December 21 Bitfinex Alpha | Bitcoin will rise in 2024, but not in a straight line
In Bitfinex Alpha
As we head into 2024, we remain very positive on the outlook for Bitcoin and crypto assets in general. If 2023 has shown anything, it is Bitcoin's remarkable resilience despite reputational and regulatory challenges.
This does not mean that it is a straight line from here. We note that it is very likely that we will see pullbacks, based on historical market behavior. With the total market cap of the cryptocurrency market at around $1.6 trillion, we believe we could see the total market cap rise to $3.2 trillion, with asset values fluctuating in that range.
Looking at a range of different metrics and sentiment indicators and their performance at similar points in the cycle is constructive. In our Cryptocurrency Fear & Greed Index, we expect that there is a high probability that we will see an extended visit to “extreme greed” sentiment territory in 2024, which will be associated with new BTC highs during the middle of the bull market.
As institutional investors increase their exposure to crypto assets, of which the long-awaited Spot Bitcoin ETF will be a catalyst, there may be some shift of capital into higher-risk crypto assets in the coming year, but we expect institutional investment to continue to grow. They mostly prefer Bitcoin, at least until the first half of 2024.
In the short term, it is useful to look at Bitcoin's market capitalization in relation to its realized value: the MVRV metric. Current assessments suggest that the market environment is similar to the period around June 2019 and July 2016 which saw initial price declines before a sustained recovery. This is another reason why we expect a pullback after identifying the $44,000-$45,000 area and why we expect prices to range more at these prices or pull back rather than an immediate move higher.
It is also important to monitor the activity of Bitcoin miners, especially since 2024 is half a year, and miners are fueling their operations and deriving their profitability from Bitcoin sales in the market. Faced with the prospect of seeing only half of Bitcoin earned after the halving, miners will need to prove they can continue to run their operations efficiently and profitably.
Puell Multiple's analysis indicates that the market is currently in a healthy state, and there is plenty of scope for continued growth in Bitcoin prices with limited sales expected by miners.
Exchange flows from miners are also expected to remain weak through most of the year even if we have some upsides in the next couple of months due to miners upgrading machines further and selling Bitcoin to fund this investment. As the price rises, there is limited need for miners to sell.
The prospects for Bitcoin adoption in some major markets also look promising.
In El Salvador, where Bitcoin was declared legal tender in 2022, adoption continues to gradually increase. We believe that heading into 2024, the focus on enhancing the infrastructure to support Bitcoin transactions is likely to increase. This includes initiatives to increase public awareness and education about Bitcoin, especially among those who have traditionally been excluded from the formal banking system.
Perhaps most important is the possibility that Argentines will increasingly embrace crypto assets as a means of accessing relatively stable and non-inflationary assets. Even if Argentina is unlikely to follow the same path as El Salvador, its government wants to provide economic stability for its citizens and sees the value in decentralized assets like Bitcoin. Given its history of economic volatility, especially with high inflation rates, it is reasonable to expect that citizens will continue to turn to cryptocurrencies as a hedge against currency devaluation and inflation.
Looking ahead to 2024, and depending on market conditions, we expect the number of global cryptocurrency holders to rise to between 850 and 950 million (from the current 575 million).
In the broader macro economy, we also maintain a positive outlook. Wage growth will likely continue to slow into 2024. Workers may aim for a one-time wage adjustment to compensate for the unexpected rise in inflation seen in 2022, which pushed down real wages. However, this trend is expected to stabilize in 2024 as labor demand declines. In the short term, we expect slower economic growth to increase the unemployment rate, reaching an average of about 4.3% in 2024, compared to 3.7% in November 2023. However, this increase is relatively moderate compared to previous economic recessions. . in the United States.
The inflation rate is also expected to decline in 2024. A combination of factors, including a weak global economy and more efficient supply chains, are expected to keep commodity prices in check and support the manufacturing sector. The rise in labor supply, observed in the latter part of 2023, is likely to moderate wage increases, helping to keep inflation at manageable levels as it correlates with labor market weakness.
Core inflation, the main measure monitored by the Fed that filters out volatile food and energy prices, may fall below expectations due to tightening credit conditions and a weaker global economy. However, geopolitical tensions and potential cuts in oil production pose risks of increasing overall inflation. Avoiding a recession in 2024 – a high possibility – does not guarantee a return to the ideal inflation rate of 2%, a rate that central bankers covet. We expect overall inflation to return to 2.9% on an annual basis, and no less, by the end of next year.
We really enjoyed providing our views on the markets and our analysis. We hope you have found it useful. We look forward to what should be a great year 2024.
Happy holidays and happy trading.