Sygnum’s Head of Investment Research, Katalin Tischhauser, outlines why the bull market is projected to continue into next year in this excerpt from Sygnum’s Crypto Market Outlook 2025, exploring the topics of “new money.” Download the full report to get the complete story.
The bull case for crypto primarily hinges on the expected allocations to the asset class by new investors.
As the asset class is still small relative to others and most of the world’s large institutional investors are not yet participating, the opportunity for further steep price appreciation is from engagement by these investors.
Previous crypto market bull cycles, each delivering returns percentages in the thousands, have also been driven by new investor groups discovering the asset class. Bitcoin holders were initially software developers, followed by those committed philosophically to the decentralised ethos of Bitcoin. The 2017 bull cycle was driven by retail investors discovering crypto, and by 2021, investor participation had broadened to include hedge funds and family offices.
Every wave of new money entering a small asset class has produced extraordinary returns, and the same is expected as traditional institutional investors allocate to crypto – a trend that has begun with the launch of the spot Bitcoin Exchange-Traded Funds (ETFs) this year.
The conditions for institutions to enter the crypto market are currently in place, as follows:
Familiarity with the opportunity
Awareness is high – at least as far as Bitcoin is concerned – after the entry of major institutions such as BlackRock, crypto playing a central role in the last election cycle, numerous supportive statements from key opinion leaders and Bitcoin ETF issuers marketing the asset to institutions.
The ability to trade and settle
The ETFs enable investors to gain exposure without having to invest in systems and personnel to be able to trade, settle and risk manage crypto assets, bringing down the practical barriers.
Regulatory clarity
Although regulatory clarity around crypto assets is still lacking in the US, progress in this direction – coupled with a strongly supportive stance from the new president’s team and a significant number of elected legislators – is removing this obstacle.
Favourable market conditions
The easy availability of liquidity coupled with bullish market conditions facilitates and accelerates new allocations – the prevailing macro backdrop of healthy US GDP growth, the expectation of accelerating earnings growth, a continued rate cut cycle and the prevailing bullish momentum in the crypto market create favourable conditions for institutions to make crypto allocations.
Catalysts
The US election has provided a catalyst, as the new administration has vowed to implement a host of policies to support the crypto industry
In addition to allocations by institutional investors, there is an ongoing diversification from gold to Bitcoin in safe haven holdings. Senator Cynthia Lummis – the originator of the “Bitcoin Act“, the bill aimed at establishing a strategic Bitcoin reserve – has suggested that even the US government may make such a move by selling gold certificates to buy Bitcoin should the Bitcoin Act pass.
Meanwhile, the inflow of new money into the crypto market is met by extremely limited liquid supply, leading to repeated demand shocks and a strong multiplier effect on every dollar.
Bitcoin’s theoretical market capitalisation is in itself relatively small compared to the potential size of the allocations, but its circulating supply is smaller still. In addition, a lot of the circulating supply is highly illiquid, with committed long-term holders making up a large share of the investor base. Indeed, the Bitcoin balances on exchanges – a measure of the readily tradeable supply – have been declining for most of this year and dropped off again after the US elections. We have seen that the inflows triggered by the launch of the ETFs have repeatedly caused demand shocks this year.
Analysing the impact of USD 1bn of inflows into Bitcoin ETFs – roughly 0.1 percent of Bitcoin’s market capitalisation – we find that smaller waves of inflows of USD 3.5–4.5bn mid-year resulted in 3–4 percent market moves per USD 1bn of inflow, while larger waves of USD 11–12bn at the beginning of the year and recently coincided with 4.5–6 percent price moves per USD 1bn. Accounting for the estimated inflows into spot Bitcoin indicated by increases in stablecoin market capitalisation, we estimate a 20–30× multiplier on every dollar of inflow, with the multiplier increasing with the size of the flows.
The demand shocks are exacerbated by crypto’s strong reflexivity, as demand for the asset grows when prices rise.
As institutional inflows accelerate, coupled with the multiplier effect and Bitcoin’s reflexivity, this is likely to lead to another year of very strong performance for Bitcoin.
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