VanEck Mid-December Bitcoin ChainCheck

Please note that VanEck has exposure to bitcoin.

Three key takeaways for mid-November – mid-December:

1. Bitcoin’s Rally Continues: BTC hit $108k in December, and despite expected volatility, indicators point to our base case price target of $180k by 2025.
2. Adoption Accelerates: Corporations, U.S. governments, and BRICS nations are potentially racing to adopt Bitcoin as a reserve asset.
3. Altcoin Season Ignites: Falling Bitcoin dominance—down 6% MoM, the sharpest drop since 2022—signals a broader crypto rally underway.

• Bitcoin’s Price Action
• Bitcoin Treasury Adoption
• Modeling BITCOIN Act Scenarios
• Altcoin Season Indicator
• Bitcoin Miners
• Bitcoin ChainCheck Monthly Dashboard
• Bitcoin’s Network Activity, Adoption, and Fees

Bitcoin’s Price Action

Market sentiment: Bitcoin made history this month, breaking above $100k on December 5th and reaching a peak of $108k by December 17th. As we anticipated in last month’s ChainCheck, indicators like perp funding rates and relative unrealized profits continue to signal that we have entered the stage of the cycle with the greatest one- to six-month upside potential.

This month, the rally’s momentum is underpinned by three unprecedented forces: Bitcoin’s growing adoption as an institutional reserve asset, rising altcoin speculation, and powerful synergies between crypto and AI. While we expect multiple 20% retracements and possibly a 40% drawdown on the path to our $180k price target, these drivers suggest an acceleration of Bitcoin’s upward trajectory into 2025.

Bitcoin Treasury Adoption

Institutional corporate and sovereign treasuries made unprecedented moves to adopt Bitcoin this month. Among corporates, a major milestone came as the Nasdaq-100 added MicroStrategy, the world’s largest corporate holder of Bitcoin. As a result, funds and ETFs tracking the Nasdaq-100 will now have exposure to MSTR’s ~439k Bitcoin, marking a milestone in Bitcoin’s adoption in traditional financial markets and paving the way for potential S&P 500 inclusion. Sovereign nations are following closely, with President-elect Donald Trump emphasizing the U.S.’s plan to compete with BRICS nations in energy, AI, and crypto dominance through deregulation and a national strategic Bitcoin reserve.

However, like corporates and retail investors, even individual U.S. states are beginning to effectively front-run national treasuries in their race to adopt Bitcoin.

State-Level Bitcoin Competition in the U.S.

• November 19th: Pennsylvania Representative Mike Cabell introduced legislation to form the Pennsylvania Bitcoin Strategic Reserve, proposing allocating up to 10% of the state’s $7 billion reserve to Bitcoin.
• December 3rd: The Florida Blockchain Business Association (FBBA) stated that there is a “very good chance” of establishing a state strategic Bitcoin reserve in 2025, highlighted by pro-Bitcoin leadership in the state legislature and existing pension fund investments in crypto-related assets. This follows Florida’s CFO Jimmy Patronis’ recommendation for the state to direct a portion of its retirement system into crypto. Similarly, Wisconsin and Michigan pension funds have already begun diversifying into Bitcoin.
• December 9th: In Alabama, State Auditor Andrew Sorrell stated, “The debate over whether crypto will succeed has ended. Now, the fight for which states will benefit from it has begun.”
• December 12th: In Texas, State Representative Giovanni Capriglione, Chair of the Texas Pensions, Investments, and Financial Services Committee, officially filed for a Texas Strategic Bitcoin Reserve bill.
• December 17th: Ohio state representative Derek Merrin filed the Ohio Bitcoin Reserve Act to hold Bitcoin within the state treasury.

These state-level developments demonstrate the economic game theory driving Bitcoin adoption, setting the stage for broader national and international competition.

National Bitcoin Policy: The BITCOIN Act and FASB’s Impact

Betting Markets Gain Confidence in U.S. Strategic Bitcoin Reserve

Sources: Kalshi, Polymarket as of 12/17/2024.

