Bitcoin: More Room for Upside in 2024?
January 3, 2024
Bitcoin has significantly outperformed all asset classes in 2023, despite a series of negative news clouding the cryptocurrency space over the last 12 months. After rallying more than 160% in 2023, we believe there is more upside in 2024 and investors should consider adding bitcoin exposure to their portfolio allocation.
Firstly, demand-supply dynamics are expected to provide continued tailwinds. Most of bitcoin’s 60% gain in Q4 so far has been attributed to speculation a spot bitcoin ETF will be approved by the US SEC in January next year. Such ETFs will appeal to both retail and institutional investors alike, providing them a cheaper and more convenient way to gain exposure to digital assets on a regulated stock exchange.
In addition, the next Bitcoin halving event is expected to take place in April 2024. Halving events cut in half the amount of tokens Bitcoin miners receive as a reward, limiting the rate of creation of new bitcoins and slowing supply growth. In the past 3 halving events since Bitcoin’s launch in 2009, significant rallies ensued, followed by new all-time highs each time.
The correlation between bitcoin and global equities recently fell to its most negative (-0.2) since the start of the pandemic, after reaching a high of 0.8 in 2022. A maximum correlation of 1 indicates a perfect linear relationship between two asset classes. A correlation value closer to zero makes Bitcoin more appealing in terms of asset allocation, helping with portfolio diversification and risk management. Lastly, from a regulatory standpoint, we have recently witnessed stricter oversight and increased anti-money laundering regulations within the crypto space. This is viewed positively over the longer term as it helps build confidence and legitimacy in the sector after various recent scandals. In conclusion, we believe a modest exposure to bitcoin is warranted in one’s overall asset allocation. It enhances portfolio diversification, and positions investors to reap the upside benefits of growth drivers over the longer term.
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