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Welcome to Crypto Long & Short! This week, Prashant Kher, senior director at EY-Parthenon, details a new research survey showing increasing commitment to investing in digital assets.
Then, Kelly Ye, head of research at Decentral Park Capital, predicts the path of today's crypto market based on the dynamics of the last two cycles.
As always, get the latest crypto news and data from coindeskmarkets.com. – Ben Schiller, head of Consensus Magazine at CoinDesk
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Investor Surveys Reveal Strong Interest in Digital Assets |
There was a time when skeptics and professionals alike held the belief that digital assets, cryptocurrencies in particular, might be nothing but a passing trend. That time has come and gone, and the digital asset ecosystem has matured to a point of acceptance and even acceleration. In a recent survey conducted by an EY-Parthenon team, 94% of institutional investors and 83% of retail investors say they are long-term believers in digital assets. This past year across the globe, we have seen registered assets (exchange traded products) approved, legislation crafted (and in some cases passed), increased allocations, and the expansion of interest in tokenized assets. |
Investors are demanding more services and more options. There is significant opportunity for TradFi firms to drive meaningful revenue by extending new services to existing clients, as well as crypto native/FinTech firms to offer more institutional-focused capabilities. Those that move quickly will reap the benefits. Of survey respondents, 54% of institutional investors and 64% of retail investors plan to increase allocations, representing a significant upside over current money invested. Institutional investors largely seek a multi-custodian model to manage their digital assets, and beyond custody, want services like connectivity to more liquidity providers, the ability to lend/borrow against their crypto and prime brokerage services — in short, the services they receive from TradFi firms for traditional assets currently. On the retail side, 72% of retail investors see digital assets as a core part of their overall wealth strategy, and they want their current wealth and estate planning, tax and trust, and advisory services enhanced to include coverage of crypto and digital assets. By the numbers, 71% of investors have sought or plan to seek out advice from a financial advisor or planner regarding their crypto holdings, and 85% would be interested in wealth and estate planning to incorporate crypto and digital assets. There is a strong preference for registered vehicles. Traditional asset managers and wealth managers should take note of the emerging preference for registered vehicles in the digital asset community. In fact, 62% of institutional investors and 57% of retail investors prefer to get their exposure to digital assets through registered vehicles. Drilling down, accredited retail investors are most interested, outpacing non-accredited investors' demand for exposure to digital assets through registered vehicles by almost two to one. Though conducted before the approval of the Ethereum ETPs, 47% of institutional investors surveyed and 69% of retail investors surveyed that currently invest/have plans to invest in digital assets noted they are likely to invest in an Ethereum ETP when/if approved. |
Innovation and regulatory clarity create opportunity. Investors are intrigued by the new capabilities presented by digital assets. Both institutional and retail investors see the opportunity for tokenized assets to improve portfolio diversification and enable greater access to new asset classes like alternative investments. Additionally, both asset managers and retail investors are gaining comfort and interest in using digital assets for payments. Asset managers, banks, payment providers, and others may see an opportunity in this increased interest. As the regulatory landscape becomes clearer, we expect more opportunities for both institutional and retail investors. As more sophisticated players enter the market, we will see more innovations offered by crypto native players and new services offered by more financial incumbents to meet the increased demand for use cases around digital assets. For more insights on sentiment and trends of both retail and institutional investors, read the 2024 institutional and the 2024 retail digital assets survey reports.. The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization. |
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The Anatomy of a Crypto Bull Market |
