Where is the cryptocurrency market headed after the ETF craze?
Bitcoin and Ethereum are becoming increasingly important, especially in terms of portfolio allocation. This development is expected to continue. The US authorization of the corresponding ETFs has significantly changed investor perception. The question is whether the ETF craze is already over, because quotes have fallen slightly again. In our opinion, the coming years should be marked by constellations of supply and demand that are very favorable to price developments. Major cryptocurrencies are expected to continue to show strong performance.
The cryptocurrency market has recently moved largely in lockstep with other risk assets. We believe that the easing of global monetary policy should be a positive catalyst, particularly thanks to the investment flows into bitcoin and ethereum ETFs that it has generated. Barbara Schlyter, head of Xtrackers Digital Products and Partnerships, adds: “In the coming years, other countries are expected to license similar products. This should increase the acceptance of bitcoin and ethereum. Improved regulation could further bring a greater sense of security when acquiring cryptoassets. In wealth management, the use of Bitcoin and Ethereum ETFs in client portfolios is becoming more and more widespread, which opens the way to a very interesting customer segment. Regardless of price developments, investors are increasingly banking on crypto-assets as building blocks in their portfolios.
The performance of cryptocurrencies clearly stands out
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However, the performance of bitcoin and ethereum is marked by significant fluctuations, although declining. It is certainly difficult to draw conclusions about their future development from historical return and risk profiles. Increased institutional acceptance, however, should lead to more liquidity and stability. The correlation with traditional asset classes varies over time. However, it has generally been low enough that using Bitcoin and Ethereum in the context of a wallet could become interesting. The risk implications, however, depend not only on correlation, but also on volatility. “In the case of cryptocurrencies, volatility remains too high for risk mitigation purposes,” says Robert Bush of the DWS Research Institute. “While they probably don’t reduce the overall risk of a portfolio at this time, they can change the composition of risk, which in our view could be attractive to some investors.”
The application of crypto and blockchain in the “real” world should also be an important aspect of acceptance and a price driver – here it is mainly Ethereum that is in the crosshairs. Indeed, while bitcoin is considered more of an asset, we often talk about a technology for Ethereum. There are already a large number of applications based on Ethereum, including decentralized finance, NFTs and especially Stablecoin. Continued growth in this area is expected to drive demand for Ethereum, which should also be positive for price action.
There are thousands of cryptocurrencies in existence today and the difficult question is which ones will take hold and form the basis of a future blockchain-based economy. But we are generally convinced that blockchain and cryptocurrencies are already indispensable and will remain so. Additionally, the verbal support given to the crypto field during the US election campaign is unlikely to fail to have a positive effect. Global acceptance of cryptocurrencies is growing faster than Internet acceptance at the time. As the underlying blockchain technology offers more and more real-world applications, we expect this growth to intensify in the coming years.
