Written by: Jeffery Ding, Chief Analyst at HashKey Group

If the use of Bitcoin during the 2013 Cyprus financial crisis was the first time cryptocurrencies made their way onto the world stage, then in today’s intensifying geopolitical crises, cryptocurrencies have firmly taken center stage. Nearly twenty years after Satoshi Nakamoto published the Bitcoin whitepaper, cryptocurrency has grown into a vast world that differs from traditional finance but is still tied to macroeconomics. Currently, the total market value of cryptocurrencies stands at $2.4 trillion. If considered a company, it would rank as the fourth largest in the world, surpassing giants like Google and Meta.

After four weeks of sideways trading and decline, Bitcoin and Ethereum prices have finally seen an upward swing. Has the bull market already returned? What key events this year might trigger a bull market surge? This article will analyze three key macroeconomic factors that the market is most concerned about: Ethereum spot ETFs, Federal Reserve interest rate cuts, and the U.S. presidential election.

Is an Ethereum ETF Approval Imminent?

The impact of Bitcoin ETFs is undeniable. The SEC’s approval of a Bitcoin spot ETF was ten years in the making, and when it finally passed last year, it brought in $8.6 billion in just 40 days. This also lifted Bitcoin prices from $40,000 at the start of 2024 to $70,000 shortly thereafter.

As for an Ethereum spot ETF, the expectations surrounding its approval have already impacted the market this week. After reports that the SEC was urging the progress of the 19b-4 filing for Ethereum ETFs, and might make a 180-degree shift in its stance, with approval as early as Wednesday, Ethereum’s price surged more than 20% within eight hours, temporarily exceeding $3,700. Bloomberg senior analyst Eric Balchunas has since raised the probability of Ethereum spot ETF approval from 25% to 75%.

However, one of the main reasons the Ethereum ETF has not yet passed is the unresolved question of whether it is classified as a commodity or a security within specific jurisdictions. Currently, the attention and investment demand for Ethereum spot ETFs have not reached the same scale as that of Bitcoin spot ETFs. Moreover, Ethereum’s shift from proof-of-work (PoW) to proof-of-stake (PoS) increases the likelihood that U.S. regulators may classify Ethereum as a security rather than a commodity.

Additionally, Ethereum’s ongoing network upgrades present a “Ship of Theseus” effect—making it hard to call the upgraded Ethereum the same blockchain as before, a factor that SEC Chairman Gary Gensler has previously shown disdain for when it comes to “mutable” cryptocurrencies.

Yet, the market is highly optimistic about its future, primarily because of its appeal as an “income-generating asset.”

The successful listing of an Ethereum ETF could position it similarly to the “eighth-largest U.S. tech stock.” Especially if the issue of staking the on-chain ETH tokens for custody is resolved, this would attract more institutional investors, making it even more appealing than a Bitcoin spot ETF. The impact of an Ethereum ETF would not only be significant for the cryptocurrency sector but also create massive momentum for the Ethereum ecosystem and its related projects.

Based on past experience, the fate of an Ethereum ETF could be determined by a single vote from SEC Chairman Gensler this week. Earlier this year, the approval of a Bitcoin spot ETF was decided by a five-member panel, with Gensler’s vote securing the decision. The same five SEC commissioners will vote on May 23 regarding VanEck’s Ethereum spot ETF.

Given Gensler’s past silence on whether Ethereum is a security, followed by later comments that many tokens could be considered securities, the outlook for the Ethereum ETF remains uncertain. His stance has sparked criticism, with Ripple’s CEO accusing the SEC of muddling regulatory transparency, and Patrick McHenry, the chairman of the U.S. House Financial Services Committee, stating that Gensler misled Congress on the classification of Ether during a prior hearing.

In addition to the VanEck vote on May 23, the market is also watching for the possible approval of 21Shares & ARK’s Ethereum spot ETF on May 24. However, the most likely to be approved might be BlackRock’s Ethereum spot ETF, which has an August 17 deadline. Its potential impact on the market is highly anticipated.

In comparison, Hong Kong might be ahead of the curve. On April 29, the Hong Kong Securities and Futures Commission approved the first issuance of six digital currency spot ETFs by Huaxia (Hong Kong), China Asset Management (International), Bosera (International), and HashKey Capital Limited. These ETFs were officially listed on the Hong Kong Stock Exchange on April 30, with three being Bitcoin spot ETFs and the other three being Ethereum ETFs. HashKey Group COO Livio predicts that Hong Kong’s ETF market could reach about 20% of the U.S. ETF market, potentially growing to $10 billion. ETFs represent a new gateway for traditional investors to enter the virtual asset market, driving market expansion.

Increased Likelihood of Federal Reserve Interest Rate Cuts

Compared to the uncertainties surrounding the Ethereum ETF, industry insiders view Federal Reserve interest rates as a more certain factor in igniting a crypto bull market.

