The Return of the Bull Market

This guest post is by Keegan Selby, a Founding Partner at the investment firm 4RC.

As we enter the final quarter of 2024, telltale signs are pointing to the return of the bull market. As macroeconomic shifts and institutional inflows converge with undeniable fundamentals in real world use cases, the stage is set for our favorite show to begin once again. In this letter, we’ll explore the key catalysts driving momentum to a tipping point for the digital asset class.

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1. Global Liquidity Back On The Rise

The bottom is likely in for global liquidity as central banks worldwide pivot to easing monetary policies. The Federal Reserve, after raising interest rates from near zero in 2022 to over 5% in 2023 (the most aggressive since the 80s), signaled a regime shift in September 2024, reducing rates for the first time in more than four years with a 50 bps cut. Further cuts totaling 50 - 75 bps are expected by year’s end, followed by another 100 - 150 bps in 2025 to bring the target rate below 3% by 2026.

Globally, central banks have either frontrun this shift or are following suit. The People’s Bank of China is not only slashing rates but is rumored to also be considering up to ¥10T ($1.4T) of stimulus. The European Central Bank has already cut its deposit rate to 3.5%, and despite expectations for Japan to gradually reduce its monthly bond-buying program, analysts are still forecasting an additional ¥50 trillion ($330B) of purchases in 2025. Historically, floods of global liquidity like these have found their way into risk-on assets, and crypto is no exception.

After two years of legal proceedings, FTX is set to redistribute $16 billion in liquidity to users starting in Q4 2024, rejuvenating market sentiment and asset prices. Approximately 98% of claimants have amounts under $50,000 and will receive about 118% of their USD claims based on November 2022 crypto prices. 

Airdrops from major projects like Eigenlayer, ZKsync, LayerZero, and Wormhole have already injected billions of dollars into the crypto market in 2024. This trend shows little signs of slowing down, with further airdrops coming from big players among the likes of Eclipse, Monad, Scroll, and more.

2. Institutional Adoption Accelerating

Blackrock CEO, Larry Fink has been crystal clear in his view that tokenization is “the next generation of markets.” The approval of Spot Bitcoin ETFs for Blackrock, Fidelity, Grayscale, and others has already attracted over $20 billion in net inflows this year. Analysts expect these products could hold over $200 billion in assets by the end of 2025 as they gain traction among wealth managers and institutional investors.

Additionally, the SEC’s approval of Spot ETH ETFs as well as options trading on BlackRock’s Spot Bitcoin ETF is providing sophisticated investors with critical tools to diversify and hedge exposure, further increasing confidence in the asset class. 

Major corporations are deepening their integration with crypto. MicroStrategy, one of the largest Bitcoin holders globally, now holds over 252,000 BTC, with an unrealized gain of $6.75 billion. Tesla, whose holdings total over 11,500 BTC, is considering resuming Bitcoin payments for vehicle purchases. JP Morgan onboarded Siemens to Onyx, their blockchain solution allowing institutional clients to program and automate treasury operations with real-time digital payments. Visa processed over $2.5 billion in crypto transactions in 2024, Mastercard’s crypto debit card program reached over 12 million users globally, and Stripe is once again powering crypto payments in 150+ countries.

3. Political Tailwinds for Regulatory Clarity

The regulatory environment is shifting rapidly, especially in the United States where the 2024 presidential election represents a major turning point for crypto. If elected, Republican candidate Donald Trump has vowed to make the US the “crypto capital of the planet,” pledging not to sell the US’ remaining reserves of 200k+ BTC (US is among the five largest BTC holders in the world thanks largely to various confiscations). 

Trump recently spoke at the Bitcoin Conference, sold out an NFT collection, and launched World Liberty Financial (WLFI), a decentralized finance (DeFi) platform that focuses on stablecoins and borrowing/lending markets which recently submitted a governance proposal to integrate with DeFi heavyweight Aave. 

For his VP candidate, Trump selected Ohio Senator JD Vance who served as a US Marine, studied law at Yale, and worked in venture capital under Peter Thiel. In 2022, Senator Vance disclosed owning up to $250k in BTC and is on record denouncing Gary Gensler as the “worst person” to regulate crypto at the SEC, given his regulation by enforcement approach targeting tokens with utility specifically, which Vance dismantled as the exact opposite approach of a regulator fighting for the interest of American companies and investors. The 40 year-old senator’s pro-crypto record - from voting to reverse SAB 121, which aimed to block US banks from custodying crypto, to slamming the SEC for their “unethical and unprofessional” prosecution of crypto firms - has given crypto super PACs reason to believe that a Trump/Vance administration could bring an end to the overreach of the SEC and FTC in stifling innovation and M&A. 

On the other side of the aisle, Democratic party candidate and current US Vice President Kamala Harris has recently pivoted to a pro-crypto stance as well stating “We will ... remain dominant in AI, quantum computing, blockchain, and other emerging technologies." Although she has yet to publish details on how her campaign plans to support the industry specifically, her latest posturing signals that support for crypto is becoming a bipartisan issue. 

In Congress, several important bills are advancing that could bring much-needed regulatory clarity to the crypto space. The Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House in May 2024, seeks to establish clear jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission (CFTC) for digital assets. Additional legislation such as the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA), Digital Commodities Consumer Protection Act (DCCPA), Eliminate Barriers to Innovation Act of 2021, and Token Taxonomy Act are also being considered by Congress and if passed, would likely encourage further institutional investment and innovation.

