A comprehensive report from asset manager and crypto exchange-traded fund (ETF) issuer VanEck, led by experts Matthew Sigel and Nathan Frankovitz, delves into Bitcoin’s fundamentals, adoption trends, and emerging volatility. This analysis comes in the context of the Federal Reserve’s interest rate cuts and the upcoming US presidential election.
Shift In Bitcoin Adoption
The report underscores that Bitcoin’s price has soared by 124% over the past year, significantly outperforming nearly all major asset classes. Within the cryptocurrency sector, Bitcoin’s dominance, measured by its market capitalization relative to the total crypto market, has increased by 15% year-over-year, reaching 56%.
Despite Bitcoin’s robust price performance, the report notes a shift in the dynamics driving its adoption. In 2023, Bitcoin experienced a 155% increase, reportedly fueled by “inscriptions,” which allow users to store media files on the blockchain. This innovation attracted retail liquidity and trading fees, boosting Bitcoin’s price. However, this trend has waned, leading to a 93% decline in daily inscription transactions. Consequently, the decrease in on-chain activity resulted in a drop in daily active addresses and transaction fees. This suggests Bitcoin’s current price appreciation is driven more by its role as a store of value rather than retail transactions.
This shift indicates that institutional players increasingly use Bitcoin to store and transfer value. Coinciding with this trend, Bitcoin-related equities have seen an 87% increase in market capitalization, reflecting the growing adoption of Bitcoin as an investment vehicle.
Fed Rate Cuts And Harris-Trump’s Diverging Paths
Looking ahead, VanEck asserts that the interplay between the Federal Reserve’s monetary policy and the political landscape will profoundly impact Bitcoin and the broader digital asset market. If the Fed continues to lower interest rates in response to economic challenges, the firm anticipates a favorable environment for risk assets such as Bitcoin, attracting investors seeking higher yields.
The upcoming US presidential election also presents a complex picture for Bitcoin’s future. Both potential administrations, under current Vice President Kamala Harris or former President Donald Trump, are expected to maintain or even accelerate fiscal spending. This could result in further quantitative easing, potentially creating a favorable environment for risk-on assets like Bitcoin. However, if either administration adopts anti-business policies, the impact could dampen investor confidence.
Should Kamala Harris retain Gary Gensler as Securities and Exchange Commission (SEC) Chair, or align closely with the Elizabeth Warren wing of the Democratic Party, the asset manager predicts a tightening regulatory framework for the digital asset sector. Despite these potential challenges, the asset manager argues that a Harris presidency could benefit Bitcoin in the long run by bringing greater clarity and legitimacy to the cryptocurrency space.
Conversely, a potential Donald Trump presidency is likely to favor a more deregulated environment, which the firm believes could benefit the entire crypto ecosystem. Regardless of the election outcome, the firm asserts that the overarching trend of escalating budget deficits and rising national debt will likely continue. Such conditions typically weaken the US dollar, creating a macroeconomic landscape in which Bitcoin has historically thrived.
As of the time of writing, Bitcoin is trading at $62,700, down nearly 3% in the 24-hour time frame.
