A recent analysis from asset management firm and crypto exchange-traded fund (ETF) provider VanEck, spearheaded by Matthew Sigel and Nathan Frankovitz, investigates Bitcoin’s fundamentals, adoption patterns, and the recent volatility following the Federal Reserve’s interest rate cuts and the upcoming U.S. presidential election.
Transformation in Bitcoin Adoption
The report indicates that Bitcoin’s price has risen by 124% in the past year, notably outperforming nearly all major asset classes. Within the cryptocurrency landscape, Bitcoin’s market share—calculated through its market capitalization compared to the total crypto market—has increased by 15% year-over-year, now standing at 56%.
Although the firm has noted positive price trends, it observes that the factors propelling Bitcoin’s adoption have changed. In 2023, Bitcoin saw a remarkable 155% increase, largely driven by “inscriptions,” which enable users to store media files on the blockchain to attract retail liquidity and trading fees.
However, this trend has diminished, resulting in a 93% drop in daily inscription transactions. Consequently, the decline in on-chain activity has led to decreased daily active addresses and transaction fees, indicating that the current price ascension is more a function of Bitcoin’s status as a store of value than of retail transactions.
This transition implies that institutional investors are increasingly utilizing Bitcoin as a means of storing and transferring value. In line with this shift, Bitcoin-related equities have experienced an 87% rise in market capitalization, signifying the growing acceptance of Bitcoin as an investment tool.
Federal Rate Cuts and Harris-Trump Divergence
Looking forward, VanEck posits that the relationship between the Federal Reserve’s monetary policy and the political environment will significantly influence BTC and the wider digital asset market.
If the Fed continues to reduce interest rates in response to economic challenges, the firm expects this to create a favorable atmosphere for risk assets like BTC, attracting investors seeking increased returns.
The forthcoming U.S. presidential election presents a complicated outlook for Bitcoin. Both prospective administrations, under current Vice President Kamala Harris or former President Donald Trump, are anticipated to sustain or even boost fiscal expenditure, potentially leading to additional quantitative easing.
This monetary policy, focused on economic stimulation, may unintentionally leverage a conducive environment for risk-on assets like Bitcoin. Nonetheless, investor confidence could falter if either administration takes a stance against business interests.
Should Kamala Harris keep Gary Gensler as SEC Chair or align closely with the Elizabeth Warren faction of the Democratic Party, the asset manager foresees a tighter regulatory atmosphere for the digital asset sector.
Despite potential obstacles, the asset manager suggests that a Harris presidency could ultimately benefit Bitcoin in the long term, as increased regulation may offer greater clarity and legitimacy to the cryptocurrency market.
In contrast, a possible Donald Trump administration is likely to endorse a more deregulated environment, which the firm believes could enhance the overall crypto landscape.
Regardless of the election outcome, the firm contends that “the prevailing trend” of escalating budget deficits and increasing national debt will likely persist. Such circumstances historically undermine the U.S. dollar, fostering a macroeconomic environment where BTC tends to thrive.
As of this writing, BTC is priced at $62,700, experiencing a nearly 3% decline in the past 24-hour period.
Image sourced from DALL-E, chart from TradingView.com
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