With Bitcoin up about 10% last week and Ether up 17%, analysts at research and brokerage firm Bernstein have outlined five key reasons for the rally and what to expect going forward.
One such factor is the potential for bipartisan support for cryptocurrencies. Democratic candidate and current Vice President Kamala Harris said at a Wall Street fundraiser over the weekend that she would protect consumers while also promoting cryptocurrency businesses.
“This is the first time Harris has explicitly mentioned cryptocurrencies, with the word ‘digital assets’ mentioned in her statement,” Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Monday. “This stands in stark contrast to Trump’s public stance of ‘America as Crypto Capital’ with specific policy commitments: Friendly SEC Chair, National Bitcoin Rethink, Bitcoin Bitcoin
+0.84%
Mining in the US, stablecoin regulation, etc. Nevertheless, the crypto community felt some relief when both candidates expressed their support.”
But given the current administration’s “tumultuous” history in the space, including Democratic Sen. Elizabeth Warren’s “anti-crypto army” messaging, the blocking of crypto companies during the 2023 banking crisis, and ongoing SEC lawsuits against several companies in the industry, analysts say the crypto community is “looking to change its political stance by demanding clearer policy and follow-through from Harris.”
“We continue to believe that a Trump victory will strengthen sentiment in crypto markets, as it signals new policy initiatives and broader regulatory support for DeFi/asset tokenization/NFTs beyond Bitcoin,” they added.
According to the election prediction market of decentralized prediction platform Polymarket, Harris currently leads Trump 52% to 47%. The national polling average has Harris ahead 48% to 46%, according to Bernstein.
ETF Flows and Monetary Policy Easing
Regardless of the election results, an exchange-traded fund for Bitcoin is now live. Ethereum 
Ethereum
+2.46%
Analysts have provided another impetus for the current rally, noting that institutional momentum for the major crypto asset is set to continue. Spot Bitcoin ETFs have maintained net gains despite price volatility over the past few months, adding another $397.2 million in net inflows last week, bringing total net inflows to $17.7 billion.
While the spot Ethereum ETF situation is more nuanced, with net inflows of $2.2 billion into new ETFs, there has been net outflows of $2.8 billion from Grayscale’s convertible and high-fee existing fund ETHE, while net outflows remain at $680 million.
“We believe new approvals from wirehouses (Morgan Stanley recently came online) will continue and we expect inflows to accelerate again as advisors have some incubation period to attract clients,” the analysts said.
The 50 basis point rate cut by the US Federal Reserve is another obvious factor, and Bitcoin has also reacted to gold’s all-time highs with a delay, according to Chhugani, Sapra, and Chindalia. They say any additional signals that monetary policy is loosening and the US dollar is likely to weaken are positive for Bitcoin. They add, “Furthermore, with US Treasury debt hitting a new high of around $35 trillion (a trillion dollars added every 100 days), Bitcoin is seen as an alternative non-sovereign asset with a similar relative value to gold if governments continue their fiscal excesses.”
U.S. Treasury Debt. Image: Bernstein.
Miners digest halving, Bitcoin sell-off fears ‘over’
Two other factors highlighted by analysts are that the Bitcoin mining industry is recovering after the halving and that the Bitcoin sell-off is “complete.”
Surviving Bitcoin miners have endured a quarter of the halving since April’s fourth halving, with inefficient miners exiting the market and others abandoning part of their Bitcoin holdings. After an initial drop, the overall network hash power has returned to its pre-halving level of 630 EH/s, analysts said, and briefly reached record levels earlier this month, indicating miner stability.
Fears of a massive Bitcoin sell-off are also abating, with the German and U.S. governments recently completing sell-offs and the market absorbing about $8 billion from the Mt. Gox distribution, Chhugani, Sapra and Chindalia said.
At the same time, MicroStrategy has continued to leverage the equity and convertible bond markets in recent weeks to raise over $2 billion to secure more Bitcoin, further expanding the demand side of the equation.
Gautam Chhugani holds long positions in various cryptocurrencies. Bernstein and its affiliates may receive compensation from MicroStrategy for investment banking services.
Disclaimer: The Block is an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures is the largest investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information on the cryptocurrency industry. Below are the current financial disclosures.
© 2024 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be legal, tax, investment, financial or other advice.