Author: Cosmo Jiang, Partner at Pantera Capital; Translated by: Jinse Finance xiaozou
We believe that this year has been a highly constructive one for the cryptocurrency industry, with significant progress made in terms of price action, market structure milestones, and regulatory and political transformations. From the passage of the FIT21 Act to the successful launch of ETFs, and the election of the first-ever U.S. president to support cryptocurrencies, we have seen a renewed tailwind for capital, innovation, and the regulatory environment.
The following is a review of the major crypto events in 2024.
After a strong 2023, prices continued to rise due to the market's anticipation of several positive catalysts in the first half of 2024:
- The highly anticipated Bitcoin ETF launch in January was the most notable event. Shortly after the ETF launch, it began to see strong inflows, driving the price momentum in February and March.
- In February, on the back of a new wave of retail participation, on-chain activity surged, primarily driven by meme coin trading activity on Solana.
- Over the next month, the Ethereum major upgrade EIP-4844 significantly reduced the transaction costs of Ethereum L2s.
Subsequently, the market faced some challenges as risk assets broadly pulled back in April. Adverse factors in the form of changes in macroeconomic expectations emerged, with higher inflation data suggesting interest rates could remain elevated for longer. Additionally, the conflict between Israel and Iran raised geopolitical concerns. While Bitcoin's third halving event arrived at the end of April, these unfavorable factors dampened the short-term excitement around the event.
In May, we began to see the first signs of crypto-friendly political tailwinds. It started with a shift in Trump's stance towards supporting cryptocurrencies in a speech on May 8th. This was quickly followed by some positive legislative progress, including the House passing the FIT21 Act and the unexpected approval of an Ethereum ETF.
However, the reality was that the progress was intermittent, and the exciting, tangible catalysts diminished after May. This trend continued, and we saw significant pullbacks across asset classes throughout the summer.
The Ethereum ETF began trading in July, but due to the weak market environment, it failed to become a positive catalyst for the market.
In September, the macroeconomic environment started to improve with the first interest rate cut by the Federal Reserve. As expectations for the U.S. election increased, both parties began to openly support cryptocurrencies, and the market continued to rebound from the summer's oversold conditions.
On November 5th, the U.S. election results were announced, and the market entered a high-speed mode.
Price Surge After the U.S. Election
Since the "U.S. Election," the market has been on an upward trajectory, as the Republican Party controls the presidency and both houses of Congress, which is expected to lead to industry-supportive measures. We believe the crypto industry and its supporters had a clear impact on the election. The new Congress is the most crypto-friendly we have seen, with the majority of House members and the majority of newly elected Senators holding pro-crypto positions. In terms of the popular vote, the winning margin was lower than the estimated single-issue crypto voter turnout. In many ways, the digital asset industry can reasonably argue that it was a swing vote, like a fulcrum security in the capital stack, which could wield significant influence in the future. The enthusiastic crypto support from the White House, combined with a supportive majority in both chambers, should create the best environment for constructive crypto legislation.
Bitcoin has long benefited from its clear use case, taxation, and regulatory treatment. This clarity has set it apart from other industries. The tantalizing prospect now is that entrepreneurs seeking to build serious value-added businesses leveraging tokens and blockchains may soon benefit from similar clarity, and we believe a wave of innovation should follow. While Bitcoin has dominated much of the discussion since the election, aside from the U.S. potentially establishing a strategic Bitcoin reserve, not much has changed for Bitcoin itself. Everything is potentially in play for other productive projects. In the long run, the passage of stablecoin and market structure legislation is likely to have a much bigger impact on Altcoins than on Bitcoin.
As a result, we are starting to see early signs of retail capital re-engaging in the broader cryptocurrency market. Strong weekend trading volumes on Coinbase and a surge in the number of "last cycle's tokens" or the most recognized and accessible tokens on retail distribution platforms are evidence of this. Consequently, Bitcoin's dominance has seen a monthly decline for the first time in nearly two years. We are increasingly confident that we are now closer to the "second phase" of the cycle, where long-tail tokens representing innovative value-creating blockchain solutions may begin to outperform the broader market.
Entering the Second Phase
We have observed that bull market cycles have two distinct phases. The first phase is the early rebound phase, where Bitcoin typically outperforms the rest of the market. The second phase is the later stage, where Altcoins or "meme coins" tend to outperform.
We believe the rest of the tokens are now accelerating.
Notably, the performance of Altcoins in the second phase has been so significant that non-Bitcoin tokens have outperformed Bitcoin over the entire process of the past two cycles, accounting for 65% and 55% of the total market cap growth, respectively. We are now seeing some early signs that we are in the upward second phase, with the U.S. election serving as a catalyst for this stage.
Outlook
There are many reasons for us to be optimistic about the digital asset market. When I reflect on the past few years:
– 2021 was a period of innovation and exuberance, with many people entering the crypto space for the first time.
– 2022 was the natural explosion of over-speculation across all asset classes.
– 2023 became the year the industry faced headwinds - whether it was the rise in systemic leverage and capital outflows, the waning of consumer interest, or regulators overreacting to the previous year's excesses.
– 2024 is the year the headwinds turn to tailwinds. We start from a healthier positioning, with capital inflows (primarily from Bitcoin ETFs) beginning. User activity has started to rebound, and more importantly, regulators are starting to ease up and face pushback in the courts.
2025 is poised to be a tailwind year that propels the industry's accelerated development:
– The election has changed the landscape for the blockchain industry. When you think about the reasons potential investors and innovators have been deterred, the answer often lies in the lack of regulatory clarity. This pessimistic situation is likely to dissipate soon.
– Fundamentals will ultimately drive price appreciation. Fundamentals, as measured by on-chain activity and new innovations like AI agents and DePIN, are improving in real-time. However, the price recovery of Altcoins is still in the early stages.
– As digital assets become more mainstream, capital flows should improve. Bitcoin ETF issuance should continue to grow, and more ETFs (e.g., Solana) may follow. Institutional allocators and sovereign entities are reaching out to us, as they can no longer ignore digital assets.
The risk/reward for new investments in this space has improved. Yes, asset prices have risen from the bottom, but risk-reward and returns are probability functions, and the likelihood of upside has significantly increased. While Bitcoin may be closer to fair value, I believe we are still in the early stages of digital asset price performance.
