representatives and a majority of the newly elected Senators holding pro-crypto positions. In terms of the popular vote, the margin of victory was less than the estimated number of single-issue crypto voters. In many ways, the digital asset industry can reasonably argue that it is the swing vote, and like the pivot security in the capital stack, it could have a huge impact in the future. An enthusiastically pro-crypto White House, coupled with supportive majorities in both chambers, should create the best environment for constructive crypto legislation.
Bitcoin has long benefited from clarity about how it is used, taxed, and regulated. This clarity sets it apart from other industries. Now the mouth-watering prospect is that entrepreneurs seeking to build serious value-added businesses using tokens and blockchain may soon benefit from similar clarity, and we believe a wave of innovation should follow. While Bitcoin has dominated a large portion of the discussion since the election, not much has changed about it, other than the potential for the United States to establish a strategic Bitcoin reserve. For other productive projects, everything could change meaningfully. In the long term, the passage of stablecoin and market structure legislation should have a much greater impact on altcoins than Bitcoin.
Thus, the re-engagement of retail capital in the broader cryptocurrency market has begun to take shape. This is evidenced by strong weekend volumes on Coinbase and a surge in the number of “last cycle tokens,” or the most recognized and accessible tokens on retail distribution platforms. As a result, Bitcoin’s dominance has seen its first monthly decline in nearly two years. We are increasingly convinced that we are now closer to the “second phase” of the cycle, when the long tail of tokens representing innovative value-creating blockchain solutions may begin to outperform.
Entering Phase 2
We observe that there are two distinct phases to bull cycles. Phase 1 is the early phase of the rally, when Bitcoin tends to outperform the rest of the market. Phase 2 is the late phase, when the long tail of tokens, or “altcoins,” tends to outperform the rest of the market.
We believe that the rest of the tokens are now accelerating.
It is worth noting that the performance of altcoins in the second phase was so large that altcoins outperformed Bitcoin throughout the entire process of the first two cycles - non-bitcoin tokens accounted for 65% and 55% of the total market value growth respectively. We are now seeing some early signs that we are in the second phase of the rise, and the US election is the catalyst for this phase.
Outlook
There are many reasons to be optimistic about the digital asset market. When I think back to the story of the past few years: - 2021 was a boom period of innovation and excitement, with many people entering the cryptocurrency space for the first time. - 2022 was a natural burst period of excessive speculation across all asset classes.
– 2023 was the year the industry encountered headwinds – be it rising systemic leverage and capital outflows, fading consumer interest, or regulators being forced to overreact to the previous year’s excesses.
– 2024 is the year headwinds turn into tailwinds. We start with a healthier positioning, and capital inflows begin (primarily from Bitcoin ETFs). User activity has started to pick up, and more importantly, regulators are starting to ease regulations and get pushed back in the courts.
2025 promises to be the year of tailwinds that accelerate the industry:
– The election changed the paradigm for the blockchain industry. When you think about the reasons for rejection from potential investors and innovators, the answer is often a lack of regulatory clarity. This pessimistic scenario may soon be over.
– Fundamentals will ultimately drive prices higher. Fundamentals as measured by on-chain activity and new innovations like AI agents and DePIN are improving in real time. However, price recovery for long-tail tokens is still in its early stages.
– As digital assets become more mainstream, capital flows should improve. Bitcoin ETF issuance should continue to grow, and more ETFs are likely to follow (e.g. Solana). Institutional allocators and sovereign entities are reaching out to us because they can no longer ignore digital assets.
The risk/reward of new investments in the space has improved. Yes, asset prices have risen from the bottom, but risk-reward and reward are probability functions, and the probability of an upside move has increased significantly. While Bitcoin may be closer to the mid-game, I believe we are still in the early stages of digital asset price performance.
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