It's been a seemingly endless bull cycle for the original cryptocurrency. Bitcoin is now up a full 670% from its December 2022 low of around $16,000, and the total market cap of crypto has at last surpassed $4 trillion. This kind of uninterrupted growth is virtually unheard of for a mainstream, widely adopted asset. To put things into perspective, the S&P 500 has barely managed 800% in over 30 years! However, after a little over a month of downturn in the crypto market, some holders began to worry that the party may finally be over. From its early-August all-time high above $123,000, BTC lost a full 12.68% to settle at a local low of $107,694 by 1 September. Yet, in an encouraging turn of events, the key psychological resistance of $100,000 held strong, and Bitcoin returned to steady growth over the rest of September. It finished the month up 8% to reach $116,666 as of the time of writing on 2 October.
There are multiple reasons for Bitcoin's second wind, but they centre largely around the asset's unique position as both a speculative risk-on asset and, simultaneously, a would-be haven asset to rival gold. The combination of the Federal Reserve's initiation of a much-anticipated cutting cycle, ongoing geopolitical uncertainty, and the US government shutdown weighing on the dollar is all working in BTC's favour. Throw in a couple of specific market factors like Uptober and spot ETF amplification, and you have a recipe for additional growth. In this piece, we'll do our best to assess all of these factors and more in a bid to work out where the market could be headed in Q4.
Get your risk on
As one of the most traditionally volatile assets to exist, Bitcoin's history as a speculative investment vehicle is well known. Despite greater institutional adoption and the normalisation of crypto among more conservative investors, BTC remains incredibly responsive to any increase in general risk appetite. The Fed's decision to reduce the funds rate by 25 bps to between 4.00% and 4.25%, coupled with rhetoric suggesting more cuts to come, has succeeded in stimulating the purchase of risk assets like crypto.
The impact this time round is even more amplified than in previous monetary policy cycles, precisely because of the effect of the spot ETFs introduced early this year, which have enabled Bitcoin to reach an even greater pool of both retail and institutional investors. On Monday, 29 September, Ethereum and Bitcoin spot ETFs recorded combined net inflows of over $1 billion, with Fidelity's FBTC being the major investor. What's more, ETFs covering more digital currencies, such as Solana and XRP, are expected in the months ahead after the SEC greenlit an expedited listing process, which will provide strong fundamentals for the entire crypto market. Also significant is the historic strength of the month of October and the final quarter of the year in general for BTC. According to data from Coinglass, over the past 12 years, Q4 has consistently generated a median gain of more than 50% for Bitcoin, and as of now, we've barely seen +10%.
Vying for gold
Another unexpected and interesting trend that has been observable for a number of years now is Bitcoin's rise as a modern-day alternative to gold. Back in the early days of crypto, when price swings were massive and unpredictable, the idea of BTC setting itself up as a haven asset was frankly ludicrous. And yet, Bitcoin is both non-fungible and anti-inflationary, much like gold, with the added advantage of being easily tradable across borders and much cheaper to store securely. We're even seeing evidence that central banks are preparing to diversify their reserves by buying Bitcoin, with initiatives like the US's Strategic Bitcoin Reserve and the EU's Markets in Crypto-Assets (MiCA) regulation paving the way for intense purchasing of digital assets by these semi-state actors.
Deutsche Bank's Research Institute argues that Bitcoin is on track to sit alongside gold in central bank reserves by 2030. The analysts acknowledge that Bitcoin "still lacks key components of a reserve asset: trust and transparency," yet argue that the market's maturation is beginning to compress realised swings. Czech National Bank (CNB) governor Aleš Michl, for one, has already suggested that the CNB could hold up to 5% of its €140 billion ($145.6 billion) in reserves in Bitcoin. The contemporaneous weakening of another haven asset, the US dollar, will surely help accelerate this process. Now down more than 10% against major rivals, the euro and sterling, countries and institutions all over the world are shunning the greenback in favour of gold, and soon potentially Bitcoin. Following Congress's failure to pass a key funding bill, the US government has officially shut down for the first time in six years. This will both create general panic within the US while also exacerbating the dollar's existing credibility problem, likely leading to increased demand for Bitcoin.
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