September 2024: Crypto Gets a Lift from Fed Rate Cuts
Research Team
Last Updated: 10/1/2024 | 10 min. read
Crypto markets performed well in September 2024 as the Federal Reserve delivered the first of several likely rate cuts.
While Bitcoin outperformed broader crypto markets year to date, gains in September were led by other market segments, especially AI-related tokens in the Utilities & Services Crypto Sector.
The regulatory and political backdrop appears to be improving: The SEC approved an application for the listing of options on spot Bitcoin ETPs and others are expected to follow, while Bank of New York looks set to offer crypto custody services. Meanwhile, former President Trump announced a new DeFi protocol and Vice President Harris made supportive comments about digital assets and blockchain technology.
The start of Fed rate cuts and a variety of fundamental developments contributed to a broadening crypto rally in September 2024, and the best monthly return for the FTSE/Grayscale Crypto Sectors Market Index (CSMI) since March (Exhibit 1).
Exhibit 1: Stronger returns for digital assets in September 2024
Exhibit 2: First Fed rate cut was a major driver of broader markets
Exhibit 4: Ethereum still dominates Smart Contract Platforms Crypto Sector
Net inflows into the U.S.-listed spot Bitcoin exchange-traded products (ETPs) picked up again, totaling +$1.3 billion for the month. Cumulative inflows since the launch of these products on January 11, 2024, also reached a new high-water mark of +$18.9 billion, based on our estimates.
Perhaps reflecting the more bipartisan support for the industry, the correlation between the price of Bitcoin and Trump’s odds of winning on Polymarket has recently broken down (Exhibit 5; for background, see our report Polymarket: Crypto’s Election-Year Breakout App).
Exhibit 5: Correlation between Trump win probability and Bitcoin price is breaking down
We continue to see the election as an important risk event for crypto markets, with a key consideration from a macro standpoint being whether there is unified or divided government: both parties have run large budget deficits when controlling both the White House and Congress (for details, see our report Bitcoin and the Macro Policy Issues of Biden v Trump). The election may also introduce possible changes to crypto regulation in the United States, as well as uncertainty about the potential impact of large-scale tariff increases (in a Trump win).
However, even acknowledging election uncertainty over the short-term, Grayscale Research expects that the favorable macro backdrop (e.g., Fed rate cuts and an economic “soft landing”) and a variety of adoption trends (e.g., stablecoins and prediction markets) should support crypto assets over time.
Some links are for articles which may sit behind a paywall and may require a subscription to access them in full.
[2] Ethereum has the most applications, the most developers, the highest 30d fee revenue, and the most value locked in smart contracts. It has the second-highest second-highest number of daily active users after Solana when including the largest Ethereum Layer 2 networks. For users, Ethereum ecosystem equates to Sum of Ethereum mainnet, Arbitrum, Optimism, Polygon, zkSync, Metis, Base, Blast, Mantle, Scroll, and Linea. Source: Source: Dapp Radar, Electric Capital, Artemis, DeFi Llama. Data as of September 25, 2024.
[6] SAB 121 requires regulated financial services firm to record digital assets on their balance sheet, making it economically infeasible to offer custody services.
Important Information
Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment. All content is original and has been researched and produced by Grayscale Investments, LLC (“Grayscale”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express consent of Grayscale. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose. This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Grayscale’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements. There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the digital assets that we have chosen to analyze.
The Barclays Global Aggregate Index is a market-weighted index of global government, government-related agencies, corporate and securitized fixed-income investments. The Bloomberg Barclays US 1-3 Year Treasury Bond Total Return Index is composed of eligible US treasuries with a time to maturity of at least 1 year but no more than 3. Bonds are priced on the bid side.
The Bloomberg US Curve 2-10 Steepener Index measures the performance of holding duration-neutral long and short positions across 2yr and 10yr Treasury futures with monthly rebalancing.
The MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 2,946 constituents, the index covers approximately 85% of the global investable equity opportunity set. The S&P 500 Financials comprises those companies included in the S&P 500 that are classified as members of the GICS financials sector. The U.S. Dollar Index (DXY) tracks the strength of the dollar against a basket of major currencies.
The FTSE/Grayscale Crypto Sectors family of indexes measure the price return of digital assets listed on major global exchanges.
Share This
Like what you see?
Subscribe below for the latest research from Grayscale.
