We have entered a bull market, reinforced by the macroeconomic environment and the results of the US elections.
The outcome of last month’s US election continues to impact crypto asset markets. The Nasdaq Crypto Index (NCI) has risen more than 57% since November 5, driven by widespread optimism regarding digital asset policy in the United States.
As I mentioned in a previous notecryptoassets typically follow a four-year cycle comprising a bull phase of approximately 12 months, followed by a one-year bear market, and then a two-year recovery period. During the previous two bull markets, altcoins (i.e. all assets outside of BTC) significantly outperformed the largest cryptoasset.
Cyclicity of crypto-assets
We entered a bull marketreinforced by the macroeconomic environment and the results of the American elections. Another key indicator is the outperformance of NCI compared to BTC. Over the past three months, NCI has outperformed BTC (78.0% vs. 76.5%), and since the election, NCI has outperformed BTC by 6.8%.
Performance of cryptoassets – NCI for Nasdaq Crypto Index
What specific aspects of crypto are expected to outperform this time around?
A key area to watch is smart contract projects, platforms that allow users to transact not only information but also value and goods. We believe these platforms and applications will outperform BTC in the next 12-18 months as they compete for users and lay the foundation for decentralized applications. Based on the infrastructure developments seen in this area over the past few years, new applications are emerging in sectors such as AI, gaming and more as tokenization continues to expand .
We also believe that the regulatory progress expected in 2025 will benefit these applications more than Bitcoin specifically. Indeed, Bitcoin already benefits from regulatory clarity and a well-developed market structure, thanks to the growth of ETFs, options and futures. In the United States and Europe, this legislative and regulatory clarity that will benefit altcoins could include:
- Market Structure Legislation: Proposals like the Financial Innovation and Technology for the 21st Century Act (FIT21) will eliminate ambiguities regarding the commodity or security status of crypto-assets and create registration pathways that can boost market structure legislation. adoption in the United States.
- Stablecoin legislation / MiCA implementation: These initiatives will drive the adoption of stablecoins in the United States and Europe, expanding the stablecoin phenomenon beyond just emerging markets.
- Repeal of SAB121 (Staff Accounting Bulletin): Once this barrier is removed, allowing US banks to hold cryptoassets for their clients, banks and brokers will increase their crypto trading and custody offerings, which will primarily benefit altcoins.
- New ETFs Launch: With a new SEC chair, there is hope for additional approvals for ETFs, including indexes and single assets such as Solana and XRP. Although there remains a lot of uncertainty, the launch of new assets through ETFs as entry points is very positive.
Besides Bitcoin continuing to grow as an emerging digital store of value and smart contract platforms becoming a new way to exchange information, value and goods, we identify three other use cases for altcoins that are expected to take advantage of opportunities next year:
- DeFi (Decentralized Finance): Projects aiming to create an internet-based financial system, running on smart contract platforms, will establish a new global infrastructure for capital markets and payments, with stablecoins and tokenized money funds as the first important applications.
- Web3: A new version of the internet that will allow us to own our data and make the internet decentralized and more functional for innovations like AI agents.
- Digital Culture: An emerging, digitally native generation will express increasing demand for owning digital assets and collectibles, with video games being a natural first application.
If we compare crypto to the internet, this industry today is at a similar stage to that of the internet in the 1990s, and Bitcoin could be compared to email, which is the most popular application known to the general public. But if we move forward 20 years, although email remains very useful, it is not the application that has generated the most societal value. We think the same could be true for how Bitcoin is currently perceived in relation to crypto as a whole.
The benefits of diversification
At Hashdex, we believe that broad exposure to this market is essential to capitalize on the growth we anticipate in various areas. Indexes like the Nasdaq Crypto Index (NCI) provide broader exposure to the market, and as crypto grows as an asset class, they provide better risk-adjusted returns. Additionally, indices offer greater flexibility because investors do not need to rely on an active manager to manage these decisions. The complexity and rapid evolution of crypto makes it difficult to pick individual winners, and an index simplifies investing by providing balanced, data-driven selection consistent with the principles of modern portfolio theory.
This is why index ETFs and ETPs are at the heart of our mission. Accessing crypto through these familiar structures allows investors to benefit from the growth of this asset class with minimal friction. For the majority of investors, we generally recommend a very limited allocation to crypto, between 1% and 5%. We strongly believe that a benchmark like the NCI is a great way to “buy the market” and benefit from a strategic allocation to this promising asset class.
[1] The Nasdaq Crypto Index includes Bitcoin, Ethereum, Solana, Ripple, Cardano, Chainlink, Avalanche, Litecoin, Polygon and Uniswap as of 9/30/24.
