John Gorlow
| Jan 24, 2025
The conversation about Bitcoin has taken a dramatic turn, with the Trump administration’s proposed Federal Bitcoin stockpile adding an intriguing—and contentious—dimension to its role in global finance. This initiative raises questions about Bitcoin’s practical and strategic value, and how it could affect investors at all levels.
Bitcoin’s Market Context
Bitcoin’s meteoric ascent underscores its growing prominence in global finance. With a 143% gain in 2023, followed by a 121% surge in 2024, it has become impossible to ignore.
For context, Bitcoin’s market capitalization, as of the latest available data, stands at $2 trillion. This places it ahead of certain alternative asset classes, such as silver (roughly $1.4 trillion) and the aggregate valuation of the fine art market (approximately $1 trillion, according to online sources). That said, Bitcoin remains significantly smaller than mainstream asset categories like global equities (estimated at $105 trillion) and global credit markets (valued at approximately $130 trillion, according to online sources). Similarly, global real estate ($330 trillion) and gold ($12 trillion) highlight the relative scale of more established financial systems. By comparison, venture capital funding, with an annual global deal flow of $300 billion to $500 billion, also significantly trails Bitcoin’s market size.
Big Shifts in the Regulatory Landscape
Approval of Bitcoin exchange-traded funds (ETFs) by the SEC in early 2024 was seen by some as a step toward greater legitimacy for cryptocurrency. That said, the SEC’s track record of allowing questionable financial products raises issues about the potentially negative impacts of this move. Critics argue that SEC approval could lead some investors to see Bitcoin products as implicitly risk-free. This could contribute to speculative excesses and distortions in market behavior, undermining the very protections the SEC aims to ensure.
Other regulatory changes have eased the path for banks to engage with Bitcoin. The SEC’s rescission of SAB 121 in early 2025 eliminated the requirement for banks to classify cryptocurrencies held on behalf of clients as liabilities on their balance sheets. This regulatory shift enables banks to offer Bitcoin custody services without the associated accounting complexities.
It is also significant that Trump administration appointees are very crypto-friendly. Paul Atkins, nominated as SEC chairman, served as an SEC commissioner from 2002 to 2008 and has ties to blockchain companies and crypto trade groups. Commerce Secretary nominee Howard Lutnick, head of Cantor Fitzgerald, has deep connections to the stablecoin giant Tether. Treasury Secretary nominee Scott Bessent has voiced strong support for digital assets, emphasizing that “crypto is about freedom.” Together, these appointments signal a push toward more widespread acceptance and potentially lighter regulation for the crypto industry.
Against this backdrop, it should come as no surprise that institutional investment in Bitcoin has gained remarkable momentum, with a few major pension funds and retirement systems reportedly allocating resources to cryptocurrency. Endowments and other institutional investors increasingly view Bitcoin as a viable alternative asset class, valued for its diversification potential. BlackRock’s Bitcoin ETF exemplifies this trend, having grown to nearly $60 billion in assets under management—a reflection of robust institutional demand.
Retail investors have also played a pivotal role in Bitcoin’s rising adoption, aided by the approval of spot Bitcoin ETFs in early 2024. Products like BlackRock's iShares Bitcoin Trust (IBIT) have made it easier for individuals to access Bitcoin, bypassing the complexities of direct ownership while embedding the asset further into traditional financial markets.
Banks and Mainstream Finance
Just a few short years ago, major banks kept crypto at arm’s length, expressing concerns about the sector’s sketchy reputation and regulatory uncertainties. Notably, JPMorgan’s Jamie Dimon once branded Bitcoin a “fraud” and a “Ponzi scheme.” But times have changed. Today Bitcoin ETFs have increased the industry’s visibility within traditional financial systems.
Wall Street is increasingly eager to integrate Bitcoin into mainstream finance, leveraging traditional financial tools to capitalize on its momentum. MicroStrategy, a business intelligence software company, exemplifies this trend. By positioning Bitcoin as a long-term strategic asset, MicroStrategy not only transformed its business narrative but also amplified its influence on both the tech and crypto sectors. The company’s financial strategy propelled its market value to $80 billion by the end of 2024. Its approach—raising $20 billion through share sales and bond issuances—demonstrates how traditional firms are reshaping strategies to capitalize on Bitcoin’s growth, ignoring its potential volatility.
With the rescission of SAB 121, banks are positioned to integrate cryptocurrencies into their services. Many are expected to roll out secure custody solutions, allowing clients to store Bitcoin safely within regulated frameworks. Banks may also explore cryptocurrency-backed loans and launch new crypto-linked investment products, appealing to investors seeking exposure without the challenges of direct ownership. Partnerships with crypto exchanges and payment integrations could further embed digital assets into financial services.
