Do we call it a comeback? Cryptocurrencies enjoyed a renaissance in the third quarter. Bitcoin soared more than 40%, while Ethereum surged more than 70%. The rebound for digital assets may have only just begun.
Even after their stellar summer performance, the prices of both Bitcoin and Ethereum remain lower for the year. Citigroup research strategist Alex Saunders doesn't expect that to last much longer. He raised his base case 12-month price targets at the end of September to $113,000 for Bitcoin, nearly 35% higher than its current level, and $3,028 for Ethereum, more than % above where it's now trading.
His rationale? The increased pace of Treasury bond buybacks in recent months could eventually lead to lower long-term interest rates and a weakening of the dollar, even though yields and the greenback have continued to march higher. Cryptos tend to be a beneficiary of the currency debasement trade.
Saunders also argues that the Securities and Exchange Commission's decision to step up with some favorable rules for cryptos in the wake of the Senate's failure to advance the crypto-friendly Clarity Act should give digital assets a further boost. "Durable legislation would likely offer greater policy clarity than agency-led rule-making, but the industry has taken the view to build now...and to create entrenchment that would be difficult to dismantle," he wrote.
Retail investors are also taking advantage of the crypto resurgence to buy crypto exchange-traded funds as well as stocks with exposure to the Bitcoin boom. According to data from CoinMarketCap Research, U.S. spot Bitcoin ETFs posted eight consecutive sessions of net inflows at the end of September. That has helped boost iShares Bitcoin Trust, Fidelity Wise Origin Bitcoin, Grayscale Ethereum Staking, and other funds.
Meanwhile, shares of top brokerage firm Coinbase Global are up 17% in the past three months, while Michael Saylor's Strategy has skyrocketed 65% since early July as the company has resumed purchases of Bitcoin in recent weeks.
The rally in Bitcoin and crypto stocks has coincided with a "risk on" rally that has lifted the Magnificent Seven, cybersecurity stocks, and other tech names in the past few months, noted Jeff Weniger, chief investment strategist at Corgi Invest. Coinbase is the largest holding in the firm's newly launched Corgi Crypto Infrastructure ETF. The fund also has positions in Robinhood Markets, Bitcoin miners BitMine Immersion Technologies and Hut 8, and stablecoin issuer Circle Internet Group.
"Bitcoin and other pieces of the crypto atmosphere turned on a dime over the summer and went vertical," Weniger said.
The risk, of course, is that the current ebullient mood for crypto could once again sour. But given that Bitcoin and stocks in the digital asset universe have rallied despite higher interest rates and a big legislative setback, it's hard to bet against that short-term momentum. The Bitcoin bulls have once again taken charge.