4 things crypto investors should be watching the rest of this year

By Frances Yue

Welcome back to Distributed Ledger. I'm Frances Yue, crypto reporter at MarketWatch.

Crypto had a pretty eventful first half of 2024. Bitcoin hit an all-time high at $73,798 in March, and it's since fallen more than 18%, according to Dow Jones Market Data. In January, the first spot bitcoin exchange-traded funds in the U.S. started trading, and in May, U.S. regulators took a major step forward toward approving ether ETFs.

In April, the Bitcoin network went through its fourth "halving" event, with the reward that miners receive for successfully completing a block dropping to 3.125 bitcoins from 6.25 tokens previously.

In the first half of the year, bitcoin saw a nearly 46% gain and ether rose by 50%, according to Dow Jones Market Data. Those gains still lag the assets' performance in the first half of 2023, when bitcoin climbed 83.6% and ether advanced 60.7%.

I recently caught up with a few industry participants to chat about what they are watching out for in crypto for the rest of this year.

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Rate-cut path

The macroeconomic environment is likely to continue to play an important role in crypto prices over the second half of the year.

Concerns over a global slowdown are likely to weigh on bitcoin, but potential interest-rate cuts by central banks would be a tailwind for digital assets, noted André Dragosch, head of research at ETC Group.

"In the past, you've seen that periods of increasing money-supply growth were associated with bitcoin bull markets, while periods of decreasing money-supply growth were associated with bear markets," Dragosch said in a phone interview.

Analysts at CCData echoed the point: Without rate cuts, "economic growth will remain slow, limiting outside investment in speculative markets," they wrote in a recent report.

Traders are now pricing in two rate cuts by the Federal Reserve by the end of this year, with the first coming in September, according to data from the CME FedWatch Tool. However, Fed officials themselves are forecasting only one cut by the end of the year, according to policymakers' "dot plot" forecast released in June.

Mt. Gox repayment

Crypto investors will be watching the amount of bitcoin being sold by creditors of Mt. Gox, after the bankrupt digital-asset exchange said it would start repaying crypto in July to creditors who lost assets in a hack of the defunct platform more than a decade ago.

The news has been putting pressure on bitcoin as investors are worried that Mt. Gox's creditors may choose to dump the bitcoins they receive, with the token now trading at a much higher price than it did a dozen years ago.

Launched in 2010, Mt. Gox was one of the earlier crypto exchanges and once the biggest digital-asset exchange in the world. The hack in 2011 saw more than 600,000 bitcoins stolen, and the platform went bankrupt in 2014. Last year, the Justice Department charged two Russian nationals with conspiring to launder bitcoins from their hack of Mt. Gox. The exchange said in September of last year that it faces a deadline on Oct. 31, 2024 to make basis repayments, early lump-sum repayments and interim repayments.

Of note, some Mt. Gox investors said earlier this year that they already received some cash payments for stolen assets, but repayments in bitcoin and bitcoin cash are due to begin this month. As of Wednesday, the exchange held about 141,687 bitcoins, which were worth roughly $8.5 billion, according to data from Arkham Intelligence.

Still, the impact of the actual selling may not be as significant as the market anticipated, according to Greg Cipolaro, global head of research at NYDIG.

NYDIG expects roughly $1.5 billion worth of bitcoin to enter the market when the repayment happens. While it is a significant amount, it may not have a great impact on bitcoin's price considering the daily trading volume of the token, which ranges from $1 to $1.5 billion for USD-quoted bitcoin and $4 billion for USDT-quoted (USDTUSD) bitcoin, Cipolaro wrote in a recent note.

U.S. presidential election

Crypto investors will be closely watching the results of the U.S. presidential election in November, and how the elected administration goes about shaping its policy around digital assets.

It appears that crypto has become an increasingly important theme during this election cycle.

Presumptive Republican presidential nominee Donald Trump switched gears in his stance on crypto, with the former president now embracing the industry after blasting the asset in the past. The Trump campaign started accepting donations in crypto in May, while Trump has met with executives at crypto-mining companies and reportedly pitched himself as a "crypto president."

Meanwhile, in May, scores of House Democrats voted to approve an industry-backed regulatory bill - a move many saw as signaling how Democratic lawmakers don't want the voting public to see their party as anticrypto.

Crypto ETFs

The SEC reportedly may approve the first spot ether exchange-traded funds as soon as in mid-July, according to several media outlets.

In May, the SEC ??approved filings from the New York Stock Exchange, Nasdaq and a Cboe subsidiary exchange requesting rule changes that would enable them to list spot ether ETFs. But the agency has yet to approve registration statements from potential issuers.

Though the consensus is that ether ETFs are unlikely to see as much demand as in bitcoin ETFs, analysts expect the arrival of such products to significantly boost ether's price and bring more demand to the crypto space overall.

Investors will also continue to watch the investment flows of bitcoin ETFs.

"Even though bitcoin ETFs exist in the U.S., it doesn't mean that people, particularly registered investment advisors or [their] clients ... are actually getting the exposure that they're able to get right now," said Thomas Perfumo, head of strategy at Kraken.

Crypto in a snap

Bitcoin (BTCUSD) has dipped 0.9% over the past seven days to around $60,389, more than 18% off of its record high of $73,798 reached in March. Ether (ETHUSD) has fallen 2.3% over the past seven days to around $3,309, according to Dow Jones Market Data.

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-Frances Yue

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07-06-24 0804ET

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