Original Article Title: Entering the Digital Golden Era
Original Author: Alex Thorn, Research Director
Original Translation: zhouzhou, BlockBeats

Editor's Note: Bitcoin's price has reached a new high, driven by ETF inflows, a cyclical upward trend, and modest retracement support. The presence of short gamma positions in the options market may increase volatility, but at present, volatility is limited, and the market has not overheated. Changes in global M2 money supply may also affect Bitcoin, especially against the backdrop of enhanced hedging properties. If the Trump administration takes office, regulatory easing will drive increased investment from traditional financial institutions, accelerating the maturation of crypto assets. Bitcoin may hit new highs in the next 12-18 months.

The following is the original content (slightly reorganized for readability):

The digital asset industry is on the cusp of a golden age. The U.S. cryptocurrency industry may see a new regulatory paradigm, with growing support from both houses of Congress and the White House.

The industry has demonstrated its political strength, sending a strong warning to hostile forces, which will have a profound impact on the entire political landscape. The strong headwinds that have hindered industry growth over the past four years have gradually weakened, reducing the legal costs. Now, the crypto industry operates against the wind in the world's largest capital market.

About Tuesday Night

President-elect Donald Trump made history—becoming the second president to win the presidency non-consecutively twice, with Grover Cleveland being the only former president to achieve this feat by defeating Benjamin Harrison in 1892 for a second term. At that time, the Democratic anti-tariff, gold standard supporter regained power; today, the Republican tariff supporter and Bitcoin advocate won a non-consecutive second term in 2024, with history often repeating itself.

Trump's victory also holds significance in modern times, as his electoral college vote count will exceed 310, a rise from 306 in 2016. Additionally, Trump becomes the first Republican to win the national popular vote majority since Bush in 2004.

He not only regained the "blue wall" states of Pennsylvania, Michigan, and Wisconsin but may even win the Nevada state won by Hillary in 2016. In Florida, Trump's vote share is as high as 13%, largely due to demographic shifts in the state over recent election cycles.

The following is a heatmap created by Bloomberg, showing the voting results of over 95% of each county and comparing the support rate changes for the two-party presidential candidates in 2020 and 2024, with a significant increase in the red areas.

Source: Bloomberg

The Senate has shifted to Republican control, with the Republicans expected to hold 54 seats. The outcome in the House may take longer to clarify, but the Republicans have a slight advantage and are likely to retain control of the House.

Some other key points of the election:

· Cryptocurrency has demonstrated its political influence: In addition to actively pushing for then-President Trump's commitment to support the cryptocurrency agenda, the industry also gained widespread support in both the House and the Senate. The most notable victory came from Bernie Moreno (Republican) in Ohio, defeating incumbent Senate Banking Committee Chair Sherrod Brown (Democrat). The Cryptocurrency Political Action Committee invested tens of millions of dollars in defeating Brown's campaign, sending a strong signal to the political sphere that opposing cryptocurrency is a politically losing position.

· Trump enters his second presidential term: Presidents in their second term often tackle more complex and challenging issues, aiming to create their political legacy. Trump's victory margin is also larger than in 2016, and he has garnered support from perhaps the most diverse Republican voter coalition in decades. This enhances the possibility of pushing for significant reforms, possibly including a major modernization of the financial system.

Trump's team is very supportive of the digital asset industry: Trump's core team is strongly in support of digital assets, with many in the team having publicly disclosed holdings in Bitcoin. Vice President-elect J.D. Vance revealed his Bitcoin holdings, Vivek Ramaswamy publicly supported the industry during the campaign cycle, and RFK Jr. has been a long-time supporter of Bitcoin, providing thoughtful support to the industry for at least two years.

Transition Team Co-Chair Howard Lutnick has stated that he and other Cantor Fitzgerald executives hold a significant amount of Bitcoin (and Cantor Bank provides banking services for Tether), and Trump himself has issued NFTs and launched his own decentralized finance protocol, World Liberty Financial. The support from the team, family, and donors for cryptocurrency increases the likelihood of Trump fulfilling his campaign promises to the industry.

Washington Policy Outlook

Let's take a look at the potential developments in crypto policy:

Banking Regulators: Trump will immediately appoint new acting heads of the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). These agencies have regulatory authority over banks and thrifts, and it is possible that within days, banking regulators will issue guidance clarifying the prohibition of discriminatory targeting against specific industries (i.e., "Operation Choke Point 2.0"), where they may rescind existing unfavorable industry interpretations or letters, such as the joint letter dated January 3, 2023.

