The approval of US spot exchange-traded funds (ETFs) in 2024 marked bitcoin’s arrival as a global macro asset. Once these physically backed investment vehicles became available, the cryptocurrency sneaked into long-term investors’ asset allocations. But then the US Republican Party’s election sweep—taking the White House, Senate and House of Representatives—lifted its ascendancy to another level. Should President Trump follow through on his pledges for digital assets, his win will become their win.

Global macro asset status brings perks, and both governments and corporates are discussing building strategic bitcoin stockpiles. But bitcoin’s newfound status also heightens sensitivity to global macroeconomic and political conditions. For the year ahead, we are confident that top-down factors will rock the boat and be key drivers of digital asset prices. 

Cryptos are risk-on assets. There are certainly many shifting factors driving the bitcoin price, but we consider that for 2025 investors should above all keep an eye on three things: macroeconomics and politics, demand dynamics, and the intricacies of its supply schedule. 

Meanwhile, bitcoin’s evolving role within investor asset allocations reinforces its reputation as a store of value, albeit a spicy one. Back testing shows that adding bitcoin to traditional 60/40 equity/bond portfolios can improve risk-adjusted return ratios. This growing reputation is lifting investor demand, particularly through wrappers like US ETFs. Investors are seeking to enhance returns and reduce risk through diversifying into bitcoin, with many buying it within ETFs and delegating custody.

Demand builds

We expect the wrapper theme to remain strong, with US ETFs being a key source of spot demand. Wrappers are evolving, as investors seek different exposure profiles, especially more leverage. US ETFs have reached the giant figure of USD115bn in assets: at the time of writing, net inflows have averaged about USD125mn for the past 30 days.

What’s more, open interest in bitcoin options is flirting with all-time highs, as is activity in futures markets where perpetual contracts are attracting attention. In options, the demand is for calls, despite the high implied volatility and option premiums. Long leverage over perpetual futures has not got much more expensive, though, despite sentiment indicators displaying relatively hot numbers. 

Taken together, ETF wrappers, corporate treasury intentions and the general accumulation of long-term holders signals that another supply squeeze might be in the making. Just for reference, if companies follow through on plans to add USD40bn in bitcoin over the next couple of years, at current prices they will buy every single coin issued in 2025 and 2026. 

Just as last year’s rally was well-supported by fundamentals, so supply will tighten in 2025. The blockchain generates around 200’000 tokens every year, but ETFs alone soaked up around 10’000 tokens a week in 2024. Roughly 70% of the circulating supply has not changed hands in at least six months, and close to 50% has sat dormant for over three years.

Bitcoin has traditionally moved in tandem with broader risk assets when they have trended higher, as its correlations with other asset classes show. Yet it can also function as crypto’s “safe haven” asset amid turmoil in broader risk assets, which may boost its market position when sentiment sours. The main macro tailwind since late 2023 has been improving US liquidity, aided by the gradual winding down of Federal Reserve reverse-repo programs. This infusion of liquidity has buoyed both equities and bitcoin—even as the Fed maintains relatively high interest rates. In net terms, it has largely neutralized the effects of Fed quantitative tightening.

Outlook

Overall, bitcoin’s fundamentals appear strong. Dwindling supply twinned with elevated institutional demand make a favorable landscape for investors. While any asset can temporarily overshoot or correct, bitcoin’s structural supply constraints and consistent demand drivers suggest positive momentum, which may spark a spicy ride. Next to that, Trump’s push for regulatory clarity looks set to improve bitcoin’s accessibility well into 2025. Ultimately, let’s be real, who doesn’t love a little hot sauce?

Please note: the information provided is for educational purposes only.