After nearly 8 months of consolidation and volatility, bitcoin's price has finally broken its previous all-time high of $73,757, and has pushed higher into uncharted territory. Where might it go next? Could the incoming administration and shifts in Congress have any impact? And will ethereum's price catch up to bitcoin's?
Here are key factors to watch as we head into the new year.
Could the results of the presidential election be positive for crypto?
Many in the crypto industry are cautiously optimistic that the upcoming presidency will be more favorable toward crypto and digital assets compared to previous governments. They hope the new administration will open the doors for long-awaited industry regulations, making it possible for the industry to grow domestically.
That said, it remains to be seen whether this will come to pass.
However, when it comes to factors that might benefit crypto, Jurrien Timmer, Fidelity's Director of Global Macro, believes there are 2 larger elements at play: fiscal policy (how the government spends money), and monetary policy (how the Fed operates).
"We're in a period of fiscal expansion. And both parties seem to not be too afraid to spend money," says Timmer. "And we're in a different monetary regime now, where we've gone from raising rates and driving real rates higher to now lowering rates." In September, the Fed cut interest rates for the first time since 2020. Historically, interest rate cuts have helped push crypto prices higher, though past performance is no guarantee of future results.
"We're going to have easier monetary policy and expansionary fiscal policy," says Timmer. "And that could be a pretty good one-two punch in favor of digital assets, in my view."
Where might bitcoin's price go from here?
No one can tell the future, and past performance is no guarantee of future results. With that said, reviewing previous bull markets may provide some context as to where we might currently be in the cycle.
"We were already firmly in a bull market phase before, with bitcoin returning over 150% in 2023 and then adding another 75% year-to-date return earlier in 2024 on the heels of the ETP approvals," says Chris Kuiper, Research Director, Fidelity Digital Assets®.
"If the past is any guide, we are at least halfway through the full bull market. But Fidelity Digital Assets' research team is quick to note that the second half of bull markets is typically when volatility and price appreciation are higher versus the first half. However, every cycle can be different."
Like Timmer, Kuiper believes macroeconomic factors could have the most influence on bitcoin's price going forward. "The largest macro factors that will drive bitcoin and other digital assets in the year ahead and longer are liquidity and changes in inflation expectations," says Kuiper.
"Liquidity metrics have turned back to positive year-over-year growth, and we have entered another interest rate-cutting cycle. Inflation is still elevated above the Federal Reserve's 2% target and so I personally think there is still a risk of inflation coming back in a 'second wave.' Both of these things would be tailwinds for bitcoin."
When should investors start thinking about taking profits?
Many digital assets have made significant price gains since the beginning of 2023. Those who bought and held crypto throughout the last 2 years may be wondering if they should start locking in profits, if they haven't already.
Of course, the answer ultimately depends on the individual's goals and risk tolerance. Investors should note that while it may seem there may be a "second half" to the current bull market to come, as Kuiper believes above, past performance is no guarantee of future results. It's always possible this cycle could act differently, and the bull market could end earlier than expected.
"Fidelity Digital Assets' research team continues to believe investors should have a very long-term mindset when it comes to these assets, and that regular rebalancing can be critical and beneficial," says Kuiper. "For example, if an investor sets a target percentage of their portfolio for bitcoin exposure, they should rebalance accordingly if bitcoin rises or falls."
"This can be an excellent way to manage risk. Somewhat counterintuitively, Fidelity Digital Assets research shows that historically, rebalancing has actually created a net benefit, as it can take advantage of bitcoin's high but positive volatility."
Investors should also keep in mind potential tax implications. Consider consulting a licensed tax professional to help accurately manage your tax bill.
Will ethereum's price catch up to bitcoin's?
In recent months, bitcoin's price has outperformed compared to that of ethereum's. So far, this trend is in line with how the 2 assets have behaved in previous bull markets. Typically, bitcoin leads the rally, then consolidates as ethereum and other alt coins catch up.
So when might ethereum catch up for this cycle? Fidelity Digital Assets Research Analyst Max Wadington is watching for factors that include increasing demand for tokenized assets (one example being stablecoins, a niche where ethereum is dominant), and the potential for new regulatory clarity regarding decentralized finance (DeFi).
“There has been a bounce back in the spot ether ETP flows during October and November 2024, which finally are showing net positive,” says Wadington. These flows could be a sign that a rebound is in progress."
Nevertheless, Wadington also sees several reasons to be cautious, as ethereum faces stronger competition relative to bitcoin, which could impact its performance. "Many investors view ethereum as a complementary asset to bitcoin rather than a replacement, which might limit its potential to outperform," says Wadington. "Moreover, if traders continue to treat ethereum and bitcoin as similar assets, their prices may continue to move in tandem, despite their different use cases. Therefore, while there are promising signs for ethereum, it is essential to consider these factors when evaluating its future performance."