Here’s Why Bitcoin and Ethereum Will Lead Altcoins Higher in 2024

Author: Todd Groth, CFA, CoinDesk; Compiler: Songxue, Golden Finance

The approval of the Bitcoin spot exchange-traded fund (ETF) last week was a big deal. In just a few days, the crypto industry has risen to the top of the financial world, with trade volume exceeding $4.5 billion in its debut on Thursday. It's surprising considering how long it takes to get the right ETF. Some things are worth waiting for.

Cryptocurrency Market Reality:

In 2024, the cryptocurrency market will continue to grow, alongside its larger asset class peers. Despite some unstable and uncertain economic conditions over the past year, Bitcoin and Ethereum are making their mark and gaining traction as ideal alternatives to regular stocks and bonds. Asset allocators are eyeing performance in 2023, which means demand for Bitcoin and Ethereum is rising.

Spot Bitcoin ETFs – Don’t Ignore Them:

While the jury is still out on whether the Bitcoin Spot ETF launch is a “buy on rumor, sell on news” event, in the medium to long term Look, this could mark a turning point in cryptocurrency adoption. Why?

Because this is a more familiar and regulated way of allocating capital to the crypto market. Look at Coinbase and MicroStrategy stocks in 2023 — they’re outperforming Bitcoin, and that’s no coincidence. These ETFs will open the door for registered investment advisers (RIAs), pension funds and hedge funds to participate. Additionally, investment banks will begin developing new products based on these ETFs, while CBOE is awaiting approval of options to begin listing these new ETFs.

Keep an eye on this space - it will be a journey.

Inflows and Big Numbers:

Get ready for an influx of cash into the cryptocurrency space. RIAs manage approximately $130 trillion, and allocating 1-2% of their portfolios to digital assets through ETFs could inject $1 to $2.5 trillion into the crypto world, roughly equivalent to the current market capitalization of the digital asset market.

The problem is: a lot of cash will flow mainly into Bitcoin and Ethereum. Sorry altcoins, you may have to wait for a while. But the rise ofBitcoin and Ethereum should trickle down to other digital assets, as native cryptocurrency investors profit from the primary assets and allocate capital into smaller tokens. This will allow crypto-native players to dominate Bitcoin dominance (see chart below), as they will be the investors able to participate in the base and spreads between major currencies and altcoins.

Future macro factors :

Now, let’s talk about recessions and interest rates. If the U.S. economy declines sharply at the end of 2024 due to rising interest rates, we will enter the dovish period of the interest rate cycle, and guess who benefits? Yes, digital assets.

Bitcoin, with its digital scarcity, and Ethereum, with its increasing post-merger deflation, will thrive in a world of growing deficits, government spending, and abundant fiat liquidity. But keep your expectations in check. Digital assets inevitably experience volatile moments of low liquidity and deleveraging.

Build your portfolio wisely:

In 2024, stop trying to predict where the market will go. Instead, focus on portfolio construction and position sizing. Price momentum indicators, such as the CoinDesk Bitcoin and Ethereum Trend Indicators (BTI and ETI), can serve as useful inputs for regulating net risk exposure and managing overall market risk.

It’s time to consider shifting your portfolio toward altcoins while keeping a firm grasp on Bitcoin and Ethereum. While the rest of the cryptocurrency market is booming, altcoins shine, and there’s no denying their growth potential. But remember, the good thing about portfolio construction markets is that it never goes in a straight line, and there are always twists and turns in the story.