(Kitco News) – Sentiment is once again on the rise in the crypto market as the Bitcoin (BTC) halving is just ten days away, and traders are growing excited about what usually happens after a halving – a parabolic bull market rally.
To better understand how things are unfolding in the lead-up to Bitcoin’s fourth halving, and what to expect in the following months, Kitco Crypto spoke with Joel Kruger, market strategist at LMAX Group.
LMAX Group is a global exchange specializing in the global currency market, and in 2018, they started supporting exchange services for cryptocurrencies.
Kitco Crypto interviewed Kruger on April 3, after Bitcoin had dipped below $65,000 in what many analysts called a pre-halving pullback.
“I see a market that has been explosive in Q1, a market that has grossly outperformed all other assets by a strong margin,” he said. “Bitcoin is up around 55% year-to-date, so it’s only natural to see a pullback after such an explosive run. We’re just seeing a market that’s due for a technical correction.”
Kruger said that the weakness that was witnessed in recent weeks “comes from global macro more than anything else,” and noted that the U.S. equity market had been going up “non-stop,” which “confounds in many ways.”
“We can understand why the equity market has been running as it has been, and yet it also confounds in the sense that the prospect of this market reversing is still very much alive and well given the economic data situation in the U.S., and given the fears that remain around the inflation risk,” he said. “So there could be potential concerns short-term, but as far as Bitcoin is concerned, I don't think the concerns go beyond that.”
He said the threat posed to Bitcoin by a potential capitulation in the U.S. equities market would only be short-term.
“I’m quite excited about the prospect of seeing how Bitcoin’s proof of concept behaves in a risk-off climate because we’ve only seen Bitcoin benefit in the greatest period of risk-on since inception,” he said. “We’ve had the greatest period of economic stimulus by way of monetary policy accommodation since the global financial market crisis, and Bitcoin was born out of rejection of all of that. And yet, throughout this whole period since 2009, all we’ve seen is risk-on with U.S. equities making new record highs since 2013.”
He said it will be interesting to see Bitcoin “present its attractive value proposition as a store of value in a period of risk-off, just like with gold.”
“Initially, I think that if there is a shake-up and disruption in global equities, then we’ll see some short-term disruption, even with gold as well because in a flight to safety, people tend to want to go to the U.S. dollar,” Kruger said. “I don’t see Bitcoin trading much below $50,000 for any meaningful period of time, but it is possible that we see a quick drop below $50,000.”
As for the hype surrounding the upcoming halving and whether it will significantly alter Bitcoin’s price, Kruger said: “Everything that’s known is priced in, everything is discounted into the price of the market, and the properties and the dynamics and the mechanics of the having event are very telegraphed.”
“We know that's embedded within Bitcoin economics, so we don't expect or anticipate there to be too much volatility around the having event,” he said. “Of course, naturally, because of the properties and the mechanics of the having event, which are inherently a part of Bitcoin's economics, they do support the idea that Bitcoin will continue to drive higher” in the months after the halving.
“But we don't see much as far as any big risk associated with the having event, other than the fact that this is the first having event that's happening on a global stage,” he said. “Previous halving events were not happening with Bitcoin as widely adopted as it has been. Previous halving events did not occur with an approved Bitcoin ETF in the U.S., so there is a bigger-stage component to this.”
Kruger said the real story will come later in the year when we learn the fate of the Ethereum ETF applications. “I think that will dictate a lot of the flow in the market,” he said. “I also think that what happens and how things shape out as far as the Fed policy trajectory will also have an impact on the price action in 2024.”
How Bitcoin ETFs have affected the market
Bitcoin made history this year when it hit a new all-time high 45 days before the halving, which Kruger attributed to the launch of spot BTC ETFs on the U.S. market.
“The market had been waiting for that to happen,” he said. “You've had a lot of larger players in the traditional markets that have been skeptical or cautious about entering the market for good reason. Having the SEC approve the Bitcoin ETFs has given the stamp of approval to Bitcoin, and gave it more legitimacy.”
