Summary Bitcoin is expected to rise regardless of the US election outcome due to its perception as "digital gold" and anti-fiat currency. On-chain data shows declining transaction fees and active addresses but increasing demand from ETFs supporting higher BTC prices. BITO offers Bitcoin exposure without centralized custody risks, but it underperforms spot ETFs due to its expense ratio and option rolling strategy. Bitcoin's strong narrative and historical performance in November suggest the potential for significant price appreciation, despite inherent risks in the mining model. Back in July, I wrote about the ProShares Bitcoin Strategy ETF ( BITO ) for Seeking Alpha, with the primary angle being the role of Bitcoin ( BTC-USD ) in the 2024 general election in the United States. At that time, I pointed out how the Biden Administration's regulatory agencies had seemingly pivoted on what had previously been staunch anti-crypto actions. I also wrote that there was even a chance Democratic candidate for president and current VP Kamala Harris would speak at the Bitcoin conference in Nashville, Tennessee. The latter of which did not happen despite former president and Republican candidate Donald Trump speaking at the event. More than three months later, election day in the United States has come. Regardless of who is ultimately inaugurated in January, Bitcoin's trajectory will likely continue higher due to the belief that it is "digital gold" or anti-fiat currency. Neither Harris nor Trump are likely to address concerns about the US budget deficit. Thus, It is widely expected by many in the digital asset industry that Bitcoin will rise with or without a friendly US government. In this update, we'll look at some of the recent signals from on-chain data as well as lay out whether or not BITO is the right way to play a potential Bitcoin ride to a six-figure coin price in this cycle. On-Chain Data Over the last three months, Bitcoin's $59.4 million in transaction fees was the weakest quarter for network fees since Q1-22. In the chart below, fee revenue is orange and revenue from new supply is white: Bitcoin Quarterly Miner Revenue (Token Terminal) As I've covered in the past, this is not necessarily a good thing for the mining sector long term because coin issuance is hard capped at 21 million. At some point, miners are going to need fees to become a larger share of their revenue if they're going to be sustainable businesses. For fees to become a larger share of miner revenue, the network has to actually be used for transaction validation: Bitcoin Monthly Active Addresses (Token Terminal) If we look at the quarterly average for monthly active addresses on the network, we see 10.1 million MAAs in Q3. This means not only have average monthly active addresses declined for four consecutive quarters, but Q3 average MAAs hit the lowest level since the second quarter of 2018 . It's not all doom and gloom, though: Bitcoin total holders (Token Terminal) BTC holders hit 69.1 million in Q3-24. This is more than double the 26.9 million holders during that same Q2-18 referenced above. Bitcoin's on-chain holder adoption does appear to be slowing, however. Compared with the 64.8 million token holders in Q4-23, Bitcoin holders are up just 7% in 2024 despite making a new all-time high earlier this year and sniffing another one in October. Raw holder balance may not necessarily be the best way to get a read on medium-term price signals. For that, we can look to the "HODLers," or addresses that have dormant BTC. Bitcoin HODLer Balance (IntoTheBlock) HODLer balance as measured by IntoTheBlock is 12.7 million BTC. This would be down from the 13.8 million BTC at the end of January but well ahead of the lows from the last price cycle peak. HODLers generally sell into BTC price strength and re-acquire supply when the price has already peaked. Thus, I actually think it's a good sign that supply is leaving HODLers if it can lead to an increase in fees paid to miners. But all of this is essentially setting up for higher BTC prices regardless of whether or not coins are moving on the chain and generating fees for miners. And the reason for that is simply one of supply. Bitcoin Annual Inflation (IntoTheBlock) Bitcoin's annual inflation rate is down to 1.3%. Since the launch of the network, the rate of inflation has always declined due to the hard supply cap of the currency. Thus, lower supply coupled with increased demand for that supply from products like ETFs helps to mitigate the lack of network transaction fees for miners through revenue from coin price appreciation. And we're certainly seeing that ETF demand story manifest: BTC Supply (BitcoinTreasuries) As of article submission, ETFs and other centrally managed investment products have control over nearly 6% of BTC supply. And if we include MicroStrategy ( MSTR ) in that category, it's almost 7% of supply. If we add holdings from governments and private companies, the share of supply held by centralized