November 12, 2024

October 2024 Market Commentary

Galaxy Asset Management

Market Commentary

While October often evokes spooky sentiments with Halloween’s arrival, the month delivered notable developments for crypto investors. Historically Bitcoin’s best-performing month, October 2024 continued this positive trend. Aptly nicknamed ‘Uptober,’ October saw BTC increase by +13.59%, the BGCI Index gain by +7.87%, and ETH increase by +0.97%.

Bitcoin’s strong month exceeded $73,000 for the first time since March, coming close to its previous all-time high. Some of the catalysts for BTC’s rally included the expectation of continued rate cuts worldwide and predictions for November’s U.S. election. Notably, Emory University became the first endowment to publicly disclose a position in a spot BTC ETF. With Emory’s investment exceeding $15 million, it indicates growing interest from various institutional investors, including brokerages, endowments, family offices, and more. What still remains unknown is who is Bitcoin’s creator Satoshi Nakamoto. Despite HBO airing a documentary last month that claimed to reveal Nakamoto’s identity, the early Bitcoin developer Peter Todd has denied the speculation. Part of the allure for the Bitcoin community is that Satoshi Nakamoto remains anonymous and Bitcoin and its hard money principles continue to persist even with its founder out of the picture. As we approach the final months of 2024, historical trends suggest that Bitcoin's price has typically experienced significant increases following presidential elections. In the past three presidential elections since Bitcoin’s creation, its price has been at least 350% higher a year later.

As the election nears, both former President Donald Trump and Vice President Kamala Harris have continued jockeying for the crypto industry’s vote. Vice President Kamala Harris has started to warm up to the crypto industry, announcing her support for the development of a crypto regulatory framework, aiming to connect with African American male voters. The Harris campaign contends that 20+% of this demographic owns or has owned crypto. Digital assets continue to be a political talking point with the Fairshake PAC having raised more than $200M and spent more than $170M this election cycle. While the public perception has been that single-issue crypto voters may lean Republican following former President Trump’s courting of the industry, a recent Coinbase survey found that crypto owners are equally likely to vote for Vice President Harris as they are for former President Trump. Regardless of the outcome of November’s presidential election, it appears that the regulatory landscape for cryptocurrencies may evolve. As detailed by Galaxy’s Head of Firmwide Research Alex Thorn, either a Harris or Trump administration looks to be more favorable to digital assets than the current Biden administration. While the degree to which each of the two leading presidential candidates might embrace crypto varies, a shift in the right direction is welcomed.

Two newly published surveys highlight the improving narrative regarding digital asset adoption. PwC and the Alternative Investment Management Association recently published their sixth annual global crypto hedge fund report, which found that approximately 47% of hedge funds now have exposure to digital assets, representing a 62% YoY increase. This trend may continue as 43% of hedge funds report growing interest in digital assets from institutional clients. Additionally, one-third of hedge funds currently invested in the space intend to increase their allocation before year-end. In October Charles Schwab also announced the results of its 2024 “ETFs and Beyond” annual study. The Schwab survey found that ETF investors are nearly 20% more likely to invest in crypto over the next year than they were over the last year. Cryptocurrencies ranked as the second most likely asset class investors plan to invest in via ETFs next year, only surpassed by U.S. equities. Perhaps less surprisingly, the breakdown by generation highlights how millennials (62%) have a higher likelihood of investing in crypto ETFs over the next year than Gen Xers (44%) and Boomers (15%).

In October we also saw the largest acquisition in the history of the digital asset industry, as Stripe announced the $1.1B purchase of stablecoin infrastructure provider Bridge. After suspending bitcoin payments in 2018, Stripe is demonstrating newfound conviction in crypto with this strategic deal. The potential for Stripe to incorporate stablecoins into its business model and improve payments globally is indicative of stablecoins’ product market fit and perhaps a harbinger of the financial services industry at large embracing stablecoins.

Portfolio Considerations

Uniswap Labs has concentrated on increasing the intrinsic value of its token, UNI, rather than just focusing on price appreciation, aiming to improve the token’s broader appeal. Uniswap, as the first decentralized exchange, has been instrumental in promoting adoption among advanced users since its inception in 2018. Currently, it maintains a dominant position in DeFi, with a TVL of approximately $4.7 bn: this outpaces its closest DEX competitors by substantial margins, standing $2 billion above PancakeSwap and $3.3 billion above Solana’s most popular DEX, Raydium. Despite this continued dominance and ongoing upgrades to its technology stack, UNI’s price remains well below its peak from the 2022 DeFi summer, when it reached $40. Analysts have pointed to UNI’s role as a governance token as the main reason for this price stagnation. While holders can vote on protocol changes, UNI offers no direct economic rewards tied to Uniswap’s performance, unlike some other DeFi tokens that share trading fee revenues with token holders. This lack of economic incentives has led to a significant disconnect between Uniswap's success and UNI’s valuation.

In an attempt to address this gap, Uniswap approved a proposal in March to introduce protocol fee rewards for UNI holders, a measure that saw near-unanimous support from the community. However, regulatory pressure soon followed when the SEC issued a Wells notice to Uniswap in April, although details on the specific aspects of the protocol that raised concerns remain undisclosed. In another move aimed at enhancing UNI’s value proposition, Uniswap announced plans to launch a new Layer 2 solution on Optimism, called Unichain, designed to improve transaction speed and mitigate risks from public mempool transactions and order attacks. Unichain will require validators to stake UNI on its Validation Network, a change expected to increase UNI’s utility. Initial market response was positive, with UNI’s price jumping by nearly 17% in a single day from $7 to $8.3 following the announcement.

These initiatives highlight Uniswap Labs' focus on expanding UNI’s utility beyond governance alone. However, the rise of numerous Layer 2 solutions has sparked concerns over fragmentation. Presently, there are almost 100 Layer 2 projects with established roadmaps, creating a competitive and potentially confusing landscape for users. The primary differentiator for Unichain is its specific application and integration with Uniswap's platform, although the increased complexity of Layer 2 solutions may fuel criticisms that blockchain technologies sometimes address issues that do not necessarily exist. This debate around the overextension of technology could influence Unichain’s adoption and future success.

Amid these developments, stablecoins continue to thrive, led by Tether USDT despite facing regulatory scrutiny. Recently, the Wall Street Journal reported that the U.S. government is investigating Tether for alleged anti-money laundering issues, though Tether quickly refuted the claims. Nonetheless, Tether remains a dominant force in the stablecoin market, now nearly three times the size of its closest competitor, USDC, with growing user demand. Interestingly, Tron, a Layer 1 blockchain founded by the controversial figure Justin Sun, has become the most prominent platform for minting and transacting USDT. Tron’s faster and more affordable transactions compared to Ethereum have made it particularly popular in emerging markets, especially across Latin American and African regions, reinforcing its status as the primary blockchain for USDT transfers. The preference for Tron is reflected in the increasing supply gap between USDT on Tron and Ethereum. In early 2022, the difference was less than $2 billion, but now Tron holds $59.7 billion in circulating USDT, a significant $13 billion more than the amount on Ethereum, underscoring the growing preference for Tron’s lower costs and increased accessibility.