Bitcoin’s Risks and Limitations
The idea of a Federal Bitcoin stockpile raises many ethical and practical concerns. One potential funding mechanism for this stockpile has been the seizure of Bitcoin from illicit activities, now totaling approximately $19 billion. The Trump administration has suggested plans to not only hold these confiscated assets, but to use the Central Bank to actively invest in Bitcoin. This strategy, aimed at solidifying Bitcoin as part of national reserves, represents a significant shift in how the U.S. government approaches cryptocurrencies, elevating Bitcoin’s role as both a financial asset and a strategic tool.
Embedding Bitcoin into the U.S. financial system could introduce new vulnerabilities. For instance, a sudden price collapse could destabilize interconnected institutions, magnifying global instability.
The collapse of FTX in 2022 serves as a stark reminder of the inherent volatility of cryptocurrencies and their potential to disrupt markets. This high-profile failure exposed vulnerabilities in governance and regulation, while underscoring the need for robust oversight to mitigate systemic risks.
Stablecoins, a rapidly growing segment of the crypto market, is one example of how these systemic risks might rapidly multiply. With a market value exceeding $200 billion and backing from traditional assets like U.S. Treasuries, Stablecoins represent a significant point of intersection between crypto and conventional finance. However, the potential for a run on Stablecoins raises concerns about cascading financial instability that could spread without containment.
As we have recently witnessed in the AI world, competitive advantages can be quickly eroded. This could happen with Bitcoin, too. For instance, traditional financial systems are quickly evolving to address inefficiencies in cross-border payments. These systems, rather than ceding their dominance, are actively working to adapt and compete with alternatives like Bitcoin. This not only challenges Bitcoin's perceived advantages but also forces the cryptocurrency to adapt to a rapidly evolving market landscape.
The historical precedent of government intervention in rival asset classes, such as the gold confiscation during the Great Depression, adds another layer of concern. In the 1930s, the U.S. government seized gold holdings to stabilize its financial system, demonstrating the extraordinary measures governments can take when faced with threats to economic stability. Should cryptocurrencies grow to a scale perceived as undermining existing financial systems, the risk of similar government actions—such as forced confiscation, severe restrictions, or taxation—becomes a realistic possibility.
A Strategic Approach for Investors
While Bitcoin’s early days were dominated by promises of decentralization and financial freedom, its growing integration into mainstream markets has reframed its narrative as a potential diversification tool. The proposed Federal Bitcoin Reserve bolsters this narrative, underscoring the cryptocurrency’s evolving role. But a reframed narrative, however appealing, is not the basis for smart investing. Unlike traditional asset classes, Bitcoin lacks a robust history of returns, making it difficult to evaluate within conventional portfolio frameworks.
For investors seeking exposure, broad-based index funds, such as total stock market trackers, offer an indirect avenue. These funds include companies deeply embedded in the crypto ecosystem, ranging from technology firms like Nvidia and AMD, which support crypto mining, to payment platforms such as Block and PayPal, which facilitate digital transactions. Financial institutions providing custodial services and digital asset-linked products add to this exposure, reflecting Bitcoin’s growing footprint in financial systems. Products like the iShares Bitcoin Trust ETF (IBIT), launched in January 2024, have simplified access to Bitcoin for investors. These funds eliminate the operational and tax complexities of direct ownership while embedding Bitcoin’s performance into broader market strategies.
Despite fast-growing mainstream acceptance, investors would be wise to weigh Bitcoin’s potential against its risks and the realities of evolving regulation. As governments and institutions work toward clearer governance structures, cryptocurrency’s role as a speculative asset or a viable alternative in portfolios will continue to evolve.
In Sum: Be Thoughtful and Cautious
From a portfolio perspective, Bitcoin’s limited historical data complicates its traditional optimization for risk and return. However, its expanding ecosystem—encompassing computational infrastructure, payment platforms like Block and PayPal, and custodial services—represents undeniable economic value. With trillions of dollars already embedded in blockchain applications and supported by increasing regulatory clarity, Bitcoin continues its journey to adoption within mainstream financial markets.
Still, Bitcoin’s role as a speculative asset continues to generate much debate. Advocates see it as a tool of financial sovereignty, enabling borderless transactions and safeguarding wealth from centralized oversight. Critics highlight Bitcoin’s association with illicit activities, including money laundering, tax evasion, and ransomware financing, which tarnish its reputation as a legitimate asset class. These issues, coupled with cryptocurrency’s intense environmental impact and lack of consumer protections, underline the hurdles that must be overcome for broader acceptance.
