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(Kitco News) – The end of a crypto winter and the start of a new bull market cycle has historically been a confusing time in the cryptocurrency market as hodlers who made it through the depths of the bear market are still traumatized by the downturn and have to learn to switch from survival mode to actively engaging with the market.
Volatility usually spikes, leading to fast gains and equally fast losses, which can make it tricky to know if the winter is in fact over, or if it’s merely another fakeout pump designed to give the day traders something to do.
This time around, developments related to exchange-traded funds have been credited with ushering in a ‘crypto spring,’ and it looks as though the eventual approval will be enough to kick off the next bull market, according to some analysts.
“Well, something has changed,” said ARK Invest CEO Cathie Wood during an interview with Yahoo Finance. “So we had put in, a number of times, a filing and we were just denied, never got any questions really, never got any response. This time, this summer, we got questions back from the SEC. Now, normally when you get questions from the SEC, you’re just saying, ‘Oh my goodness.’ We were thrilled to get questions back because it means they’re engaged now.”
Wood was responding to a question regarding the odds of a spot Bitcoin (BTC) ETF approval by the Securities and Exchange Commission (SEC), and she is decidedly bullish.
“Now we have met a number of the research people at the SEC on the research side. And they are extremely sophisticated. They know what they’re talking about, and the level of sophistication of their questions suggested, ‘Okay, now they’re moving deeply into this,’” she said. “And we answered those questions. We have not heard back. That’s a good sign, too. They never tell you that you’ve satisfied them.”
Wood said a non-response from the SEC in this case is good because “that usually means that you have satisfied the answers to their requests,” which was a new experience in the process for ARK Invest. She noted that BlackRock also received questions from the SEC, but said, “ We put our answers in first. I think that they have followed and I’m not sure about anyone else.”
Wood repeated that, “Something has changed,” which she said is a good thing, adding, “The odds [for approval] have gone up.”
She noted that the deadline to make a determination on the ARK 21Shares spot BTC ETF application is Jan. 10, 2024. “They’ve been able to push it. It’s very orchestrated, push it, push it. But the final– they either approve or deny on January 10th,” she said, adding that she believes the SEC will approve multiple applicants at once.
The one development that Wood said could complicate matters is if Grayscale decides to sue the SEC over issues related to the company’s desire to convert the existing Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF.
“There’s only one wrinkle… We know Grayscale wants to convert to an ETF,” she said. “I don’t know how practical that is or if the SEC will let them or if they need a special dispensation. I just don’t know the rules. Grayscale has said it will sue the SEC again if it denies the conversion. If they were to do that before January 10th, I don’t know if that will throw everything up in the air again.”
Bloomberg Intelligence analyst Jamie Coutts also agrees that something has changed, but doesn’t see the ETF hype as being the driving force behind the crypto momentum seen in 2023.
“Those that believe that recent price action is down to the ETF news are delusional,” Coutts wrote on X (formerly Twitter). “By Q1 Bitcoin was sending the clearest of signals that the very nature of asset allocation was changing. It’s just that most weren’t paying attention.”
Coutts referenced a tweet he posted on April 6 that noted the “spread between BTCs risk-adjusted return and global assets, while narrowing since 2013, has reversed in the past 3Y (or the last BTC cycle). The inference is that something afoot is happening in global asset markets, and BTC is sniffing it out.”
Risk-adjusted returns over multiple cycles. Source: X
At the time, Coutts concluded that “BTC’s risk-adjusted returns make a solid case for asset allocation inclusion. Its volatility has [decreased] as global assets have become riskier. We see BTC’s volatility as the inverse of the fiat-based financial system, which will likely become more unstable with time.”
He also highlighted a note distributed to Bloomberg Terminal users on July 7 that said, “Given where we believe Bitcoin is in the cycle and the fact that the price has been closely mirroring the last two cycles, the asset might reach $39,022 around November this year, if the relationship holds.”
“Since its assumed bottom last November, Bitcoin has exceeded past cycles in its three- and six-month return windows,” the note added. “This may imply a forecast based on the average return is too conservative. Ultimately, the Bitcoin cycle is inextricably linked to the macro cycle.”
While Coutts did not give a specific price target for BTC during the bull cycle that is now underway, he did offer some clues as to where prices may be headed through a projection of where the total cryptocurrency market cap could peak.
As the #crypto asset class heads towards $8T-$10T this cycle, I expect to see the proliferation of systematic and factor-based strategies. Watch for funds with proven out-of-sample returns and 2 cycles under their belt to go from sub-$25m to $500m-$1b AUM.
h/t @Kallerhoff pic.twitter.com/8teikZz3Sy
— Jamie Coutts CMT (@Jamie1Coutts) November 14, 2023
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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