Cryptocurrencies, particularly Bitcoin, were anticipated to gain mainstream acceptance this year. However, the reality has been markedly different, with Bitcoin experiencing a staggering decline of over 30% since October, leading to significant losses for investors who had heavily invested in crypto exchange-traded funds (ETFs) just months earlier. The driving factors behind this steep selloff are under scrutiny, and experts are assessing whether the long-term bullish outlook for cryptocurrencies remains viable.
In a recent discussion, Matthew Sigel, the head of digital assets research at VanEck, provided insights into the catalysts behind the current “crypto mini winter.” Sigel, who previously served as a renowned strategist at CLSA, pointed to the unprecedented selling activity that marked the largest liquidation event in crypto history. Factors contributing to this downturn included a flash crash on October 10, which saw Bitcoin plummeting by 14% as a result of a code error at Binance. This event was compounded by external factors, such as a recommendation from MSCI regarding the removal of certain strategies from passive indices, and a tweet by Donald Trump hinting at tariffs on China, which, while not fundamentally related to crypto markets, exacerbated market instability.
The aftermath of this liquidity crisis has also highlighted the complex interplay between Bitcoin and emerging technologies such as artificial intelligence. Sigel noted that many Bitcoin miners, who had used their holdings as collateral for leverage, were forced to sell off more Bitcoin to prevent deeper losses, thereby perpetuating a cycle of selling pressure.
Looking towards the longer-term horizon, Bitcoin’s historical pattern suggests a four-year cycle, which could indicate a down year ahead—though past performance is not always indicative of future results. Given the substantial volatility Bitcoin has displayed since its inception, with previous drawdowns reaching as high as 78%, the current mixed outlook necessitates careful observation of market conditions.
Sigel emphasized three main lenses through which to evaluate Bitcoin’s trajectory. The first considers global liquidity and the correlation Bitcoin has with various risk assets, which remains significantly elevated. The second focuses on leverage within the crypto market, a critical predictor of future returns. Currently, institutional involvement through options and futures has introduced new dynamics into the crypto landscape. Finally, he discussed on-chain activity, which reveals a decline in transactional engagement compared to previous years.
Despite experiencing significant price fluctuations, adoption rates for Bitcoin are on the rise. Institutions such as Vanguard and major banks like Citi and Bank of America have made strides in integrating Bitcoin ETFs into their offerings, while numerous sovereign wealth funds and university endowments have also recognized Bitcoin’s potential value.
Sigel believes Bitcoin is gaining traction as a digital asset in emerging markets, with younger demographics increasingly viewing it as a form of “digital gold.” He pointed out that only about 10% of the global population currently owns Bitcoin, underscoring the opportunity for growth in adoption. He notes that many individuals in regions with high inflation or unstable banking infrastructures see Bitcoin as a basic means of preserving purchasing power.
For retail and institutional investors alike, Sigel suggests a cautious but proactive approach to investing in digital assets, recommending an allocation of 1% to 3%, primarily in Bitcoin, for a diversified portfolio.
VanEck’s OnChain Economy ETF NODE sets itself apart from traditional crypto funds by encompassing a wider scope of companies involved with Bitcoin and blockchain technologies, rather than focusing solely on high-volatility pure-play strategies. Sigel highlighted that some companies in this fund have successfully adapted their operations—even pivoting toward AI—enabling them to derive additional value in the evolving market landscape.
Regarding his long-term outlook for Bitcoin, Sigel has set ambitious price targets, suggesting that by 2030 Bitcoin could achieve a valuation between $500,000 to $600,000 per coin—approximately half the market value of gold—if Bitcoin captures a modest 2% of central bank reserves and 5-10% of global trade flows in its currency-denominated transactions.
As the digital currency landscape continues to evolve, the interplay of market dynamics, regulatory environments, and technological advancements will undoubtedly shape the future of Bitcoin and cryptocurrencies as a whole.
