Market update Q4 2024
The quarter began relatively slowly in October, as the market nervously anticipated the election results in the United States. Prices of global risk assets, including cryptocurrencies, were highly correlated with changes in the election polls between Republican Donald Trump and Democrat Kamala Harris. This correlation was particularly evident in assets expected to benefit more from Kamala Harris being elected compared to Donald Trump.
Digital assets, especially Bitcoin, showed a strong correlation with Trump’s chances of winning the election. The previous Democratic administration under Joe Biden had firmly stalled the adoption of digital assets by frequently suing crypto companies through the SEC and blocking digital asset firms from accessing U.S. bank accounts via the FDIC. In contrast, Republicans, and Donald Trump in particular, have expressed pro-crypto adoption stances, including the potential implementation of a Bitcoin Strategic Reserve and a range of pro-crypto legislation. As a result, the clearer it became that Trump was likely to win the election, the greater the optimism that emerged in digital asset markets.
Image 1. The price development of baskets of assets that would benefit from Democrats vs. Republicans.
Impact of the U.S. presidential election
The re-election of Donald Trump in November 2024 sent ripples through financial markets, with the digital asset space emerging as a key beneficiary. Investor optimism, fueled by expectations of a crypto-friendly administration, propelled Bitcoin past the $100,000 threshold for the first time, sparking a broader market rally in altcoins. This surge was driven by the anticipation of reduced regulatory barriers, increased institutional adoption of digital assets, and the potential implementation of a national Bitcoin Reserve.
In addition to Trump’s previously stated pro-crypto stance, there was a significant shift in the House of Representatives and the Senate, where a large group of pro-crypto representatives was elected to both chambers. This success was largely attributed to the efforts of a pro-crypto super PAC, which raised funds from organizations like Coinbase and Andreessen Horowitz, among others, to actively lobby for pro-crypto candidates. This refreshed balance of power could serve as a crucial foundation for positive future digital asset legislation.
Image 2. The amount of pro-crypto candidates that were voted in the Senate and the House.
Optimism about the evolving regulatory landscape was further bolstered when the Republicans began announcing key appointments for their new administration. The resignation of anti-crypto SEC Chairman Gary Gensler, effective January 20, 2025, marked a pivotal moment for the crypto industry. His anticipated successor, Paul Atkins, is well-known for his pro-blockchain stance.
Another notable appointment was Scott Bessent as Secretary of the Treasury, a vocal advocate for Bitcoin. Adding to the momentum, the Republican administration created a new government role by appointing David Sacks as the "Czar of AI and Digital Assets," underscoring its commitment to developing comprehensive policies for emerging technologies.
After the range of positive developments, the institutional bid that we saw in the first quarter of 2024 returned to the markets. Spot Bitcoin ETFs were a key benefactor, attracting billions in new investments. Beyond Bitcoin, Ethereum ETFs have also started gaining traction. Net flows for Ethereum ETFs turned positive at the end of November and continued strong through December, accumulating over $2 billion since their launch.
Image 3. The outcome of the US election marked the start of inflows into the spot Ethereum ETF.
Federal Reserve signals slower rate path
While global markets for risk assets experienced a significant uptrend during the first five weeks following Trump’s election, this momentum came to an abrupt halt on December 18. Federal Reserve Chair Jerome Powell announced a significant revision to the anticipated U.S. monetary policy for 2025. Although the central bank had been cutting interest rates since September, it reduced its projected rate cuts from four to just two, signaling a more cautious and measured approach to monetary easing.
This unexpected hawkish shift sent shockwaves through financial markets, triggering one of the largest single-day spikes in the VIX, a key measure of market volatility. A major factor behind the revised rate cut projections was the Federal Reserve's expectation that inflation would remain stubbornly high due to some of the Republican administration’s proposed economic policies. Specifically, plans to impose tariffs on China, the EU, and Canada were seen as potentially inflationary, necessitating higher interest rates to counteract the pressure.
The announcement intensified selling pressure across risk assets, including digital assets, as markets recalibrated expectations for tighter conditions in the coming year. Coupled with seasonally low liquidity, this macroeconomic development led to notable price declines for digital assets. However, the rally earlier in Q4 provided a buffer against short-term volatility, allowing Bitcoin and other major cryptocurrencies to retain most of their gains despite the pullback.
Looking ahead
The inauguration of Donald Trump in January 2025 is widely anticipated as a new chapter for the digital asset industry. A shift away from restrictive policies that previously stifled growth could unlock more institutional capital and accelerate innovation. The presence of pro-crypto lawmakers in Congress further fuels this optimism. Legislative proposals aimed at modernizing compliance frameworks and enhancing investor protections could help solidify digital assets as a mainstream asset class.
While the regulatory outlook for the digital asset industry appears brighter than ever, uncertainties remain regarding the proposed economic policies of the new Republican administration. As digital assets have become a larger component of institutional portfolios, the industry has also grown more correlated with shocks in traditional markets. Consequently, any unexpected economic developments stemming from the new U.S. administration could impact the short-term price trajectory of digital assets.