Summary Despite a +30% YTD gain, Bitcoin has faced volatility after hitting its all-time high. We think brighter days lie ahead. Lower interest rates and a weakening dollar are expected to support BTC, with rate cuts likely boosting investor appetite for risk assets. The U.S. election could benefit BTC regardless of the winner, as both candidates appear more crypto-friendly than the current administration. Despite risks, BTC's resilience and potential catalysts like regulatory shifts and rate cuts lead us to initiate a BUY rating. Introduction Since its beginning, the year 2024 has been particularly agitated for cryptocurrencies, notably for Bitcoin ( BTC-USD ). In a short lap of time, several significant events occurred, such as the ETF approval on January 10th or the Halving on April 20th. Driven by these major triggers, BTC broke its all-time high and reached $73,794 on March 13th. From January 1st, 2024, to March 13th, 2024, BTC gained almost 75% before fluctuating since then. At the moment, we are writing this article, BTC is 24% below its all-time high. BTC Price Action Since its ATH (TradingView) The sentiment is rather pessimistic, as shown by the BTC Fear and Greed Index. Alternative.me You can see in the 1st chart that BTC faced important volatility this year due to various factors. The main factors we considered responsible for were, the selling pressure due to several important actors like: The Mt.Gox exchange paying back its clients. The German government, who sold 40 000 BTC. Miners who sold much BTC right after the halving. These moves were exacerbated by some movements from the U.S. government's wallets that could have added more selling pressure from a country that owns 2.7% of BTC global supply. After such turbulent times, we would like to share with you some potential catalysts that, we believe, could drive BTC prices upward for the remainder of the year and beyond. We will nuance our arguments by highlighting some risks, should we identify any. Short-Term Drawbacks of the Halving For Miners: Is It Over? The halving is a positive long-term event for BTC as it cuts miners' rewards in half, counteracting BTC inflation and increasing scarcity. As the halving date was programmed, everybody was waiting for the date of 20th April. Many thought that it would be the date representing the beginning of a stratospheric bull market. Many were ultimately disappointed. Indeed, in the short term, this event can also present some drawbacks and this has historically been the case. In reality, after a halving, miners need more computing power than they did pre-halving. Due to this, inefficient miners operating with outdated facilities and hardware face two choices: go bankrupt if they can't upgrade their facilities, or sell their BTC to fund hardware improvements. Below, you can have a look at the miner's reserve and see that this indicator reached an all-time low recently, with their reserve standing close to 1.81M BTC. Miners' BTC Reserve (CryptoQuant) On the other hand, the halving also triggered a decrease in the hash rate, which in our opinion indicates that inefficient miners were going bankrupt while others were upgrading their facilities. Meanwhile, the price dropped. Blockchain.com Then, after months of decline, the hash rate has now rebounded, reaching a new all-time high, which is particularly positive. We view this as a sign that inefficient miners have effectively left the market, while larger miners have strengthened. After months of work and upgrades on the miner's side, we don't expect more selling pressure from them for the upcoming months. There is another element that we would like to highlight. There is now a clear divergence between the BTC price and the hash rate, which are typically correlated. Historically, a rising hash rate has often signaled confidence in future BTC price increase potential. The current divergence suggests that miners continue to secure the network, anticipating potentially a rebound in BTC's value. This strengthens our view that the network's security remains robust, while miners are confident in the future, suggesting potential for BTC price appreciation at least for the short term and also over the long term as the hash rate continues to rise. Interest Rate Levels: The Size and The Number of Cuts Will Be Determining The interest rate level is crucial when it comes to demand for risky assets. Historically, risky asset performances have been negatively correlated to the level of interest rates, as lower interest rates fueled investors' appetite for risky investment and vice versa. As the economy cools, it seems only a matter of time before the FED begins cutting rates. Here are the market's rate expectations according to the CME Fed Watch tool: CME Group The market is currently expecting gradual rate cuts, with a terminal rate projected between 2.75% and 3.50% by September 2025. We maintain the view that a lower rate environment will be favorable for BTC and risk assets broadly, though the impact will largely depend on the scale of these cuts. Historically, the first-rate cut often coincides with market peaks, signaling that the Fed is stepping in to support an economy nearing recession. However, inflation has eased, and we're not yet in a recessionary phase. In a scenario where rates decrease and the macroeconomic landscape