At the national level, Bitcoin adoption is accelerating with significant policy and regulatory developments:

• December 12th: After ringing the opening bell at the NYSE, President-elect Donald Trump reaffirmed support for the BITCOIN Act and confirmed his intent to establish a U.S. Strategic Bitcoin Reserve. When asked about creating a Bitcoin reserve similar to the nation’s oil reserve, Trump responded, “Yeah, I think so. We’re going to do something great with crypto because we don’t want China or anybody else—not just China—but others are embracing it, and we want to be the head.” This builds on Trump’s campaign promise at the Bitcoin 2024 Conference in July, where he pledged to create a “strategic national Bitcoin reserve” and predicted Bitcoin could surpass gold’s $16 trillion market cap.
  
  To illustrate the potential impact of this legislation, see our section below, ‘Modeling BITCOIN Act Scenarios.’
  
  
• December 16th: The U.S. Financial Accounting Standards Board (FASB) adopted new rules allowing companies to value Bitcoin at current market prices, fully effective in 2025. Previously, companies could only report Bitcoin at its purchase price, recording impairments but ignoring gains. This distorted financial statements and discouraged adoption. New rules ensure companies can report gains and losses based on market prices, improving transparency and simplifying Bitcoin’s adoption as a corporate reserve asset.

BRICS Nations Take a Head Start

While U.S. initiatives gain momentum, BRICS (Brazil, Russia, India, China, and South Africa) nations are already advancing their efforts to integrate Bitcoin to circumvent U.S. sanctions and reduce reliance on the U.S. dollar.

• Russia: Since the BRICS Business Forum in mid-October, Russia has prioritized Bitcoin adoption. The country has partnered with BRICS allies to construct Bitcoin mining and AI facilities. In November, President Vladimir Putin proposed a BRICS investment platform using digital assets and later signed a law recognizing digital currencies as property for foreign trade settlements under an experimental legal regime (ELR).
• Brazil: In late November, Brazilian Congressman Eros Biondini introduced legislation for the country to acquire Bitcoin until it comprises 5% of Brazil’s international reserves. This move signals Brazil’s strategic intent to diversify its reserves and align with Bitcoin’s rising global prominence.
• China: Predictions at the Bitcoin MENA 2024 Conference by Anthony Scaramucci and Changpeng Zhao suggest that China may soon reintegrate Bitcoin mining operations and reserves. If realized, this would mark a significant shift in China’s stance, further solidifying Bitcoin’s role in global economic systems.

Clearly, BRICS nations are positioning Bitcoin as a key tool in their strategy to de-dollarize and bolster economic resilience. Their coordinated efforts demonstrate an effort to challenge Western economic dominance.

Emerging Global Players and Cities

Beyond the BRICS nations, other countries and cities are accelerating Bitcoin adoption, highlighting its growing relevance as a reserve asset and financial innovation tool.

• Suriname: In late October, Suriname’s presidential candidate, Maya Prabhoe, outlined plans to replace the Suriname dollar with Bitcoin as the national currency and issue Bitcoin bonds.
• United Kingdom: In early November, British pension specialist Cartwright guided the country’s first pension fund to allocate 3% of its total assets into Bitcoin.
• Poland: On November 17th, Presidential candidate Slawomir Mentzen proposed a national Bitcoin reserve and pledged to make Poland “a cryptocurrency haven” if elected in 2025.
• Japan: On December 11th, Japanese lawmaker Satoshi Yamada submitted a letter to the country’s House of Councillors, noting “the trend of establishing Bitcoin reserves in the United States and other countries” and asking, “Should Japan also introduce a system to convert part of its foreign exchange reserves into crypto assets such as Bitcoin?”
• Vancouver, Canada: Also on December 11th, Vancouver councilors passed a motion forwarded by Mayor Ken Sim titled “Becoming a Bitcoin-Friendly City. " The motion advocates using Bitcoin as a reserve asset and accepting it for tax payments and fees.
• Australia: Revealed in a December 12th report, Australia’s AMP became the first major superannuation (retirement) fund to buy Bitcoin, having acquired $27M of Bitcoin in May 2024.
• France: Speaking in Brussels on Monday, December 16th, French Legislator and European Parliament member Sarah Knafo declared her support for a strategic national Bitcoin reserve while denouncing the digital euro, a proposed central bank digital currency (CBDC) proposed by the European Central Bank.

Accelerating Institutional Bitcoin Adoption

Corporates, Governments, and Funds are Buying Retail’s Bitcoin (BTC)

Source: bitcointreasuries.net as of 12/17/2024, Past performance is no guarantee of future results.