Although crypto history is short, with Bitcoin celebrating its 15th birthday this year, we have already experienced three major cycles: 2011-2013, 2015-2017, and 2019-2021. The short cycle time is not surprising given the crypto market trades 24/7, about five times more than the equity market. The 2011-2013 cycle was predominantly about BTC, as ETH launched in 2015. Analyzing the past two cycles reveals patterns that help us understand the anatomy of a crypto bull market. With the market warming up to the U.S. election and improved liquidity outlook, history might rhyme again. BTC leads Altcoins into the Rally In both the 2015-2017 and 2019-2021 cycles, Bitcoin initially led the market surge, establishing confidence and setting the stage for a broader rally. As investor optimism grew, capital flowed into altcoins, driving a broad-based market rally. Altcoins' market cap peaks often coincided with BTC's market cap dominance bottom, indicating capital rotation from BTC to alts. Currently, BTC dominance is still climbing from the post-FTX low, suggesting more room for BTC to run before alts catch up. |
Altcoins Significantly Outperform in Later Half of the Cycle In both major cycles, altcoins significantly outperformed Bitcoin after an initial phase where their returns were comparable. This trend reflects investors' increased risk appetite and how reflexive the alts market can be with increased risk capital. In the second half of the 2015-2017 cycle, alts returned 344x versus BTC's 26x. Similarly, in the second half of the 2019-2021 cycle, alts returned 16x versus BTC's 5x. We are about halfway through the current cycle post-FTX, with alts slightly lagging behind BTC. This trend suggests a potential altcoin outperformance in the second half. |
Macro Economic Influence Crypto, like other risky assets, is highly correlated with global net liquidity conditions. In the past two cycles, global net liquidity increased by 30-50%. The recent Q2 selloff was partially driven by tightened liquidity conditions. However, as Q2 data confirmed a slowdown in inflation and growth, the trajectory for a Fed rate cut looks favorable. The market now prices in a more than 95% chance of a rate cut in September, up from 50% at the beginning of Q3. Additionally, crypto policy is becoming central in the U.S. election, with Trump endorsing crypto, which may influence the new Democratic candidate. The past two cycles also overlapped with US elections and BTC halving events, adding to the rally potential. Could This Time Be Different? While history doesn't repeat exactly, the rhyming nature of past cycles — initial Bitcoin dominance, subsequent altcoin outperformance, and macroeconomic influences—sets up for an altcoin rally. However, this time could be different. On the positive side, BTC and ETH have reached mainstream adoption through ETFs, with record inflows from retail investors and institutions. On the cautious side, a larger and more diverse set of altcoins competes for investor capital, and many new projects have limited circulating supply due to airdrops, leading to future dilution. Only ecosystems with solid technology and the ability to attract builders and users may thrive in this cycle. |
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Here's some news worth knowing, from CoinDesk deputy editor-in-chief Nick Baker: |
- TRUMP TALKS: Well, it's done. A (former) president has given the keynote address at a crypto event. Donald Trump spoke Saturday at the Bitcoin Conference, following through on what many hoped he'd say: He endorsed the idea of the U.S. having a bitcoin reserve. "If I am elected, it will be the policy of my administration, United States of America, to keep 100% of all the bitcoin the U.S. government currently holds or acquires into the future," he said. After his speech, Senator Cynthia Lummis got on stage to give some details on how that might work. Her proposed legislation would create a strategic reserve of 1 million bitcoin (worth about $68 billion at current prices). "This is our Louisiana purchase moment," she said. Whether any of this is feasible or would, as Lummis put it, actually reduce the U.S. national debt are open questions. But, as I've written before, the fact that a presidential candidate is talking about crypto at all is the big news. And some Democrats want their presumed candidate, Vice President Kamala Harris, to get friendlier about crypto. Either way the election goes in November, there's good reason to think crypto businesses will have an easier time operating in the U.S. starting next year when Joe Biden leaves office.
- HALVING REDUX: It's now been 100 days since the Bitcoin halving cut rewards for bitcoin miners in half. Research from ETC Group suggests that's the threshold after which post-halving bitcoin gains accelerate. "The previous halvings paved the way for multi-fold price rallies, with most gains coming after the first 100 days," my colleague Omkar Godbole writes. Bitcoin is right below its record high, and bitcoin optimists are saying optimistic things. Hold onto your hats.
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