Bitcoin is a story that has been told before. When traditional financial systems are forced to adapt to and compete with decentralized innovations, tensions between regulation, technological evolution, and market dynamics take time to resolve. Whether Bitcoin becomes a mainstream asset class or retains its niche appeal, investors should be thoughtful, cautious and strategic as they consider including it in portfolios. It’s easy to see what has gone right for Bitcoin, but smart to consider what could go wrong, too.
2024 Year-End Market Recap
U.S. Market Highlights
The S&P 500’s performance in 2024 was a showcase of market resilience. In the end, negative trading days were outnumbered by positive trading days, with 58% delivering gains. There were plenty of peaks and valleys along the way. On November 6, the day after the U.S. presidential election, the market surged 2.5%. This sharply contrasted with August 5th, when the market dropped 2.99% in response to concerns about international turmoil.
Investor confidence was boosted by strong consumer spending and corporate earnings, particularly in the technology and communication services sectors. Strategic rate cuts by the Federal Reserve, fiscal policies such as infrastructure investments and targeted tax incentives, and improvements in U.S.-China trade relations provided further encouragement.
Sector trends were widely varied. Communication Services surged by 40.23%, driven by the continued growth of digital platforms, increasing consumer demand for streaming services, and robust advertising revenues from online giants. Information Technology followed closely with a 36.61% gain, benefiting from advancements in artificial intelligence, cloud computing, and semiconductor production. Financials posted a strong 30.50% increase, bolstered by a favorable interest rate environment that supported lending margins and financial services activity.
At the opposite end, the Materials sector narrowly avoided a loss at -0.04%, reflecting challenges from fluctuating commodity prices and demand volatility. Healthcare’s modest 2.58% gain was largely influenced by uncertainties around regulatory changes and uneven growth in pharmaceutical innovation. Real Estate saw a moderate 5.23% increase, buoyed by steady demand for commercial properties in key markets despite rising interest rates.
Shifts in Interest Rates and Fixed Income
In September, the Fed began implementing a series of rate cuts, reducing the federal funds rate to 4.25%-4.50% by year-end from its earlier 5.25%-5.50% range. This marked the end of an inversion in the U.S. Treasury yield curve that had persisted since April 2022, while renewing opportunities in fixed income investments.
For bond investors, 2024 presented a mixed picture. The Bloomberg U.S. Aggregate Bond Index gained a modest 1.25% for the year. Investors extending fixed income durations benefited from higher yields and opportunities for price appreciation, driven by the roll-down effect in a normalized yield curve environment. Simply put, the roll-down effect happens when longer-term bonds—which generally offer higher yields—move closer to their maturity date and are re-priced as shorter-term bonds with lower yields. This creates the potential for price gains as a bond's value adjusts, enabling investors to earn returns not only from interest payments but from the natural price increase that occurs as bonds approach maturity.
International and Emerging Markets
International markets presented a complex picture in 2024. Developed market equities managed a 5% year-to-date gain but lagged significantly behind their U.S. counterparts. Emerging markets fared better, advancing 8% for the year, yet their performance still fell short of U.S. benchmarks. Their relative outperformance compared to developed markets was driven by factors including faster economic growth rates, a younger workforce, and increasing urbanization, which supported consumer demand and infrastructure development. Additionally, many emerging economies benefited from higher commodity prices, which supported resource-driven economies. While the U.S. dollar remained strong for much of 2024, there were brief periods of weakness during the year that temporarily improved export competitiveness for these markets.
In Europe, key economies like Germany, Italy, and Spain were bolstered by structural reforms and economic initiatives. That said, populist movements in regions like France and the UK highlighted ongoing political and economic challenges. Across the Atlantic (Do you mean Europe specifically?), emerging market growth stocks outperformed value stocks. Large-cap emerging market stocks advanced 9%, compared to 5% gains for small-caps.
Sector and Equity Insights
Equity performance in 2024 underscored the critical importance of diversification. Large-cap stocks emerged as clear winners, with gains nearing 25% for the year, while small-caps posted a respectable 12%. Growth stocks dominated, particularly within the large-cap space, achieving annual returns exceeding 33%.
These trends emphasized the value of maintaining a balanced portfolio. While U.S. stocks outperformed, lagging international equities nonetheless played an important role in smoothing out risks associated with concentrated domestic exposure.
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Regards,
John Gorlow
President
Cardiff Park Advisors
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