These fundamental shifts in Bitcoin’s market structure promise to accelerate the years-long trend of corporations and governments accumulating Bitcoin from retail holders. Between Q4 2022 and Q4 2024, corporates added ~162k BTC, governments ~377k BTC, and ETFs/investment funds ~329k BTC to their reserves. It is important to note that governments’ BTC holdings largely stem from criminal seizures, primarily in the U.S., China, and Germany—though we expect this to shift towards deliberate open-market purchases like El Salvador’s in the coming years.

As of December 17th, 69 public companies hold Bitcoin on their balance sheets, a number we expect to surpass 100 in 2025. On December 9th, Jetking Infotrain became India’s first publicly traded company to add Bitcoin to its balance sheet. MicroStrategy, Marathon, and Riot continued their industry-leading accumulation of Bitcoin, adding ~128.8k BTC, ~6,500 BTC, and ~5,800 BTC, respectively, since mid-November. Of course, many major decision-makers remain unconvinced. On December 10th, Microsoft shareholders nearly unanimously rejected a proposal to put Bitcoin on its balance sheet at a weighting of 1% of its total assets. Regardless, the total Bitcoin held by private and public entities now stands at ~985k BTC, on track to surpass Satoshi Nakamoto’s estimated holdings of 1.1 million BTC by 2025. Such rapid accumulation demonstrates a growing belief in Bitcoin’s credibility as an institutional reserve asset.

Governments’ aggregate decrease in BTC holdings from Q3 2024 to today can be primarily attributed to Germany’s selling of all ~50,000 BTC it had seized. At an average sales price of $57.6k, Germany’s BTC sale has reached a ~$2.5 billion opportunity cost when measured against December 17th’s price of ~108k per BTC.

We believe the U.S. should avoid repeating Germany’s mistake. While critics like Peter Schiff have urged President Biden to sell the U.S.’s Bitcoin before Trump’s inauguration, a well-managed reserve could provide significant long-term value. The analysis below illustrates this potential.

Modeling BITCOIN Act Scenarios

We modeled outcomes based on the BITCOIN Act of 2024, introduced by Senator Cynthia Lummis. The Act proposes that the U.S. Treasury acquire 1 million BTC over five years to counter rising inflation and global de-dollarization risks.

However, even without legislation, there are several steps Trump could take via executive action to initiate such a reserve:

1. Halt the sale of Bitcoin from the U.S. asset forfeiture reserve (~198k BTC).
2. Revalue gold certificates—currently priced at 1970s levels—to today’s value, unlocking ~$693 billion in unrealized capital.
3. Leverage the $49.7 billion Exchange Stabilization Fund (ESF) under the authority of the Treasury Secretary.

While the U.S. awaits a broader legislative framework for holding Bitcoin as a national reserve, the BITCOIN Act’s proposed 200,000 BTC first-year acquisition could be covered by repurposing seized Bitcoin. The remaining 800,000 BTC could be financed through the ESF and/or diversification away from the Treasury’s gold reserves—all without requiring money printing or taxpayer funds.

Estimated U.S. Debt vs. Bitcoin (BTC) Reserve Growth (assuming 25% BTC CAGR)

For illustration only.

Assumptions

Source: VanEck Research as of 12/16/2024. Past performance is no guarantee of future results.

Our analysis suggests that if the U.S. government follows the BITCOIN Act’s proposed trajectory—acquiring 1 million BTC by 2029—the reserve could represent an estimated 35% of the national debt by 2049, offsetting ~$42 trillion of liabilities. This optimistic scenario assumes that U.S. debt compounds at 5.0% from a base of $37 trillion from 2025 – 2049, while Bitcoin compounds at 25% annually over the same period from a starting value of $200,000, implying a value of ~$42.3 million per Bitcoin in 2049. Assuming today’s ~$900 trillion of total global financial assets compound at 7.0% from 2025 – 2049, Bitcoin would represent 18% of global financial assets in this scenario.

Altcoin Season has Started

Altcoin Season Indicator: Began on November 27^th

Source: Artemis as of 12/16/2024. Past performance is no guarantee of future results.

Because Bitcoin dominates crypto markets in terms of market cap, liquidity, and volume, its sustained performance often creates the conditions for so-called ‘altcoins’—any cryptocurrency other than Bitcoin—to perform. As new capital flows into the crypto markets, risk-on sentiment and wealth effects give rise to more nascent crypto applications like those involved with decentralized finance, gaming, and NFTs. The chart shows how many of the top 50 altcoins (by market cap) outperform Bitcoin over a 90-day period. If more than 60% of these altcoins outperform Bitcoin, it signals 'alt season,' when leading altcoins dominate performance.