Having long served as financial epicenters for Europe and Asia, Switzerland and Singapore and are now cementing themselves as key partners for the digital asset industry thanks to favorable regulatory/compliance frameworks and the provision of critical banking infrastructure. El Salvador, the first country to make Bitcoin legal tender, continues to expand its Bitcoin-related projects and now holds 5,750 BTC in its treasury. With zero capital gains tax and a regulatory sandbox to foster innovation, the UAE has also emerged as a global crypto hub, while India leads the world in retail and institutional crypto adoption, driven by a young, large, and increasingly tech-savvy population. Even smaller countries like Bhutan are leveraging their natural resources to mine Bitcoin, generating revenue and holding a portion of it in their national treasury. 

4. Fundamental Performance & Product Market Fit

On-chain activity is currently at an all-time-high with 220 million addresses interacting with a blockchain at least once in September, up 3x YoY and tracking the pace of internet adoption in the 90s. Bitcoin transaction volume has grown to surpass that of both Visa and Mastercard, and Tether, the largest stablecoin issuer with a USDT market cap of ~$120bn, reported a record-breaking profit of $6.2bn for 2023, out-earning even Blackrock’s annual net income of $5.5bn.

When it comes to crypto companies putting up KPIs formidable to even the largest of traditional finance incumbents, Tether is not alone. There are now over 10 projects producing over $300mm in annual fees; for reference, J.P. Morgan’s trailing twelve month revenue clocks in at just over $170bn.

A major shift in the overton window for token economics is also taking place as major protocols are taking progressive steps to directly link token value accrual to protocol revenue and treasury holdings through various mechanisms including buybacks and dividends. Uniswap recently announced their Unichain, which will allow $UNI stakers to earn sequencer revenue, a step many see as the first on the path to redirecting up to 10% of the protocol’s $700bn in current annualized trading fees to the protocol treasury, and eventually $UNI stakers.

Looking more broadly at the asset space, crypto is beginning to shed its label of speculative “magic internet money” as real-world use cases gain traction:

Payments:

• Wirex and Visa are expanding their partnership to accelerate the adoption of Web3 payments. This collaboration will allow Wirex to issue crypto-enabled Visa debit and prepaid cards in over 40 countries and over 80 million Visa merchants worldwide. 

• SWIFT is also set to trial live digital asset and currency transactions starting in 2025, collaborating with global banks across North America, Europe, and Asia. 

Real World Assets (RWA):

• Franklin Templeton is tokenizing over $335mm in U.S. Treasuries through its On-Chain U.S. Government Money Fund, accounting for 36% of the tokenized treasuries market​. 

• BlackRock is working with Securitize to explore tokenized private equity, real estate, and other alternative investments, in an attempt to bring liquidity to traditionally illiquid assets. 

• Goldman Sachs is working on tokenizing bonds and financial instruments via its blockchain-based Digital Asset Platform, recently completing a $100M bond issuance on its private blockchain.

Decentralized Physical Infrastructure Networks (DePIN): 

• DePIN is gaining momentum as real world use cases and consumer apps find product market fit in decentralized storage (Filecoin produced over $25mm in 2023 revenue), compute (Akash’s user fees are up 2,000% YoY as of Q3 2024), wifi (Helium has deployed over 1mm hotspots worldwide), mapping (Hivemapper has mapped about 5% of the world’s roads), and rideshare (Teleport launched pilot cities in May 2024 charging drivers only 15% vs Uber’s 44%).

Gaming

• Off the Grid, developed by Gunzilla Games, is the first blockchain-based game to launch on PlayStation 5. Built on Unreal Engine 5 and the Avalanche blockchain, this battle royale shooter integrates NFTs by allowing players to mint rare in-game items such as weapons and armor. Although the game's native GUN token has yet to launch, the ecosystem offers a mix of Web3 features, blending pay-to-win mechanics with traditional gameplay. In its first week, Off The Grid has seen over 5mm new wallets created to trade in-game assets on its on-chain marketplace, and is currently sitting at #1 on the Epic Games Store.

The Downside

If the above catalysts were indeed as undeniable as they appear, the market would surely be pricing assets higher already, so before returning to unfettered optimism, it’s important to identify the key suspects that could derail market momentum.

Geopolitically, the temperature of hostility in the Middle East continues to rise. Iran recently launched 200 ballistic missiles at Israel, prompting allies on both sides of the conflict (namely Russia and the US) to consider escalating involvement, an event which would likely destabilize global markets. If tensions between the U.S. and China or Russia and Ukraine continue to escalate, the potential for unified broader conflict between the world’s greatest superpowers across multiple theaters becomes an obviously concerning path to World War III.

While on the economic front, a global recession remains a looming threat. If surging oil prices driven by OPEC production cuts linger and inflationary pressures in key sectors like real estate, particularly in China, remain persistent, central banks may be forced to reverse course and once again tighten purse strings worldwide. 

Zoom Out

Long before the inception of our asset class, markets have endured pandemics, recessions, and wars, chugging along an eerily consistent cycle. 

While few periods in history have enjoyed risk-free investment conditions, the fact remains that in the long run, technology and innovation prevail to the upside of money in the market.

As the digital asset revolution rages on, I find it comforting to reduce it to this: in the age of the internet, what battles have already been won and who will win next? Encyclopedia vs Wikipedia, Mail vs Email, Blockbuster vs Netflix, Taxi vs Uber, Bookstore vs Amazon, Fiat vs Crypto, TradFi vs DeFi, Web2 vs Web3, Last-Gen vs Next-Gen. 

On long time horizons, trends become clear, and mid-curve mental gymnastics are the enemy of returns.

Alas, I leave you with this my friends. Zoom out, see the cycle, and position yourself accordingly. 

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