4 Min readArticle14 Jan 2025
Growing Adoption is Taking Bitcoin to New Heights
At a Glance
Bitcoin's adoption is surging, helped by market participants’ growing interest in holding the world's top digital currency, be it as a store of value, strategic investment or dollar hedge.
"I believe bitcoin will be around in 10, 20, 30 years from now," said Jim Iuorio, managing director of TJM Institutional Services, adding that growing adoption for the decentralized currency – including from top financial institutions such as Blackrock, Fidelity or Vanguard – has turned him into a bitcoin bull. He expects the asset to become further entrenched in society, its price potentially gaining as a result.
Bitcoin has gradually boosted its lead against Ethereum, as well as other altcoins. It now accounts for 54% of the $3.7 trillion global cryptocurrency market, up from 38% in late 2022, according to Iuorio. The veteran trader spoke during a recent CME Group webinar, joining a panel that also featured Giovanni Vicioso, global head of Cryptocurrency products at CME Group.
Potential Tailwinds
Asked about the next catalysts for bitcoin, Iuorio said the Fed's interest rate cuts could provide a long-term boost for the coin as lower funding costs typically support more “risk-on” assets.
"You have to assume that bitcoin will have a sensitivity to interest rates. If we think rates are going lower, that could be a tailwind for bitcoin," Iuorio said, though he noted bitcoin's notorious volatility hasn't always meant it behaves as expected.
Investors must look beyond interest rates, however.
"To gauge how rates might affect bitcoin, we need to consider other factors like the business cycle, inflation and overall market sentiment," said Michael Lie, Global Head of Digital Assets at Flow Traders. "Right now, U.S. rates are trending down, the U.S. economy is holding strong, and risk appetite is generally elevated. This combination could continue to push the bitcoin market higher in the short-to-medium term."
America's growing debt problem is also seen lifting bitcoin's growing status as a dollar hedge.
"The market is concerned about interest payments on our national debt and the potential of some debt spiral in the distant future," Iuorio noted. "Interest on debt will be $1.4 trillion [in 2025]. It's a line item on the federal budget, above defense and above all healthcare spending. That's making some people question if they are 100% confident in our fiat currency or global fiats, and if it's a good idea to consider different currency hedges. Bitcoin can be one of them."
Granular Exposure
As investors assess what's next for bitcoin, CME Group Bitcoin Friday futures (BFF) are providing clients with more granular exposure to the price of bitcoin. Since their launch in September, the weekly derivative expiring every Friday has seen more than 500,000 contracts traded. BFF is also 1/50 (or 0.02) the size of the Bitcoin (BTC) futures contract, making it more accessible to a larger audience.
BFF's weekly expiry makes it unique in the market, said Lie.
"The short expiry results in smaller differences between spot and futures prices due to a lower exposure to interest-rate fluctuations," he said. "BFFs also have the potential to help with more efficient delta-hedging given that they expire on the same BRRNY (CME Group's CF Bitcoin Reference Rate - New York variant) used by multiple US BTC ETFs. This allows for an efficient offsetting between ETFs and BFFs."
Conversely, traditional futures are fixed on the BRR (CME CF Bitcoin Reference Rate calculated at 4PM London time), which can require a US BTC ETF market maker to hedge twice to bridge gaps between the two prints, he noted.
BFF also provides traders with a new time frame with which to conduct Basis Trades at Index Close (BTIC), which allows participants to trade the 'spread' or difference between the CF Bitcoin Reference Rate (or CME Group price benchmark) and an underlying futures contract. This provides price discovery and transparency on different spreads.
"When you look at the futures market, you have to be able to take care of short-term spikes in funding [costs]," said Jason Urban, Global Head of Trading at Galaxy Digital. “Futures are a great bellwether for understanding the cost of margined dollars so more ways to manifest that through different durations, be it once a month or weekly every Friday [such as with BFFs], or on a daily basis, is key."
U.S. Bitcoin Reserve?
Donald Trump's incoming presidency could also provide a boon for the asset, which breached the 108K mark in December.
"Expectations of a [crypto friendly] regime shift, not just in the U.S. but globally, given America's influence on global financial markets" could prop up bitcoin, added Lie. "This shift could lead to increased institutional capital flows and allocations into bitcoin, and potentially other cryptocurrencies."
The possibility that the U.S. may implement a strategic reserve of one million bitcoins is another potential tailwind, according to Lie. Trump has said the allocation would become a "permanent national asset to benefit all Americans," helping pay the $36 trillion national debt. Top supporter, Republican Senator Cynthia Lummis, has proposed the fledgling administration purchase an additional 1 million BTC, roughly 5% of bitcoin’s total supply, and hold it for at least 20 years.
Urban also believes the proposed plan could help support bitcoin. He added other countries could follow on the U.S.'s heels, providing an additional tailwind. "Whether it becomes a reserve or just part of a holding [strategy], there will be different gradients of what this looks like," he said. "You can go full-on like El Salvador and have bitcoin underpin your main currency. You can decide to sell the bitcoin you have confiscated or hold it like you do gold. Others may let people pay their taxes with bitcoin."
"We have seen other countries move to the forefront of innovation with bitcoin while the U.S. has been a laggard,” he added. “Those places, whether France, Hong Kong or Singapore, have enjoyed the benefits of that strategy. They may continue to enforce their pivots [embracing bitcoin's usage] or establish their own reserves. I see that as a reasonable step."
Ultimately, the potential for added regulation around crypto products like bitcoin could end up having the most impact.
"It's not so much about Trump buying it or making it a reserve currency," Urban said. "If we finally have a clear regulatory framework, that could encourage banks, financial institutions and trading houses to step into the asset class. And the tech innovators and pioneers could continue to build and grow much more than before."
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