September 2024 brought favorable performance to the crypto markets as the Federal Reserve initiated the first of several anticipated rate cuts. Although Bitcoin outshined the broader crypto market for most of the year, other market sectors, particularly those related to artificial intelligence (AI), led the gains in September, with the Utilities & Services Crypto Sector at the forefront.
From a regulatory perspective, the environment shows signs of improvement. The Securities and Exchange Commission (SEC) granted approval for the listing of options on spot Bitcoin exchange-traded products (ETPs), with more approvals likely to follow. Additionally, the Bank of New York is poised to provide crypto custody services. On the political front, former President Trump introduced a new decentralized finance (DeFi) protocol, while Vice President Harris made positive statements regarding digital assets and blockchain.
The Federal Reserve’s rate cuts, along with a series of fundamental factors, fueled a widespread crypto rally in September, marking the strongest monthly return for the FTSE/Grayscale Crypto Sectors Market Index (CSMI) since March.
On September 18, the Federal Open Market Committee (FOMC) announced a 50-basis point (bp) rate cut, which exceeded expectations. This decision was driven by progress on inflation and increasing risks to the U.S. labor market. The rate cut resulted in further declines in bond yields and boosted short-maturity Treasury prices. Concurrently, the U.S. dollar weakened, and gold prices appreciated. Meanwhile, equities in the Financials sector, which benefit from higher interest rates, underperformed relative to the broader market. Later in the month, Chinese policymakers introduced macroeconomic stimulus, which supported global equities. In this context, Bitcoin achieved an 8% return, placing it mid-range on a risk-adjusted basis, while the CSMI’s 18% gain ranked among the top-performing assets on a risk-adjusted basis.
The Grayscale Crypto Sectors framework underscores the breadth of market gains in September. Bitcoin and Ethereum lagged behind the FTSE/Grayscale Crypto Sectors indexes during the month. The standout performer was the Utilities & Services Crypto Sector, which rose by 25%. This sector includes tokens related to AI technologies, with Fetch.ai and Bittensor achieving significant gains. Several assets from the Utilities & Services Crypto Sector, such as Chainlink, Bittensor, Helium, Lido DAO, Akash Network, and the UMA protocol, were featured in Grayscale Research's Top 20 list.
Ethereum, once again, fell short of Bitcoin’s performance, with the ETH/BTC price ratio reaching a cycle low in mid-September. However, Ethereum continues to lead the Smart Contract Platforms Crypto Sector across key metrics. Grayscale Research notes that despite the growing competition, Ethereum has maintained a dominant position, holding at least a 60% share of the total market capitalization of the Smart Contracts Platforms Crypto Sector since 2020.
In terms of fund flows, U.S.-listed spot Bitcoin ETPs saw renewed inflows in September, totaling $1.3 billion. Cumulative inflows since the products were introduced in January 2024 reached a record $18.9 billion, according to Grayscale estimates.
Progress was also made in enabling trading of options on spot Bitcoin ETPs. In late September, the SEC approved an application from Nasdaq, marking the first step in a multi-phase regulatory approval process. Further approvals are expected, though the OCC and CFTC still need to weigh in due to their oversight of options and Bitcoin. The SEC’s initial approval is seen as a positive development for the U.S. crypto ETP market. In contrast, spot Ether ETPs continued to experience modest net outflows, and the SEC delayed its decision on related options products.
Institutional adoption of crypto assets also advanced, with the Bank of New York (BNY), the oldest bank in the United States, set to offer custody services for spot Bitcoin and Ethereum ETPs after the SEC issued a “non-objection” to their plan. Although previous SEC rulings (such as SAB 121) prevented traditional financial institutions from offering digital asset custody, the latest development suggests that BNY may be allowed to extend its custody services beyond Bitcoin and Ethereum.
The U.S. election campaign has also brought attention to the crypto industry. Former President Trump announced the launch of World Liberty Financial, a decentralized finance lending platform based on Aave technology. At the same time, Vice President Harris expressed her administration's support for emerging technologies, including AI and digital assets, during remarks to donors. She further pledged to ensure the U.S. remains a leader in sectors that will define the future, such as blockchain.
The relationship between Bitcoin's price and Trump’s odds of winning the election on prediction platforms like Polymarket has shown signs of decoupling. According to Grayscale, the election remains a key risk event for crypto markets, especially regarding the potential impact on regulation and fiscal policy. However, despite the short-term uncertainty surrounding the election, Grayscale Research expects that favorable macroeconomic conditions—such as continued Fed rate cuts and a potential economic “soft landing”—combined with the growth of crypto adoption trends, will benefit the market in the long run.