In the coming weeks or months, the OCC may issue guidance allowing banks to custody digital assets, engage in their use, operation, and interact with public blockchains and stablecoins. (Recall that Brian Brooks, the former acting head of the OCC under Trump, issued similar interpretive letters in 2020.)

Market Regulators: Trump will elevate a sitting commissioner from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to acting chair. While Trump pledged to "fire Gary Gensler," most constitutional scholars believe a president cannot dismiss a confirmed independent agency commissioner.

However, the president can immediately designate a sitting commissioner as acting chair. Following such personnel changes, some cryptocurrency enforcement actions may be paused, certain litigations will be stayed or withdrawn, specific projects may receive no-action letters, and the industry and regulators will have the opportunity to discuss a reasonable path forward.

Comprehensive rulemaking will take longer, but the crypto industry is poised to rapidly receive exemptive relief, primarily relaxing the SEC's definitions of "securities" and "exchanges." The CFTC's stance is similar, but without market structure legislation providing explicit jurisdictional clarity between the SEC and CFTC, the chairs of the two market regulators must closely coordinate to develop progressive policies.

Congressional Legislation: The most significant crypto policy agenda in Congress includes market structure (defining the regulatory status of digital assets and supervisory agencies) and stablecoins (legalization and licensing of stablecoin issuance). In May of this year, the "Financial Innovation Act of 2021" passed the House with bipartisan majorities, serving as the foundational framework for future market structure legislation. Currently, Democrats and Republicans have minor disagreements on stablecoin legislation, primarily focusing on

1. Whether only national banks can issue or if states can also have pathways.

2. Which institution(s) will assume regulatory oversight responsibilities for issuers.

It is worth noting that if the Republicans control the House, these bills are unlikely to move quickly in 2025. A unified Republican Congress may prioritize tax reform, trade, and other issues in the first 100 days before 2025 through budget and reconciliation processes.

This does not mean that crypto legislation is impossible to advance in the next Congress, but in a divided Congress, its priority is expected to be relatively lower—requiring close coordination between Congress and regulatory agencies on crypto policy. Our baseline expectation is that crypto legislation will be deferred until the latter part of the 119th Congress, at which point Cabinet officials and independent regulators can establish a firmer footing before collaborating with Congress.

Energy Policy: President Trump's term, especially if the Republican Party controls both houses of Congress, will be very favorable for domestic energy and power production. This is good news for Bitcoin miners, data centers, and any company or energy producer with significant power resources.

Impact on Market Participants

The easing of regulatory headwinds, specific interpretive letters, lack of enforcement actions or regulatory guidance, could significantly increase U.S. institutional investors' access to cryptocurrency.

In September, the SEC easing the terms applicable to SAB 121, or outright rescinding the guidance, will pave the way for the world's largest custodian banks to enter the crypto market. The Bank of New York Mellon received an exemption because its primary prudential regulator (NYDFS) did not object to its request for exemption, but the OCC is the primary prudential regulator for national banks like Citi and JPMorgan. Given the OCC's likely significant pivot on how banks can directly interact with crypto, these large banks will also gradually gain deeper participation opportunities.

Further institutionalization will provide more financing options for crypto assets, making spot cryptocurrency more easily accessible through existing institutional trading platforms and relationships, while overall enhancing the maturity of the institutional crypto market.

Relaxing SEC standards on the application of the Howey test, or allowing more "crypto asset securities" to be traded within broker-dealers/exchanges, will allow more companies to enter the trading arena, including potential traditional financial institutions such as banks, exchanges, or broker-dealers. Additionally, a relaxation by the SEC on the Howey standard could lead to more spot-based cryptocurrency ETFs being listed in the U.S.

A clear stance and lenient policies from regulatory agencies will allow traditional financial services companies and investors to operate on-chain for the first time, bringing new revenue and other strategic opportunities.

Expanding access to public blockchains may also revolutionize transaction efficiency, transparency, issuance, and other aspects of finance. Depending on regulatory stance and any legislation enacted, the convergence of traditional finance and decentralized finance may become a reality.

Likewise, depending on the SEC's stance on the Howey test and token disclosure requirements, we may see the emergence of new types of tokens, and there may even be equity security tokens, with existing tokens possibly adding more equity-like features to enhance their value proposition.

An expanded and improved asset ecosystem will support the liquidity crypto hedge fund industry. The maturation and expansion of investment targets will provide greater investment opportunities for this industry. Enhanced token disclosure and issuance capabilities will challenge or even disrupt the existing "SAFT to low liquidity, high FDV" model, making VC capital no longer superior to liquidity assets.

