Key Takeaways
- Bitcoin’s price has surpassed eight months of consolidation and surged into uncharted territory.
- Macroeconomic factors such as liquidity, fiscal policy, and monetary policy may continue to play significant roles in influencing crypto prices.
- In recent months, Bitcoin’s price has outperformed Ethereum’s. This trend aligns with the historical behavior of the two assets during previous bull markets.
After nearly eight months of consolidation and volatility, Bitcoin’s price has surpassed $100,000, moving into new territory. What’s next? Could the incoming administration and changes in Congress impact the market? Will Ethereum’s price catch up to Bitcoin’s?
Here are key factors to watch as we approach the new year.
Could the Results of the Presidential Election Be Positive for Crypto?
Many in the crypto industry are cautiously optimistic that the upcoming presidency will be more favorable to crypto and digital assets than previous administrations. There is hope that the new government will bring much-needed regulations, enabling the industry to grow domestically.
However, it remains uncertain whether this will materialize.
Jurrien Timmer, Fidelity’s Director of Global Macro, believes that two major elements could benefit crypto: fiscal policy (government spending) and monetary policy (how the Fed operates).
“We’re in a period of fiscal expansion. Both parties seem to be willing to spend money,” says Timmer. “We’re in a different monetary regime now, where we’ve shifted from raising rates to lowering rates.” In September, the Fed cut interest rates for the first time since 2020. Historically, interest rate cuts have helped push crypto prices higher, although past performance is not a guarantee of future results.
“We’re going to have easier monetary policy and expansionary fiscal policy, and that could be a good combination for digital assets” says Timmer.
Where Might Bitcoin’s Price Go from Here?
While no one can predict the future, looking at previous bull markets may provide some context for where we might be in the cycle.
“We were already in a bull market phase before, with Bitcoin returning over 150% in 2023 and adding another 75% year-to-date return earlier in 2024, following the ETP approvals” says Chris Kuiper, Research Director at Fidelity Digital Assets®.
“If the past is any guide, we are at least halfway through the bull market. But it’s worth noting that the second half of bull markets typically sees more volatility and higher price appreciation” says Kuiper. However, every cycle can differ.
Like Timmer, Kuiper believes macroeconomic factors will be key in driving Bitcoin’s price forward. “The biggest factors influencing Bitcoin and other digital assets in the year ahead are liquidity and changes in inflation expectations” says Kuiper.
“Liquidity metrics are now showing positive year-over-year growth, and we’ve entered another interest rate-cutting cycle. Inflation remains above the Fed’s 2% target, and I believe there’s still a risk of inflation coming back in a ‘second wave.’ Both of these factors would be favorable for Bitcoin.”
When Should Investors Start Thinking About Taking Profits?
Many digital assets have seen significant price gains since the beginning of 2023. Investors who bought and held crypto over the past two years may be wondering if it’s time to lock in profits.
The answer depends on individual goals and risk tolerance. While it may seem like there’s more to come in the bull market, as Kuiper suggests, past performance is not a guarantee of future results. The market cycle could end sooner than expected.
“Fidelity Digital Assets’ research team continues to believe investors should maintain a long-term mindset with these assets. Regular rebalancing can also be crucial and beneficial,” says Kuiper. “For example, if an investor sets a target percentage for Bitcoin exposure, they should rebalance accordingly if Bitcoin rises or falls.”
“This can help manage risk. Somewhat counterintuitively, our research shows that rebalancing historically creates a net benefit, as it can take advantage of Bitcoin’s high but positive volatility.”
Investors should also consider potential tax implications. Consulting a licensed tax professional can help manage tax responsibilities accurately.
Will Ethereum’s Price Catch Up to Bitcoin’s?
Recently, Bitcoin’s price has outperformed Ethereum’s, which aligns with how the two assets have behaved in previous bull markets. Typically, Bitcoin leads the rally, then consolidates as Ethereum and other altcoins catch up.
So when might Ethereum catch up in this cycle? Max Wadington, a Research Analyst at Fidelity Digital Assets, is monitoring factors such as increasing demand for tokenized assets (including stablecoins, where Ethereum is dominant) and potential regulatory clarity regarding decentralized finance (DeFi).
“There has been a bounce in spot Ether ETP flows in October and November 2024, which are now showing positive” says Wadington. These flows could signal that a rebound is underway.
However, Wadington also advises caution, as Ethereum faces stronger competition compared to Bitcoin, which could impact its performance. “Many investors view Ethereum as complementary to Bitcoin rather than a replacement, which might limit its potential to outperform” says Wadington. “If traders continue to treat Ethereum and Bitcoin as similar assets, their prices may move in tandem, despite their different use cases. While there are promising signs for Ethereum, these factors should be considered when evaluating its future performance.”