Bitcoin and Ether Rally: Key Factors and Future Expectations

With Bitcoin up around 10% and Ether showing a 17% gain over the past week, analysts at Bernstein outlined five reasons for the rally and future expectations.

Bipartisan Crypto Support

One factor is potential bipartisan crypto support. Democratic candidate and current Vice President Kamala Harris stated she’ll encourage crypto businesses while protecting consumers at a recent Wall Street fundraiser. Analysts Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia noted, “This is the first explicit statement by Harris on crypto, where the word ‘digital assets’ was mentioned.”

Contrastingly, former President Trump promotes a pro-crypto agenda with specific policy promises. However, concerns remain due to the current administration’s tumultuous history with the crypto sector, including anti-crypto sentiments from Senator Elizabeth Warren. The crypto community seeks clearer policies from Harris to influence their political alignment.

Analysts noted that a Trump victory could lead to stronger crypto market sentiment, as it would suggest a fresh policy start and broader regulatory support beyond Bitcoin.

ETF Flows and Loosening Monetary Policy

Regardless of the election outcome, the launch of exchange-traded funds (ETFs) for Bitcoin and Ethereum is likely to sustain institutional momentum. Despite choppy price action, Bitcoin ETFs saw a net positive inflow of $397.2 million last week, pushing total net inflows to $17.7 billion. The Ethereum ETF scenario is more complex, with total net outflows of $608 million, yet new ETFs are expected to attract more inflows.

The U.S. Federal Reserve’s recent 50 basis point interest rate cut also plays a role, with Bitcoin reacting positively to potential signals of looser monetary policy and a weaker dollar. Analysts view Bitcoin as a valued non-sovereign asset in light of increasing U.S. fiscal debt, now at ~$35 trillion.

Bitcoin Miners and Selling Concerns

Two additional supportive factors are the recovery of the Bitcoin mining industry post-halving and the waning concerns over significant Bitcoin selling. After a quarter since the April halving, Bitcoin miners have stabilized, with total network hash power returning to pre-halving levels.

Furthermore, fears of major Bitcoin selling are also diminishing as the German and U.S. governments have completed recent sales, and the market has absorbed about $8 billion in Mt. Gox distributions. MicroStrategy has also raised over $2 billion to acquire more Bitcoin, further boosting demand.

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein may receive compensation for investment banking services from MicroStrategy.