BTC Price Returns After Altcoin Season Indicator >= 0.60 Begins (Jan 2017 - Present)

% of Time BTC Returns are Positive 'X' Months After Indicator >= 0.60 Begins (Jan 2017 - Present)

Source: VanEck Research as of 12/16/2024. Past performance is no guarantee of future results.

In this exercise, we analyzed the average 1, 3, and 6-month returns for BTC after the Altcoin Season Index crossed the 60% threshold. We found that, on average, Bitcoin returns +10%, +30%, and +73% during the proceeding 1, 3, and 6 months after altcoin season begins, respectively. Notably, these returns increase as the duration of the altcoin season indicator increases. As of December 17th, this alt season indicator has been flashing for the past 20 days, suggesting that Bitcoin will perform even more strongly in the 3- to 6-month time horizons following November 27th than it would if the indicator had flashed for less than 7 days. Taking Bitcoin’s opening price of ~$92k on November 27th, the average 6-month returns of 76% and 81% following medium- to long-term Altcoin Season indicators would imply May 27th, 2025, Bitcoin prices of $161,920 to $166,520, respectively. This tracks closely with our Bitcoin price target of $180,000 for this cycle.

We also measured the historical ‘hit rate’ of Bitcoin’s price, making positive returns in the 1, 3, and 6-months following the onset of altcoin season indicators. Curiously, with a nearly 75% hit rate, indicators lasting between 7-30 days stand out from those less than a week or more than a month in duration. We believe this is explained by short-lived indicators being triggered more sporadically throughout market cycles, making them less predictive of sustained Bitcoin upside. Keeping in mind their considerably smaller sample size, we believe altcoin season indicators exceeding 30 days could be more reflective of peak market conditions. In contrast, indicators lasting only 7-30 days suggest more room for upside in the following three to six months. Whether the current altcoin season indicator lasts 30+ days or not, these results reinforce our confidence in a diversified crypto rally heading into 2025.

Bitcoin Miners

This month, we updated our outlook on Bitcoin miners as the investing public and politicians become more aware of the intersections between crypto, AI, and energy.

Synergies Between Crypto, AI, and Energy

Bitcoin Mining Stocks (12.12.2024)

Bitcoin Mining Stock Performance Averages by Category

Sources: FactSet, VanEck Research as of 12/12/2024.

To begin, we categorized Bitcoin mining companies into three major categories. BTC pure plays are Bitcoin miners who remain committed to maximizing their Bitcoin mining productivity. Opposite of BTC pure plays are so-called “Pivotooors,” colloquially referring to miners who have pivoted some amount of their existing Bitcoin mining capacity towards AI/HPC workloads. The third category, “HOLDers,” are Bitcoin miners whose Bitcoin holdings comprise 20% or more of the company’s enterprise value—an increasingly popular strategy in light of MicroStrategy’s emergence as a household name for “HOLDing” Bitcoin like nobody else.

After categorizing these miners, we retrospectively analyzed each category’s average returns over the last one, three, six, and twelve months. Across all time horizons, AI/HPC Pivotooors performed best, HOLDers performed second best, and BTC pure plays performed worst.

Given the revenue stability and capital efficiency of AI/HPC workloads, these results make sense. Core Scientific’s partnership with cloud-computing hyperscaler CoreWeave highlights this trend: by repurposing 700 MW of its 1200 MW of contracted power, Core Scientific expects to earn ~$1.04M per MW annually, delivering predictable, long-term cash flows. By comparison, based on its November production report, we estimate that Core Scientific earned an annualized ~$0.64M per each of its 500 MW dedicated to Bitcoin mining, even at elevated Bitcoin sales prices averaging ~$85k.

In contrast, traditional Bitcoin mining faces high capital costs due to constant hardware upgrades, compounded by limited access to cheap credit. This often forces miners to dilute shares to finance operations. By pivoting to AI/HPC infrastructure, miners can achieve more sustainable margins and position themselves for data center REIT-like valuations. Currently, they are trading at ~20–25x EV/EBITDA, significantly above the multiples of Bitcoin mining alone. As miners diversify into stable, high-margin services, this revaluation potential presents a compelling opportunity for investors.

