Karim AbdelMawla, analyst at 21Shares: “The crypto bull market could last for another six to twelve months”

• Bitcoin and major altcoin prices are projected to rise in the short to medium term, driven by the debasement trade and increasing institutional inflows.
• Strategies based on highly leveraged Digital Asset Treasuries present significant risks, requiring careful evaluation of underlying business models.
• The crypto market is evolving beyond Bitcoin and Ethereum, with Defi, prediction markets, and decentralized AI gaining traction.

Karim AbdelMawla. Source: Merge Madrid.

Karim AbdelMawla is a senior digital asset researcher at 21Shares, the world’s largest issuer of exchange-traded crypto products with more than $11 billion in assets under management. At Merge Madrid, held in Spain on October 7-9, the analyst shared with FXStreet his views on the current state of the crypto market, the main risks and how the asset class is evolving amid the growing institutional adoption.

How would you describe the current status of the crypto market?

I think there is a growing understanding of the younger sectors beyond just Bitcoin and Ethereum. People are gaining access to very early-stage opportunities within decentralized Finance (DeFi) projects that were previously only accessible to venture capital firms. In this area, many DeFi protocols are announcing buybacks in a first step before revenue sharing, so I think it’s an area with a lot of potential.

Beyond that, I think prediction markets are becoming a new behemoth or a force to be reckoned with. I also believe that tokens from centralized exchanges will experience a resurgence in the coming weeks and months, as well as decentralized AI projects.

Bitcoin and several major altcoins have reached new all-time highs this year. Do you think prices will continue to rise?

Yes. The debasement trade [an investment strategy that bets on the erosion of a currency's value by moving money out of fiat and into hard assets like Gold, Silver, or Crypto] is very much real.
Will Bitcoin keep growing by multiples? No. But will it grow by another 50 to 75%? Absolutely. 

Bitcoin’s four-year cycle is no longer going to remain the same. There are two main reasons for that: first, the next halving won’t have as significant an impact because it will reduce inflation from the current 0.8% to 0.4%. That’s not a big deal anymore. And second, ETF flows make investment in Bitcoin more episodic and less based on hype around a specific date. 

There are a lot more institutional products about to be launched. These structural flows have nothing to do with the cycles that we are used to. Even with the constant funding and flows into the market, the current bull market is unlikely to survive for another three years. However, I would say that we still have somewhere between 6 and 12 months. 

Stocks, Gold and Crypto valuations are all close to record highs. Is there a bubble, or is it all about the debasement trade?

There is a bubble, but there is also a debasement rate. That's the really unique thing about where we are right now. When is this bubble gonna pop? It's hard to tell, but I think it's gonna be driven by AI.

We are heading to a market with shorter bull and bear periods: six months of outperformance followed by three months of muted activity.

Is the Crypto market becoming less volatile, or do you think volatility is here to stay?

It depends on the sector you're talking about. If you're talking about the large caps and the tokens that will most likely be the top 15 to 25, I do think that their volatility will continue to progressively decrease. But for the longer tail of assets, it's not going away anytime soon.

Karim AbdelMawla, in a panel about the future of asset management with FXStreet’s Editor in Chief, Jordi Martínez. Source: Merge Madrid.

What signs do you think crypto traders should look out for to anticipate a correction or a bear cycle?

Many of the traditional on-chain metrics don't necessarily apply anymore because of the amount of activity and capital that is being deployed via ETFs. 

Should they look at the ETFs, then?

Absolutely. This has been the case for the past six months. Every time there has been a severe drop in ETF inflows, you see the market stall or take a breather. This is something traders need to be very much aware of.  Even if, for now, it only applies to Bitcoin and Ethereum, these are the proxies of the rest of the crypto market. 

Apart from that, the crypto market is going to behave somewhat like the stock market, with segments that could remain in bull territory for long periods. It can be a niche or a sector that is grabbing a lot of attention, and I think here the DeFi space will hold the key. 

I don't think you can look at crypto from just one lens. The large caps will be increasingly led by institutional flows, while the longer tail of assets will comprise a mix of institutional and retail flows. Among the younger ones, retail will continue to be their driving force.

Will whales continue to be important as market movers?

Absolutely. At the end of the day, Bitcoin reached where it is because of the whales: the high level of public visibility is largely due to the people who bought at a very early stage, held onto it and believed in the mission and the objective of Bitcoin. It applies exactly the same to all the other younger tokens.

Is the Digital Asset Treasury (DAT) strategy sustainable?

DAT, as a concept, it's very cool and practical. The problem is how companies raise capital to acquire these crypto assets.

Some of these are ultra-leveraged.

MicroStrategy is a bet on the growth of Bitcoin. And then you have all of these smaller DATs as a high-leverage bet on the playbook of [MicroStrategy CEO] Michael Saylor, and that’s scary.

If you're only going to be raising so much debt in order to buy these volatile crypto assets, that's already quite dangerous. But using these volatile assets as collateral to borrow more money, it’s no different than what [failed crypto hedge fund] Three Arrows Capital or [bankrupt crypto platform] Celsius did. 

You have to carefully examine each business to understand how they are able to raise so much money and whether its strategy makes sense. If it’s a company with no product-market fit that has shut down all its businesses, but then raises $600 million to buy a token, it will likely end up selling it when the music stops.

Could a big bankruptcy related to DATs derail crypto’s current process of institutional adoption?

Not completely, but it would be a block for the time being. 

Is there any reason for traders to buy in some of these companies instead of holding the actual asset?

It depends. If you're looking for pure exposure, there's no point in buying a DAT. But if you want exposure to a token but also to a specific management and/or a business model that involves more than the token itself – restaking, using DeFi activities to generate more yield – then a DAT makes sense. 

So, I don't think it's black and white. It also depends on each investor’s risk tolerance, because DATs are levered bets. If you're willing to stomach a 60% drop instead of a 20% one, then DATs may be a good option for you. But also because the upside is going to be bigger too.

Karim AbdelMawla, in a panel about the future of asset management with FXStreet’s Editor in Chief, Jordi Martínez. Source: Merge Madrid.

Going back to Bitcoin, many people tend to compare it with Gold in terms of a long-term strategy of value and a hedge against inflation. Do you see it similarly?

Absolutely.  We are starting to see that many central banks are playing around with the idea that maybe 2% inflation target is not really the way to go, and it should be 3%. So it’s clearly a hedge against this; it’s the same reason why people buy Gold. It even makes more sense when you consider that people are unable to travel with physical Gold, but they can do so with Bitcoin.

The only thing that could change about Bitcoin is that the inflation rate adjusts. I don't think this will ever happen, but if it does, everyone will know in advance because this will be a public discussion that would probably take at least five years of deliberation.

Do you think we'll see central banks hold Bitcoin in between five and ten years? 

This is switching from a taboo to a debatable topic. It’s happening in the Czech Republic, whose central bank is at least exploring how feasible this could be. The Abu Dhabi sovereign wealth fund also has exposure to Bitcoin via ETFs, while in the UK government, there are increasing voices asking to follow the US strategy of keeping the Bitcoin they seize. This is a stark difference compared to four years ago.

Ultimately, a key step in this direction would have to come from the US. But they are being measured in their approach because they want to make sure to have a market-neutral way to add BTC to their balance sheet. 

Last question: Which projects under the radar should crypto investors pay attention to? 

Hyperliquid (HYPE) and Maple Finance (SYRUP). 

For Hyperliquid, their approach and mentality in creating a flexible application that everyone can integrate and use are very unique. For Maple, because private credit between SMEs is clearly an emerging trend within the tokenization sector.