Aside from the high-profile court cases, much of 2023 was a fairly lackluster year for crypto. Market activity remained mostly flat compared to the historical average. Major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) traded sideways all year, and total volume locked (TVL) in decentralized finance ecosystems drifted within a narrow range, far below all-time highs. This lack of dramatic volatility was far from the norm we usually associate with crypto assets. The minor pricing pump in Q4 closed out the year on a positive note.
It wasn’t a year for making money. But the recent green light from the Securities and Exchange Commission for 11 Bitcoin spot exchange-traded funds (ETFs) applications, featuring heavyweight players such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck has led to a notable upswing in the crypto market, expressing optimistic outlook. Speculation is rife that a sustained bull run will replace this latest crypto winter.
While I remain bullish on digital assets and the wider crypto industry on a long-term horizon, there’s reason to remain cautious going into 2024. Investors face mixed signals, and it’s possible the good news regarding Bitcoin ETF approval–which has been leading crypto headlines for some months–has already been priced in.
While markets didn’t skyrocket last year, they also didn’t crater. There has been sufficient optimism to maintain pricing stability. That optimism is largely related to two major events in 2024: the recent approval of spot Bitcoin ETF and the potential approval of Ethereum exchange-traded funds (ETFs) in the U.S., as well as the upcoming Bitcoin halving. The ETF approvals are expected to bring improved trading volumes and liquidity to crypto markets in general, and the halving will prevent BTC deflation and thus support prices.
Many pundits have attributed the Q4 pricing pump to these factors, and that’s been coupled with bullish activity in the derivatives market as well. Investors overall appear to believe that central bank rate hikes are mostly behind us and that there’s enough weight to these optimistic murmurings to look forward to a breakout bull run in 2024.
Despite the undeniably positive impact of institutional endorsements and the market sentiment reflected by the recent pricing upswing, I believe there is some truth to the Wall Street saying “buy the rumor, sell the news” here. The crypto market is forward-looking, and traders who have already bought the rumor might be waiting to sell regardless of what the news is.
After the initial surge on the back of the highly anticipated news, markets may quickly pare those gains as wider adoption fails to keep pace. A subsequent correction could take place before an actual bull run begins. ETFs are a big step–but not nearly enough to declare we’ve achieved mass crypto adoption. While the approval of Bitcoin spot ETFs is a big win, I won’t be holding my breath for new all-time highs for crypto asset prices or total value locked (TVL) in the short run.
As for BTC’s halving in Q2, it will support markets but it’s unlikely to drive a full-fledged bull run. This anti-inflationary measure makes mining new BTC more difficult, restricting supply. In the absence of significant crypto adoption, this alone isn’t enough to take us back to BTC’s peak of nearly $69,000, let alone surpass it.
On the other hand, an additional reason for optimism is the fact that 2024 is an election year in the U.S. We can expect U.S. regulators to tone down their headline-seeking activities in this high-stakes year. As such, there ought to be less bad news on the horizon for crypto that has the potential to dent investors’ enthusiasm. This can possibly set the stage for the next bullish trend.
All in all (and Black Swan events aside), 2024 is shaping up to be more of the same for crypto asset prices. My base case scenario is that the market will bottom out and begin recovering more meaningfully by Q4 2024. In the meantime, we can expect some minor volatility as investors whiplash from heady anticipation to mild disappointment.
However, the overall relative lack of volatility indicates that the crypto finance market is maturing, and thus our investment and trading strategies must mature as well.
Rachel Lin is a co-founder and CEO of SynFutures, a decentralized derivatives trading platform.
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