“When it comes to Bitcoin, the question is, ‘Is there a consensus around it and do people believe in it?’” he said. “The more people that believe in it and the more consensus there is around the asset, the more it plays into Bitcoin and what Bitcoin is, which is an asset that is designed and built to go higher if there continues to be consensus and adoption. The approval of the spot ETFs in the U.S. is therefore a big catalyst ushering in the next wave of widespread adoption.”
Resistance to Bitcoin remains, as evidenced by the CIO from Goldman Sachs Wealth Management saying that they don't see cryptocurrency as a legitimate asset class, but Kruger said that while there has indeed been “a lot of resistance, you have to look at the trend.”
“The trend has been one in which over the past several years, there's been zero acknowledgment of Bitcoin, then there was some acknowledgment of Bitcoin, to then figuring out ways that traditional players could adopt and integrate Bitcoin into their offerings,” he said. “So slowly but surely, you see the resistance get chiseled away, and the trend has been quite compelling.”
Highlighting the volatile yet resilient nature of Bitcoin, he asked, “Have you seen any other asset in your career that has been able to withstand so much draw down on so many different cycles and yet come back each time to make a record high? That alone is pretty reassuring as far as what Bitcoin represents and what the potential is.”
He added that the approval of an ETH ETF would “further validate the asset class,” but said that Bitcoin doesn’t need an Ether ETF to succeed as it “stands alone.”
“However, we do believe that there is a value proposition in other assets within the space, so clearly, the approval will do a good job of ushering in wider support for all of the innovation and potential that’s going on within the broader crypto asset class,” Kruger said.
A risk-off environment
With the major stock market indices hitting new record highs, Kruger warned about the possibility of the market flipping to risk-off, which he said will benefit Bitcoin and gold.
“We see Bitcoin being very attractive in a risk-off environment,” he said. “We don't see a scenario where the market doesn't want to go into Bitcoin, just like the market would want to be going into gold in the same way in such a scenario.”
“We are now in an economic backdrop that we haven’t seen since Bitcoin’s inception,” he noted. “Given its scarcity, its limited supply, its adoption, and the consensus around it – we see Bitcoin being well supported in that type of environment.”
“Much in the same way that you see demand for gold rise during times like these, we believe there will be a similar demand for Bitcoin,” he said.
“What we have seen in recent months, and even over the past couple of years, is a very compelling and notable breakdown in correlations,” Kruger said. “The market has been treating Bitcoin as a risk-correlated asset because we’re living in a time when stocks are going up and Bitcoin is going up. Yet, in recent months, we've seen that correlation breaking down, as we believe it should.”
“There are those who are playing Bitcoin as an emerging maturing asset,” he said. “And so naturally there are going to be those players that are going to look at Bitcoin as a risk-correlated asset, because again, it is this new maturing asset. But ultimately, if we look at Bitcoin’s value proposition, what it represents, and its properties, it is really a store of value asset.”
“So this is an asset that should hold up exceptionally well in a period of risk-off for all of the same reasons that gold is an attractive asset,” Kruger said. “And Bitcoin is even more scarce than gold, so there are arguments to be made for Bitcoin’s value proposition and its intrinsic value that are potentially greater than gold. It operates on an underlying technology that allows users to transfer assets and move money peer-to-peer instantaneously, which is quite revolutionary and innovative. ”
“To reiterate, we believe that there is going to be a period in which we could see risk-off play out, and in that environment, although there may be a period of an initial short-term pullback, Bitcoin will be able to prove itself as a store of value asset,” he said.
Kruger said there are two things that investors should consider when evaluating Bitcoin.
“Is Bitcoin secure? The answer is it’s exceptionally secure,” he said. “There’s nothing more secure than Bitcoin, arguably.”
“Second, is there a consensus? It’s no different than evaluating any other asset,” Kruger said. “Why does gold have value? Because there is consensus around the asset. Why does the dollar hold value? Because there is consensus around it.”