entities is 12.5%. Technicals and Seasonality Purely from a technical perspective, Bitcoin has broken out of a 7-month-long consolidation that has seen the coin generally trading in a range where low-to-mid $50k prices are buys and mid-to-high $60k prices are sells. Bitcoin Weekly Chart (TrendSpider) At the end of October, BTC broke out of this range and is now in the process of back-testing the breakout. In the weekly chart above, I'm showing the range with 8-week and 20-week moving averages. These are the Bitcoin MAs that I've generally liked looking at for several years. Currently, we see the 8-week ahead of the 20-week and the coin price is ahead of both of them for an eighth consecutive week. Notably, the 8-week is headed higher. In my view, any short-term pullback down to this MA is likely a market weak-hand shakeout and a buy. The seasonality for BTC is still terrific: Bitcoin Monthly Seasonality (TrendSpider) In the last 11 years, November has been one of the better months of the year for BTC price appreciation with a 6.2% mean change and a positive return coming 55% of the time even when counting the early negative returns of November 2024. However, during the years when Bitcoin is in a sustained uptrend, November has historically been an explosive month. November produced a 53% return in 2017 and a 43% return in 2020. Bitcoin Strategy ETF Data by YCharts If we're judging Bitcoin investment products purely on total return, BITO is not necessarily the best option compared to the spot ETF products that were approved earlier this year. Even when including the dividend payments from the fund, BITO's total return since the approval of the iShares Bitcoin Trust ( IBIT ) has been 600 bps behind both IBIT and the coin itself. For traders who pop in and out of BITO, this is probably not a big deal as the underperformance may not be felt over a shorter period of time. However, for longer-term holders, the fund's 0.95% expense ratio and option rolling strategy will eat into long-term returns. That said, there is a compelling case to long BITO if one is a strong enough proponent of self-custody principles but still wants Bitcoin exposure in a traditional IRA account. For instance, an investor could buy BITO for the Bitcoin price appreciation exposure without pushing BTC supply into the hands of centralized custodians like Coinbase ( COIN ). This is likely not a big enough reason for most Bitcoiners to avoid the spot ETFs, but there are perhaps some who would view BITO as a better alternative to the spot funds because of the centralized supply risk. Thesis Risks Relying purely on technical analysis and/or historical performance is not a viable way to invest. TA and historical data can certainly be useful when making an assessment about market sentiment, but they're not the sole reason one should buy shares of any equity, ETF, or digital asset. Just because the price of BTC has performed very well in past Novembers, it does not mean the same will happen again. From a fundamental standpoint, I've been of the view that Bitcoin has flaws. Unlike other anti-fiat assets like precious metals, Bitcoin requires a network of machines to continue transaction validation for the ledger to continue. For instance, Gold that has been mined already doesn't need mining to continue for the above-ground metal to be useful. For Bitcoin, the sustainability of the mining model is very much unproven and that's a risk to both coin price and the network itself. That being said, Bitcoin has a strong following and a strong narrative powering it forward. Summary As global liquidity goes higher, so too do financial products and inflation hedge assets. There's certainly a dollar story at play here as well. But I think the more compelling angle for Bitcoiners and cryptocurrency advocates generally speaking is the fact that these digital assets are designed to live outside the rails of the traditional financial system. Yet, it is the capital in that very system that has been a large driver of digital asset prices. We could absolutely debate whether this is a good thing for Bitcoin longer term but arguing philosophy isn't necessarily going to result in capital gains. For those who wish to get Bitcoin-like price returns in a tax-advantaged account without pulling BTC supply into centrally managed institutions, BITO offers a compelling opportunity. That said, BITO isn't the same thing as buying BTC directly and holding it in self-custody. The latter of which is still the best way to buy BTC if one values the utility of the asset. Ultimately, in an environment where fiat currency debasement is standard operating procedure, savers either need interest on deposits that beat inflation or alternative instruments. I don't expect everyone to look to Bitcoin over more proven inflation-hedge assets, but there is little doubt in my mind that many already have and will continue to do so. I'm not fading the 'breakout shakeout' currently happening in BTC. BITO is a buy.