stabilizes without significant deterioration, we believe BTC has the potential to outperform. For now, market expectations point to a 70% probability of a rate cut between 0.25% and 0.50% at the upcoming FOMC meeting on September 18th. We view this meeting as critical, as the market will closely analyze the size of the cut and its broader implications. Finally, lower interest rates also impact the value of the dollar. As the value of the dollar decreases, investors tend to favor competing assets such as other currencies, gold and BTC. Decreasing interest rates means a weakening dollar, which will we think support BTC? It has been historically true, as shown by the negative correlation between the Dollar Index ( DXY ) and BTC: BTC, DXY Evolution (Grayscale, Bloomberg) Money Market: An Underestimated Cash Cow? Money market funds' total assets are positively correlated to the level of interest rates. In a high-interest-rate environment, investors tend to favor these funds as they offer better short-term yields compared to other investments. Since the Fed began raising interest rates in Q2 2022, the total assets in money market funds grew from $5.32 trillion to $6.5 trillion, representing a 23% increase in just over two years. The Money market funds evolution is impressive: FRED FRED With rates expected to decline, we anticipate that investors will gradually shift their capital toward higher-yielding asset classes, which inherently carry greater risk. We believe this trend will particularly benefit crypto assets and of course BTC. The U.S. Election: A Win-Win Situation More Than You Might Think The U.S. presidential elections will take place on November 5th. As we approach this crucial date, the only certainty is that it will be a very close race. We won't make any predictions on which candidate we think will win because it would be like tossing a coin. Look how close this is just by taking two different sources: On a recent national pooling published by Bernstein , Harris is expected to win with odds of 47% versus 44% for Trump. Bernstein On the platform Polymarket , Trump is the one expected to win, with odds of 53% versus 46% for Harris. Polymarket No matter the result of these elections, we believe that both candidates will have a more positive stance on crypto compared to the one endured during the Biden administration. As the industry grows and now that almost 20% of Americans own crypto , it has become a subject that can't be ignored. Since the beginning of his campaign, Trump made it clear that he wants the United States to play a major role in supporting BTC and innovation. As a symbol of his commitment, he also attended the Bitcoin conference in Nashville . Kamala Harris, due to her position in the Biden administration, has faced negative perceptions within the crypto community. This is largely due to the actions of figures like Elizabeth Warren and SEC Chair Gary Gensler, who have actively pushed for stricter regulations, slowing down crypto development in the U.S. Their combined efforts have contributed to a challenging environment for innovation, creating a cautious view of Kamala among crypto advocates, despite her not being directly involved in those decisions. We think that she is or has been forced to become more and more positive on crypto due to some pressure from its donors. This is suggested by a Bloomberg article shared on Yahoo Finance , which mentions: Major Democratic donors on Wall Street are increasingly pushing Kamala Harris' team to replace top regulators Lina Khan and Gary Gensler if the vice president wins in November. These changes if they were to happen would be positive for the crypto sphere and thus for BTC. We are convinced that more information will come out on this subject before the election. The more we move forward; the more we consider it a win in both cases, as both candidates start to understand the real potential of this industry that could be threatened in case of a too-restrictive regulation. Risks We do not deny the fact that some risks exist, there's a chance that Harris, if elected, could remain less pro-crypto than some expect, given her association with figures who have pushed stricter regulations. There is also a chance that Trump tried to surf on a wave he doesn't really understand and support just to raise money for his campaign. We might be naive, but in our analysis we made the assumptions that candidates were acting in good faith. Additionally, the potential recession risk cannot be ignored. If rates are cut too aggressively, it could reinforce investors recession fears, which may negatively impact market sentiment, including BTC. Conclusion We believe that despite the turbulence and uncertainty throughout 2024, Bitcoin has shown remarkable resilience. We have the conviction that key catalysts, such as the expected rate cuts and potential regulatory shifts after the U.S. elections, will help BTC to reclaim its momentum. We think the broader macro picture still leans in favor of Bitcoin. As the economic landscape stabilizes and rates come down, we expect capital to flow into higher-yielding assets like BTC. We see the potential for outperformance both in the short term and over the long term. At Growth Arcane, despite this tough 2024 year, we remain confident in BTC's outlook, and we initiate with a BUY Rating.