“With Bitcoin, you have all that and potentially and arguably more that makes it quite attractive,” he said. “Once you have that consensus and that security, then you can interact and exchange peer-to-peer, and it gives people that are unbanked a way to access banking, self-custody their assets, and interact and exchange peer-to-peer in a trustless manner. That’s quite innovative and truly disruptive as far as talking about the future of money and its potential.”
He said this value proposition will support Bitcoin in the event of a pan-sell-off across markets if the economy takes a turn for the worse and people flee to the USD.
“It’s been very easy for Bitcoin to prove itself on the risk-correlate side, but the irony is that Bitcoin has yet to really show itself in a market environment that’s truly risk-off,” Kruger said. “So we think that as people become more educated about Bitcoin, they will be more likely to seek it out as a store of wealth in a widespread market pullback.”
He said when it comes to other cryptocurrencies, like Ethereum, “it’s a bit of a different value proposition.
“Ether is more like a stock market 2.0, whereas Bitcoin might be gold 2.0 in the digital age,” he said. “So there’s certainly going to be more correlation with risk and risk sentiment for ETH in a period of risk-off. It would arguably be more exposed, relative to Bitcoin, in a period of risk-off. But even with Ether, because of the technology and the possibilities, we see that there is going to be value there and interest from people who are interested in the technology and the potential it holds.”
“In both scenarios, we see them being supported, although ETH will certainly be more exposed in risk-off than Bitcoin,” Kruger said.
Increasing adoption
When asked what could help increase blockchain adoption over time, Kruger said it comes down to improving user experience.
“Whenever you have a new technology or innovation, the initial years are very backend-focused, and that means the average person has a hard time understanding what’s going on,” he noted. “Most people only care about the front end. Once the front end is more user-friendly, and people can see the benefits, interest begins to rise because people have a better understanding of what is being offered.”
“In the early years, that is what has been going on with Bitcoin as the technology around it was being built,” he said. “Now, user interfaces are evolving, and things like NFTs are helping to increase engagement from everyday people. The technology is being applied to things that are beyond just currency, giving a little bit more life to blockchain by integrating aspects of culture, passion, and art into the technology.”
Memecoins are also helping to increase engagement, he noted, as they have played on the ‘meme stock’ trend that has been rising among retail traders over the past several years.
Real-world asset (RWA) tokenization will also play an important role in the years to come, he said. “We’ve had a period of 30 plus years living in the world of the internet but not really understanding how to apply the economics around the internet and digital assets. Now we’ve entered a new frontier, the new economics that incorporates the internet and how it functions.”
“I see tokenization as something that’s going to be a very big deal across all assets going forward into the future,” he said. “People are interested in and attracted to markets, so if you can have deeply liquid markets, deeply liquid secondary markets that have volatility but that are open and that everybody has access to on a 24/7 basis, people will be attracted to that.”
Bitcoin price predictions
When asked if he had any predictions on how high Bitcoin’s price could go during the bull market, Kruger reiterated that LMAX Group sees the potential for a pullback into the $50,000 area, but thinks it would be short-lived.
“Ultimately, we should start to find a lot of support in that area ahead of the next upside extension, which could be as soon as later this year towards the next key objective, which is the psychological barrier at $100,000,” he said. “The expectation is that we're for sure going to push to record highs, we may see a period of correction down into the $50k area, and then it's up and away to work that next objective at $100k before the next bear market comes.”
As for what could cause the next bear market, Kruger pointed to a further deterioration in global macro conditions as the most likely catalyst but also warned that fighting between different blockchain protocols could lead to a downturn.
“As those wars happen, as people try to figure out how to scale within those other chains, that could be something that could combine with global macro forces to create a pullback,” he said. “But ultimately, when it comes to crypto and Bitcoin right now and the trajectory they are on, the long-term outlook is very bright, and whatever pullbacks we do see should continue to be well supported for higher highs and higher lows.”
“We are still very early in the crypto market,” he said. “Even though we’re sitting at record highs in Bitcoin, from our perspective, it’s really about Bitcoin before $100,000 and Bitcoin after $100,000. That’s the milestone. Anything below $100,000 is still early.”