In the venture capital sector, the crypto company IPO market may see a more meaningful opening, ultimately providing an exit path for investment returns. Currently, apart from a few SPACs, the only publicly traded crypto startup is Coinbase. We estimate that if conditions are right and regulators are open, the U.S. could see dozens of crypto companies looking to go public.

Bitcoin Market Analysis

On Monday, November 4, Bitcoin dropped to a low of $66,700, but has since risen by 15%, hitting a new all-time high. On November 5, as the probability of a Trump victory increased, Bitcoin quickly surged to a new historic peak and hovered in the $75,000-76,000 range.

Despite significant market volatility—a 15% increase since Monday and a 26% increase since October 1—fundamentally, the market has not shown signs of overheating. As Bitcoin surged on election news, the "Coinbase Premium" significantly rebounded on Tuesday evening, turning positive for the first time in at least a month.

Bitcoin ETFs have performed strongly, with November 7 (Thursday) seeing the largest net inflow in history, attracting up to $1.375 billion in funds, driving Bitcoin to new highs. This data broke the previous record of $1 billion in net inflows set on March 12, 2024.

Bitcoin Cycles

Looking back at history, Bitcoin's current trend closely resembles the basic structure of the past two bull markets. From the previous cycle lows (2011: $2, 2015: $152, 2018: $3,122, 2022: $15,460), Bitcoin's trajectory aligns with the 2017 bull market and slightly lags behind the pace of the 2021 bull market.

Looking back at historical bull market pullbacks, the 2024 retracement was milder compared to the pullbacks in the 2021 and 2017 bull markets.

Futures and Funding Rate

Despite an increase in open interest for cryptocurrency exchange futures contracts, reaching a new yearly high, the funding rate has remained relatively stable, indicating that this volatility is primarily being driven by the spot market.

Source: Velo.xyz

Bitcoin Options Market

Bitcoin options traders hold a net short gamma position between $54,000 and $84,000, which will amplify any price swings. In simple terms, when traders hold a short gamma position, they typically hedge by buying spot when the price rises or selling spot when the price falls.

This effect can accelerate price movements and increase market volatility. Conversely, when traders hold a net long gamma position, they act oppositely: selling on price increases and buying on price decreases, thereby dampening volatility.

Our analysis indicates that the current peak of short gamma is at $70,000, so as the price of Bitcoin rises, this impact is diminishing. It is worth noting that many investors holding call options at the current high strike prices are already in a profitable position, so they may choose to roll their positions up to higher strike prices, pushing the short gamma position to higher strike price ranges.

The following chart illustrates our view on net trader gamma positions for all Bitcoin options expiration dates from November 7, 2023, to September 26, 2025.

Bitcoin Fundamentals

The Realized HODL Ratio is an indicator that measures the ratio between the 1-week and 1-2-year realized market cap HODL bands (i.e., the realized value of Bitcoin that has changed hands during these periods).

A higher ratio usually indicates an overheated market, with the peak often coinciding with the market top. The sideways movement of RHODL in 2024 more closely resembles the sideways phase of 2019-2020, rather than any market top activity, indicating that Bitcoin still has upward potential in the near and medium term.

The MVRV Z-Score is the ratio of market value to realized value, as well as the standard deviation of market value, used to help identify the discrepancy between asset trading value and overall cost basis. Historically, this indicator has been very effective in identifying market tops. The current value suggests that Bitcoin's price has not yet approached overheated or top territory.

Bitcoin and Global M2

Bitcoin has historically responded to changes in global money supply. While this correlation is not unique to Bitcoin, it is still worth noting, especially if Bitcoin starts to be used more as a hedge asset, as mentioned by Larry Fink.

Outlook

The arrival of the Trump administration, along with a strong Republican Senate able to confirm its government department appointments, could bring favorable news of regulatory easing to the U.S. cryptocurrency industry. We expect that some form of exemption relief will be introduced soon, while a more robust supportive regulatory framework will take more time to materialize.

An eased regulatory enforcement environment, coupled with progressive policy thinking, will pave the way for traditional financial services companies and institutional investors to more deeply engage with this asset class. This will challenge the barriers of existing crypto infrastructure participants but will also broadly support the expansion and maturation of this asset class. In this environment, we expect Bitcoin and other digital assets to trade at levels far above the current all-time highs over the next 12 to 18 months.

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