Shift In Bitcoin Adoption
Bitcoin’s Price Surge: Over the past year, Bitcoin's price has increased by 124%, surpassing almost all major asset classes. This growth in Bitcoin's price has also led to a rise in its market dominance within the cryptocurrency sector, which increased by 15% over the previous year to reach 56%.
Inscriptions Driving Early Growth: In 2023, Bitcoin witnessed a 155% jump, mainly due to 'inscriptions.' Think of inscriptions as a way to save media files on the blockchain, which initially attracted more retail traders and increased trading fees. However, as this trend lost steam, daily inscription transactions dropped by 93%, leading to decreased on-chain activity, daily active addresses, and transaction fees.
Store of Value Over Transactions: The decrease in on-chain activity suggests that Bitcoin's current price rise is more about its role as a store of value—like digital gold—rather than being used for everyday transactions. Large institutional investors are now using Bitcoin for storing and transferring value. Reflecting this shift, Bitcoin-related equities have grown by 87% in market capitalization, showing its growing appeal as an investment option.
Fed Rate Cuts And Harris-Trump’s Diverging Paths
Impact of Federal Reserve Policies: VanEck highlights that the Federal Reserve's monetary policies and the political landscape will heavily influence Bitcoin and the digital asset market. If the Fed continues cutting interest rates to address economic concerns, it could create a favorable climate for riskier assets like Bitcoin, attracting investors looking for better returns.
US Presidential Election Outlook: The upcoming presidential election in the U.S. adds complexity to Bitcoin's future. Both potential administrations—either under Kamala Harris or Donald Trump—are likely to maintain or boost fiscal spending, which might lead to further monetary easing. Such policies, designed to boost the economy, could inadvertently favor risk-on assets like Bitcoin.
Regulatory Scenarios Under Harris vs. Trump: If Kamala Harris becomes president, retaining Gary Gensler as SEC Chair or closely aligning with Elizabeth Warren’s stance could result in tighter regulations for digital assets. However, a more regulated environment could bring clarity and legitimacy to the crypto space. On the flip side, a Donald Trump presidency might lean towards deregulation, which could benefit the entire crypto ecosystem.
Macroeconomic Environment: Regardless of the election outcome, VanEck believes that increasing budget deficits and national debt will persist, likely weakening the U.S. dollar. Historically, such conditions have been advantageous for Bitcoin, offering a macroeconomic backdrop where it can thrive.
