Central bank printing will lead to a crypto boom in 2024 – MarketVector’s Martin Leinweber

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(Kitco News) – Speculation around the approval of a spot Bitcoin (BTC) exchange-traded fund (ETF) has been one of the primary drivers of the cryptocurrency market’s gains in 2023, especially after BlackRock filed its application with the Securities and Exchange Commission in June.

Last week, BTC bulls challenged resistance at $38,000, bolstered by rumors that the SEC would potentially approve all the applications currently on its docket, but Friday came and went without any approvals, much to the chagrin of crypto proponents.

According to Martin Leinweber, digital asset product strategist at MarketVector Indexes, the delays were anticipated, and he doesn’t expect that any of the applications will be approved in 2023.

But crypto traders won’t have to wait too long, he said, as the final day to rule on the ARK 21Shares application is January 10, 2024, and he is “not worried at all about the delays.”

“I still think that’s the main driver for crypto at the moment,” Leinweber said. “If you look at global flows into exchange-traded products such as ETFs and ETNs, we had more than $1 billion worth of flows into Bitcoin products this year, with 80% of that coming in the last four weeks.”

“Investors are positioning for the eventual approval of a Bitcoin ETF filing,” he said. “And I think that with these huge distribution arms from BlackRock, Fidelity, and Franklin Templeton coming, we will see additional flows. I don’t think it’s a ‘buy-the-rumor, sell-the-fact’ event like we saw with the Coinbase IPO or with Bitcoin Futures. I really do think that we will see additional flows coming into the space.”

While he sees the long-term outlook for BTC as highly positive, he warned that “we could see a little bit of a sell-off in Bitcoin, as well as Ethereum,” as traders take profits following the recent ETF-inspired run-ups.

“The Ethereum/Bitcoin pair is pretty weak at the moment, so Ethereum is underperforming,” he said. “Next year, people will play the spot BTC ETF first, and then the Ethereum ETF later.”

When asked about the source of Bitcoin’s momentum in early in 2023, prior to the ETF filing frenzy, Leinweber said, “There’s always some front-running taking place,” whether it’s related to the ETF applications or simply more experienced crypto traders being familiar with when the BTC market bottoms ahead of its next halving.

Aside from the positivity generated by the spot BTC ETF speculation, Leinweber pointed to the macro backdrop and a rise in global liquidity.

“If you think of global liquidity, it’s just the expectation of more liquidity coming in,” he said. “And we had that super bearish stance last year with a weak stock market and a weak crypto market.”

“If you look at what fiscal dominance is globally, you also have to consider what the Fed, ECB, and other fiscal authorities are doing,” he said. “The U.S. is super indebted, and the money is flowing back. And so what you see now, especially with the anticipation of more liquidity, is that crypto is still the highest beta asset when it comes to liquidity, followed by tech stocks.”

Leinweber called the Bitcoin halving cycle “interesting” as it happens to coincide with the global liquidity cycle.

“You had a reset in 2009 after the banking crisis. A reset to zero interest rates. And also the US dollar cycle, which is perfectly aligned with the halving cycle,” he said. “So, maybe it is the halving cycle. I think it’s more the macro-cycle, which coincides with the halving cycle, but nevertheless, I think people will play that, and it’s the perfect cocktail for another bull run next year.”

“So you have the spot Bitcoin ETF. You have the possibility of the Fed decreasing rates – at least that’s the assumption of the market, I think we have the first cut in May priced in. And then you have the halving cycle,” he said. “That should be a beautiful year in 2024 for crypto. At least that’s my hope.”

Global debt problem

On the topic of the rapidly increasing U.S. debt, and whether the debt load is becoming a major factor in how countries around the world perceive the U.S. dollar, Leinweber pointed out that the debt issue “is a global phenomenon.”

“We have global indebtedness. It’s in Japan, Europe, and in the U.S.,” he said. “In the U.S., you have the advantage of having the world reserve currency. And so as the currency issuer, technically, you can’t default. You can just print more, but you see it already in the value of the dollar. I’m in New York currently, and over time, I’ve noticed that things are getting more expensive. The coffee is more expensive, but the coffee didn’t get better. It’s the same coffee, so the difference is a reflection of the declining value of the currency.”

He noted that the U.S. has a debt-to-GDP ratio of 130%, which is the level that Italy had when the European debt crisis occurred.

“Now, Italy is much higher, and nobody cares about Greece anymore, so the debt issue is a global phenomenon, it’s just a relative approach,” he said. “So people still feel safe with the dollar, but I think that’s also one reason why Bitcoin is creeping higher.”

He highlighted that Bitcoin has seen a big increase since the Silicon Valley Bank crisis earlier in 2023, and said, “People are scared of this, and to be honest, nobody can tell you where the tipping point is.”

“Japan has 250% debt to GDP and the interest rate is still below 1%. They do yield curve control, but you see that their currency is devaluing a lot against the dollar,” he said. “It’s like the Ernest Hemingway quote, ‘How did you go bankrupt? Gradually, then suddenly.’ It’s a hockey stick. Nothing happens, and then suddenly, you reach the tipping point. You have a trigger event, whatever that is.”

He said it’s hard to know what that trigger event is, “but that is the reason why you should have some gold, and you should have some crypto. They are bearer assets. I love both analog and digital gold.”

When asked about a price outlook for Bitcoin during the current bull market cycle, Leinweber said he wasn’t sure what price BTC would reach and instead preferred to comment on the total market cap.

“So the last peak was three trillion,” he said. “I can imagine that we see a $10 trillion total market cap in the next cycle.”

When informed that several analysts, including Bloomberg Intelligence’s Jamie Coutts, have also given a projection of $8 – 10 trillion for the total market cap, Leinweber chuckled and said, “Forget that number, it’s already consensus, so it will be different.”

“It really depends on the success of the ETFs and the further macro backdrop,” he said. “ I think in terms of liquidity – assume that the Fed is lowering rates and doing QE again. Who buys the U.S. debt? China doesn’t buy it anymore. The Russians don’t buy it anymore. The Japanese don’t buy it anymore. Europe is issuing more debt. Everybody is issuing more debt.”

“So the central banks have to step in,” he concluded. “And here we are. More liquidity, which is good for stocks and good for crypto. It’s beneficial to have access to the highest beta asset, which is crypto.”