Bitcoin ‘Still the Best-Performing Asset’ After Weak Q3

Bitcoin continues to be the top-performing asset in 2024, even after experiencing a “seasonally weak” third quarter, according to a report from the New York Digital Investment Group (NYDIG).

During the third quarter, Bitcoin saw a modest gain of 2.5%, rebounding after a decline in the second quarter. However, its growth was constrained by significant sell-offs. Greg Cipolaro, head of research at NYDIG, noted in an October 4 commentary that while Bitcoin maintains its status as the best-performing asset class for the year, its lead has narrowed.

“Bitcoin is still the best-performing asset class in 2024, but its lead has narrowed,” Cipolaro stated, pointing to a year-to-date gain of 49.2% for the cryptocurrency.

Trading Conditions and Market Dynamics

Over the past six months, Bitcoin trading has largely remained within a defined range, facing several headwinds. Notably, distributions related to Mt. Gox and Genesis creditors, totaling nearly $13.5 billion, along with substantial BTC sell-offs from the US and German governments, have impacted market conditions.

Cipolaro noted that various assets, including precious metals and certain sectors of equities, have made gains against Bitcoin during this time. He remarked that most asset classes have had a “banner year,” highlighting the competitive landscape Bitcoin is navigating.

Interestingly, Bitcoin exhibited resilience by increasing 10% in September, a month typically associated with bearish trends for the asset. Several factors have contributed to Bitcoin’s recent performance, including ongoing demand from US spot exchange-traded funds (ETFs), which attracted $4.3 billion in total flows during the quarter.

Additionally, there has been a noticeable rise in corporate ownership of Bitcoin, with notable purchases from MicroStrategy, a software firm, and Marathon Digital, a crypto mining company.

Correlation with US Stocks

Cipolaro highlighted that Bitcoin’s rolling 90-day correlation with US stocks rose during Q3, reaching a level of 0.46 by the end of the quarter. Despite this increase, he maintains that Bitcoin remains a valuable option for diversification.

“While Bitcoin’s correlation with equities rose, the most recent level is still low, implying that Bitcoin offers significant diversification benefits to multi-asset portfolios,” he explained.

Toward the end of Q3, the crypto markets experienced a boost, influenced by various political and economic developments. Among these was former President Donald Trump’s renewed endorsement of the cryptocurrency industry, along with global monetary easing, as the Federal Reserve cut interest rates. Moreover, China’s central bank introduced stimulus measures and increased the money supply, contributing to a favorable environment for digital assets.

Upcoming US Elections and Market Outlook

Cipolaro pointed out that the upcoming US election on November 5 will significantly affect market performance in Q4. He anticipates more substantial gains for Bitcoin if Trump wins the election, stating:

“While both candidates will be improvements over the Biden administration regarding their attitude toward crypto, Trump, if he wins, will deliver bigger gains for the asset class given his full-throated endorsement of the industry.”

Cipolaro also noted that Q4 is historically a bullish period for Bitcoin, suggesting several catalysts could lead to a positive outcome.

“While investors might be frustrated with the rangebound trading over the past six months, rest assured that compared with previous cycles, Bitcoin is exactly where it was at this time in the previous two.”

Despite a challenging third quarter, Bitcoin has maintained its status as the best-performing asset of the year. As various market forces come into play, the outlook for the cryptocurrency remains cautiously optimistic. With potential political shifts and ongoing institutional interest, Bitcoin may continue to navigate the complexities of the financial landscape while remaining a key player in the evolving world of digital assets.