Following a strong finish to 2023, cryptocurrency investors will be deciding where to place their bets for the coming year by keeping an eye on central bank interest rates and a U.S. regulatory ruling regarding new bitcoin products.
After a disastrous 2022 marked by a market collapse, a slew of scandals, including the demise of FTX and fraud allegations against its CEO, Sam Bankman-Fried, damaged the industry’s reputation, cryptocurrencies made a comeback this year.
The primary cryptocurrency and market benchmark, bitcoin, has seen a 20-month high of $42,000 per token in November, after more than doubling in price this year. In terms of percentage gains as of Friday, 2023 was the best year since 2020.
Expectations that declining inflation will enable central banks around the world to start easing next year instead of raising interest rates further have boosted the market and made riskier assets more appealing. Another encouraging development is the U.S. Securities and Exchange Commission’s (SEC) much-awaited approval of a spot bitcoin exchange-traded fund (ETF).
Analysts predicted that these themes and bitcoin’s anticipated “halving” in April, which lowers the amount of tokens in supply, would be beneficial for the market next year. However, some issued a warning, stating that it is unlikely for the market to reach its record highs from 2021.
According to James Butterfill, head of research at asset management company CoinShares, a number of variables, most notably the end of the rate cycle, are likely to align for 2024.
Interest rates being lowered will likely fuel the next rally, he said, adding that rising rates were what burst the bitcoin bubble.
After its Oct. 31–Nov. 1 policy meeting, the U.S. Federal Reserve kept its benchmark overnight interest rate unchanged in the 5.25%–5.50% range, and most analysts anticipate the same result this week.
Due in large part to retail investors’ excess cash in the early stages of the COVID-19 pandemic and historically low interest rates, bitcoin reached a record high of $69,000 in 2021.
While risk assets benefit from the end of rate hikes, co-head of research at Mediobanca in Italy Andrea Filtri pointed out that the state of the cryptocurrency market is still far from what it was in 2021.
While strong employment data on Friday suggested that market expectations of a rate cut early in the new year were probably overblown, Fed officials have signalled that rates will not be falling anytime soon.
HYPE FOR ETFS
This year, the cryptocurrency sector saw more serious scandals. Notably, Binance and its CEO, Changpeng Zhao, entered guilty pleas to violating American regulations pertaining to money laundering.
However, some argue that the introduction of a bitcoin ETF could help legitimize the sector.
If authorized, a number of significant financial institutions, including BlackRock, have submitted applications to the SEC to introduce a spot bitcoin exchange-traded fund (ETF). This could attract billions of dollars in institutional investment in the cryptocurrency.
Ahead of a crucial deadline in January, when the SEC is anticipated to approve some products, industry discussions with the agency have progressed.Although a sell-off on the news is possible, this has kept traders optimistic.
Since the market has been pricing in the event, there may be a price correction right after their approvals. However, over time, spot bitcoin ETFs could bring in several hundred billion dollars to the bitcoin market, according to Yuya Hasegawa, a crypto market analyst at bitbank, a cryptocurrency exchange with headquarters in Japan.
The upcoming bitcoin “halving,” which is anticipated in April, is another topic of interest for many cryptocurrency observers. This procedure is intended to gradually release bitcoin, the quantity of which is limited to 21 million tokens, 19 million of which have already been created.
Since the market has been pricing in the event, there may be a price correction right after their approvals. However, over time, spot bitcoin ETFs could bring in several hundred billion dollars to the bitcoin market, according to Yuya Hasegawa, a crypto market analyst at bitbank, a cryptocurrency exchange with headquarters in Japan.
The upcoming bitcoin “halving,” which is anticipated in April, is another topic of interest for many cryptocurrency observers. This procedure is intended to gradually release bitcoin, the quantity of which is limited to 21 million tokens, 19 million of which have already been created.
Bitcoin rallied after the previous three halvings, the most recent of which occurred in 2020. However, given the current state of the market, it’s uncertain if it will spark a rally once more, according to CoinShares’ Butterfill.
It might have an effect if we combine it with the strong demand from an ETF in the US and lower the amount of new supply that comes in, but I won’t be holding my breath.
