This is my final blog for 2024. It’s been a fascinating year for wholesale and retail investors as well as companies facing disruption from artificial intelligence, dealing with higher rates for longer and we’re starting to see some desperation deals like last week’s Honda/Nissan combination, and consolidation in many metal sectors as China’s dominance in certain input and output markets squeeze margins/viability out of those sectors.

But today, a quick note on the best returning asset over the past 5 years—Bitcoin. And the point I want to make about it is that while returns have been stellar, they are not as high as they could have been due to profit taking—and dilution. And the dilution I’m referring to is at the asset class level.

So, when considering all the price-positive catalysts for Bitcoin, be sure to keep the narrative-driven hunt for higher relative returns and asset class dilution, in mind.

Dilution in the crypto ecosystem

2024 has been a great year for Bitcoin, up 126% since the beginning of the year and boasting a 241% compound annual return (CAR) since the Bitcoin Winter low in November 2022.

It’s the dominant investable digital asset—still, it hasn't been the blinding year many commentators were predicting.

Amongst its many attractive features as a deflationary asset with finite supply and halving cycles, Bitcoin doesn’t exist in isolation. Rather, it swims in a vast sea of cryptocurrencies—some functional, but many purely narrative-driven—diluting attention and investment.

Bitcoin's deflationary narrative is compelling, but the broader crypto market operates like a portfolio of alternatives (altcoins), meaning investors seeking higher returns or more dynamic growth are often drawn to altcoins with distinct use cases, favoured manifesto-driven missions, or niche utility, that live further out on the risk curve.

And while Bitcoin is the digital reserve currency—the hundreds of billions that flowed into other digital assets this year diluted Bitcoin’s upside. Granted, this isn’t a "one-company-with-shares" scenario where a company dilutes its value by issuing new shares at a pace that outstrips its earnings growth, but the effect is similar. Altcoins continue to attract their share of interest.

This is particularly important to understand in a speculative, highly portable space where capital moves at the speed of light from fiat to stablecoin to project token, to staking pool and so on it goes—purely to chase potential gains—because relatively speaking, returns in that universe are higher than anywhere else.

Bitcoin’s growth in 2024, while strong, predominantly reflects a reallocation of capital rather than a singular bull run—explaining why this year’s gains might feel underwhelming relative to expectations. Still, judging by the relevant discords I’m in, I don’t hear too many hodlers complaining 🏆

Bitcoin’s macro headwinds and liquidity tailwinds

But to be fair, it’s not just dilution from other coins and digital assets. Despite Bitcoin’s recent halving, strong institutional inflows, MSTR/ETF adoption rates, and the Don’s passion for it—all price positive—the broader monetary policy backdrop remains a factor that has created a resistance level at the US$100k price level. Bitcoin and altcoin investors all ask—wen liquidity?

It’s not clear. Higher for longer Fed policies (assuming Chair Powell stays/survives) and restrained global M2 money supply limit speculative capital that might otherwise flood into Bitcoin and other risk assets. And while the Don is supportive of crypto and web3.0 and is even championing a U.S. strategic Bitcoin reserve—he’s also signalled a winding back of fiscal largesse—which is causing some to ponder whether money printing spawned liquidity to pay for sovereign debts and deficits is further out. And those federal debts and deficits (and interest thereon) are climbing.

Since the federal debt ceiling was suspended at $31.4 trillion pending agreement on a new ceiling, federal debt has risen to over $36 trillion and if you add 4 more years of deficits you can imagine what the federal government debt stack might look like at the end of Trump 2.0—unless the DOGE can do what Javier Milei has done for Argentina, and unless tariffs somehow prove everyone wrong.

Profits can be nice to take

Profit taking at these levels should also not be underestimated as a factor limiting Bitcoin price ascendance—particularly since Bitcoin price has grown by 241% per annum from its US$16.3k Bitcoin Winter low in November 2022. They are hard returns to ignore.

Still, Bitcoin’s price dynamics expose an overlooked narrative, and that is that even a leading asset must compete within its category. Crypto's fragmented market means investors continuously weigh Bitcoin's historical dominance against the appeal of newer, faster-growing options. It’s a simple case of drawing the incentive dot to the financial outcome dot.

And while we are likely to see more Bitcoin gains next year as some of the above factors moderate and with the return of king liquidity (or not) being the wildcard—its asset class dominance might fall as altcoins further out on the risk curve shoot for the stars.

Takeaway

Bitcoin’s recent price performance should be viewed through two lenses: its own drivers/milestones that has propelled it to US$100k; and its place in a competitive, rapidly evolving and highly portable asset class that investors can transact at the speed of light as they move further out the risk curve, chasing outsized gains.

Profit taking at these levels should also not be underestimated, following stellar cyclical returns thus far. But I expect many decentralisation purists to buy the dip as the community gears up for what many believe will be much bigger gains next year.

While Bitcoin is indeed a "proper asset," and today recognised as such by almost every global investment industry gatekeeper and some governments—its future growth will be measured not just by its own metrics, but relative to the speculative and functional alternatives vying for investor attention in the crypto/digital assets ecosystem, and on Nasdaq.

Catch you next year!

#Readymikeone

Bitcoin's 241% CAR foiled by ecosystem dilution and profit taking

Dilution in the crypto ecosystem

Bitcoin’s macro headwinds and liquidity tailwinds

Profits can be nice to take

Takeaway