Recently, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.3% from March. The drop in CPI suggests that the U.S. economy is stabilizing, with inflation under control. As inflation eases, the Fed is likely to reveal its inclination towards rate cuts.

Historically, rate hike cycles have typically pressured the crypto market, while rate cut cycles lead to increased liquidity. Investors tend to move money from traditional banks into riskier, more volatile assets, including cryptocurrencies. During the last bull market in 2020, the Federal Reserve printed trillions of dollars to combat the effects of COVID-19, with the fifth round of quantitative easing starting in March. Two months later, the Fed lowered rates to a ten-year low, and Bitcoin hit a high of $69,000 in November, an 18-fold increase from the previous bear market low.

Thus, we may see a renewed interest in crypto and other risk assets from investors. Pension funds that are currently on the sidelines could enter the market in the second half of 2024, bringing in trillions of dollars. A bullish Bitcoin investor predicts, “There is $6 trillion in cash waiting on the sidelines,” potentially driving Bitcoin prices to $150,000 this year, stating the current bull market “is still in its early days.”

Last week, Fed Chairman Jerome Powell spoke on inflation, stating that the U.S. economy is performing well and that inflation is expected to decline month-over-month. However, Powell also said that restrictive policies may need to be in place longer than expected to reduce inflation to the 2% target. “In many ways, the policy rate is restrictive. I don’t think the next move will be a rate hike. It’s more likely to keep the policy rate at its current level,” Powell stated.

Considering Powell’s remarks and the smallest year-on-year increase in core CPI since early 2021, the expectation for rate cuts is reignited.

Market sentiment is generally optimistic, with analysts predicting an 80% chance of a 25-basis-point rate cut by the September Fed meeting. By then, U.S. stocks could surge to record highs, the U.S. dollar index could plummet, and the crypto market could follow with a strong rebound alongside equities.

U.S. Elections and New “Crypto Supporter” Trump

Another key factor is the U.S. presidential election, set for November this year. The two leading candidates, Biden and Trump, have shown contrasting attitudes toward cryptocurrencies. For the first time, crypto has become a central issue in U.S. politics.

A poll shows that cryptocurrency is now a major concern for voters in the 2024 U.S. election. The crypto industry has ramped up lobbying efforts, with crypto political action committees and industry donors contributing $94 million to federal political committees since 2023. Coinbase and Ripple Labs have donated more than $40 million to political campaigns supporting favorable cryptocurrency regulation.

Most notably, Trump has dramatically shifted his stance on cryptocurrencies. The former president, who previously dismissed crypto as “air,” now positions himself as the leading political candidate embracing Bitcoin and cryptocurrency holders.

Trump’s message is clear: support him, or face strict regulatory actions from the Biden administration. While the Republican Party is increasingly embracing digital assets, the Democratic Party remains divided on legitimizing the industry. Additionally, Trump’s personal cryptocurrency holdings have significantly increased, currently valued at $8,903,246.13, including 579,290 TRUMP tokens (worth $5.72 million), 431.018 ETH (worth $1.29 million), and 374.724 WETH (worth $1.13 million). His outright support could mark a pivotal moment for the U.S. crypto industry.

However, it remains uncertain whether Trump, if elected, would truly be crypto-friendly. He has not made any promises about crypto-related developments post-election, and some believe his affinity for crypto is just a strategy to attack Biden. While the Biden administration has been tough on the crypto industry, it has also overseen the recovery from the 2022 crypto crash and the eventual approval of Bitcoin spot ETFs, so Biden may not be as detrimental as some believe.

Moreover, the influence of the U.S. president may not be as significant as expected when it comes to crypto. The SEC operates independently, and its commissioners’ appointments are not affected by changes in the presidency. Furthermore, some crypto entrepreneurs believe that even if SEC Chairman Gary Gensler, appointed by Biden, steps down, regulatory uncertainty and enforcement actions against cryptocurrencies will persist.

The market speculates that the U.S. election may only have a short-term impact on the crypto market. In the long run, the market’s direction will be influenced by a combination of factors.

If the next president cannot change the overall narrative surrounding crypto, U.S. regulation will continue to be the biggest catalyst for the market. This includes the SEC’s decision on the Ethereum spot ETF, potential White House actions to repeal the SEC’s SAB 121 rule, and the U.S. House’s vote on the Financial Innovation and Technology for the 21st Century Act (FIT). Potential stablecoin legislation, such as the Lummis-Gillibrand Payment Stablecoin Act, could also shape the overall crypto landscape. Given the potential for Federal Reserve rate cuts, sidelined capital will eventually need a place to go, and with the current positive performance of U.S. Bitcoin ETFs, the crypto market remains one of the best options.