Main Points :
- Cryptocurrencies continue to outperform traditional stock markets in 2024.
- Bitcoin, leading the cryptocurrency sector, rose by approximately 140% year-on-year.
- Bitcoin’s historical patterns suggest a potential rise between now and April 2024.
- The Federal Reserve’s interest rate cuts have boosted both stock and crypto prices.
- Despite reduced inflation hedge needs, cryptocurrencies remain strong due to long-term growth expectations.
- The correlation between Bitcoin and risk assets has decreased to 0.4.
- Stablecoin supply increased by 7% in Q3 2024.
Cryptocurrencies Outshine Stock Markets
In 2024, cryptocurrencies have consistently outperformed traditional stock markets, with Bitcoin at the forefront. According to Canaccord’s Q3 report, despite a generally cooling economic environment, the broader cryptocurrency sector has maintained strong momentum, outpacing equities in growth and investor interest. While inflationary pressures have waned, long-term growth and innovation prospects continue to drive the cryptocurrency market forward.
Bitcoin’s Dominance in 2024
Bitcoin (BTC) continues to lead the charge in the cryptocurrency market, having risen by approximately 140% year-on-year by the end of the third quarter of 2024. In comparison, Ethereum (ETH) increased by around 60%, and the S&P 500 index only gained about 30%. This significant gap in performance underscores Bitcoin’s role as a major player, not just within the crypto sector but as a financial asset on a global scale.
Historical trends suggest that Bitcoin tends to rise in the 6–12 months following a halving event, with the next halving scheduled for April 2024. If Bitcoin follows this pattern, Canaccord expects further upward movement in the coming months. Analysts predict that Bitcoin could hit new highs within 2–6 months after the halving.
Interest Rate Cuts and the Crypto Market
The Federal Reserve’s recent decision to reduce interest rates by 50 basis points (bps) had a noticeable impact on both the stock and cryptocurrency markets. Lower interest rates typically result in higher asset prices, as investors seek returns in riskier markets. Cryptocurrencies, being one of these markets, have benefited from the Fed’s actions.
Interestingly, the Canaccord report noted that the most “rational” market response would typically see Bitcoin’s price decline during such events, especially given the reduced need for inflation hedges. However, this scenario has not yet played out as expected. Cryptocurrencies, including Bitcoin and Ethereum, continue to see positive movements, driven largely by growing investor confidence in long-term innovation within the sector.
Long-Term Growth and Innovation Fueling Investor Confidence
The report from Canaccord highlights that while Bitcoin’s traditional role as an inflation hedge has diminished, the cryptocurrency market remains strong. Investors are increasingly motivated by long-term growth prospects and innovation rather than short-term inflationary concerns.
Ethereum, alongside other altcoins, has shown resilience in a market environment typically dominated by Bitcoin. This suggests that while Bitcoin still holds a dominant position, other assets within the crypto space are being recognized for their potential as long-term investments.
The resilience of cryptocurrencies, even in the face of shifting market dynamics, suggests that investors are moving beyond short-term speculation and looking toward the future possibilities offered by blockchain technology and decentralized finance (DeFi).
The Correlation Between Bitcoin and Risk Assets
One of the key insights from the report is the changing correlation between Bitcoin and other risk assets. In 2022, Bitcoin’s correlation with risk assets peaked at 0.6, suggesting a strong connection with broader market movements. However, as of Q3 2024, this correlation has dropped to 0.4, indicating that Bitcoin is becoming more independent from traditional financial market fluctuations.
This decreased correlation suggests that Bitcoin may offer a level of diversification for investors looking to hedge against the volatility of other risk assets. As Bitcoin decouples from traditional markets, it may become an even more attractive asset for institutional and retail investors alike.
Potential ETF Boost for Bitcoin
While it remains unclear when the next interest rate cuts will occur, Canaccord suggests that Bitcoin could benefit from favorable supply-demand dynamics after the halving in April 2024. The approval of Bitcoin Exchange-Traded Funds (ETFs) could further provide positive tailwinds for Bitcoin’s price, as institutional investors would have an easier way to gain exposure to the asset.
Bitcoin ETFs have been a topic of significant interest among investors and regulators alike. If approved, these ETFs could lead to greater adoption of Bitcoin in traditional financial portfolios, offering a new wave of liquidity and market support.
The Growth of Stablecoins
Canaccord’s report also noted a 7% increase in the supply of stablecoins during the third quarter of 2024. Stablecoins, which are typically pegged to fiat currencies like the U.S. dollar, play a crucial role in the crypto market by providing liquidity and acting as a stable medium of exchange for trading other cryptocurrencies.
This growth in stablecoin supply indicates increasing demand for these assets, which are seen as safer alternatives during periods of market volatility. The rise of stablecoins also reflects broader trends in decentralized finance, where stable assets are crucial for liquidity pools and lending protocols.
Positive Outlook for Cryptocurrencies
In conclusion, cryptocurrencies are poised for continued growth, with Bitcoin leading the charge. Despite reduced inflationary concerns, cryptocurrencies are being driven by long-term growth prospects and investor confidence in technological innovation. The upcoming Bitcoin halving event and potential ETF approvals could serve as further catalysts for price increases in the coming months.
As Bitcoin and other cryptocurrencies become more independent from traditional financial markets, their appeal to a broader range of investors will likely increase. The rise in stablecoin supply further supports the notion that the crypto market is maturing, offering diverse investment opportunities for both retail and institutional players.