As Bitcoin is up ~153% YTD, it makes sense that HOLDers—essentially leveraged long BTC—have outperformed pure-play miners. However, because this strategy remains undiversified from Bitcoin’s performance, we do not think it is as viable of a long-term strategy as pivoting into AI/HPC.

Lastly, we note that Bitdeer (BTDR), up 108% MoM, is in a category of its own as the only vertically integrated Bitcoin miner in our list. BTDR’s large and globally diversified power portfolio, ongoing Tier 3 AI/HPC data center pivot, and R&D focus on its Bitcoin mining SEAL chips give the company significant strategic optionality. We believe the future of Bitcoin mining will shift away from standalone facilities, with a growing share of global hashrate coming from operations that utilize excess capacity from anchor tenants like AI/HPC data centers, industrial energy grids, and remote energy production. In such a landscape, the optionality of owning energy, AI/HPC infrastructure, and proprietary chip technology will likely prove more resilient than Bitcoin mining alone.

Implied Enterprise Value per Watt

Bitcoin Miners - Estimated Current & Target Power Capacities

Sources: Company Notes, VanEck Research as of 12/13/2024.

Bitcoin Miners’ Implied Enterprise Value/Watt

Sources: FactSet, VanEck Research as of 12/13/2024.

We examined the enterprise value of Bitcoin miners relative to their current and near-term target energy capacities. Despite its recent gains, we note that RIOT, IREN, BITF, and BTDR appear cheap by this measure.

While Bit Digital (BTBT) looks expensive, this can be explained by the recent termination of its 36 MW in colocation mining services from Coinmint. Further, because it is not currently under construction, most of BTBT’s 288 MW expansion pipeline is not reflected in this table and chart. Additionally, the company’s significant investments in Ethereum staking and AI/HPC infrastructure differentiate it, making this metric less straightforward for assessment.

Bitcoin ChainCheck Monthly Dashboard

^* DAPP market cap as a proxy, as of Nov 17th, 2024
¹ 30 day change & 365 day change are relative to the 7-day avg, not absolute

Source: Glassnode, VanEck research as of 12/17/24. Past performance is no guarantee of future results.

Bitcoin’s Network Activity, Adoption, and Fees

Daily Inscriptions: Inscriptions transactions surged 134% month-over-month but remain down 52% year-over-year (YoY), suggesting signs of life in speculative onchain activity on Bitcoin. This aligns with broader NFT market enthusiasm, as evidenced by Pudgy Penguins NFTs surpassing $100k this month.

Active Supply: The percent of Bitcoin’s supply active in the past 180 days is up 18% month-over- month (MoM) and 29% YoY, suggesting that elevated prices are waking up dormant wallets. However, supply dormant for 3+ years fell 1% MoM and is only up 10% YoY, suggesting most activity is concentrated among younger wallets.

Average Fees: Average fees decreased modestly month-over-month, 11% in USD terms. While they appear to be down significantly YoY, this is due to last December’s network congestion caused by Bitcoin ordinals and BRC-20s spiking in popularity ahead of bullish ETF sentiment.

Global Power Consumption & Mining Difficulty: Global power consumption reached 151 TWh, and mining difficulty rose 8% Month over Month, both hitting all-time highs. This reflects a robust and growing network as miners scale operations to meet rising Bitcoin demand.

Total Crypto Equities Market Cap: The total market cap for crypto equities rose 14% MoM to a new all-time high, driven by strong BTC miner revenues, which remain near record levels. Daily BTC miner revenues increased 20% MoM, benefiting from elevated Bitcoin prices.

Transfer Volume from Miners to Exchanges: Transfer volume from miners to exchanges fell 82% MoM, but last month’s spike distorts this figure. Overall, miner selling appears to have stabilized at modestly higher levels than in previous months, indicating increased but not yet worrisome miner profit-taking.

Bitcoin Dominance: Bitcoin dominance fell 6% MoM, the sharpest one-month decline since 2022. This aligns with our analysis indicating the onset of Altcoin Season.

Futures Sentiment: Annualized Bitcoin futures basis rose 13% MoM, reflecting growing bullish sentiment. At the 85th percentile of historical levels, funding remains elevated but not extreme.

Chart of the Month: Bitcoin is Leaving Exchanges at an Unprecedented Rate

Source: Glassnode as of 12/18/2024. : Past performance is no guarantee of future results.

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