Crypto ETF approvals and upcoming Bitcoin halving are increasing optimism among cryptocurrency watchers. Getty Images
High-profile court cases aside, most of 2023 has been a fairly lackluster year for cryptocurrencies. Market activity remained mostly flat compared to the historical average. Major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have traded sideways throughout the year, and total volume locked (TVL) in decentralized finance ecosystems has drifted within a narrow range, well below all-time highs. This lack of dramatic volatility was far from the norm we typically associate with crypto assets. Secondary Q4 pricing pump closed the year on a positive note.
It was not a year to make money. But the SEC's recent green light for 11 applications for spot bitcoin exchange-traded funds (ETFs), which include heavyweight players like BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck, has led to a notable rally in the stock market. Crypto market, expressing optimistic expectations. Speculation is rife that the ongoing rally will replace the recent crypto winter.
Although I remain bullish on digital assets and the broader cryptocurrency industry in the long term, there is reason to remain cautious into 2024. Investors are facing mixed signals, and the good news regarding the approval of a Bitcoin ETF – which is making headlines in cryptocurrencies – is likely to be good news. For several months – it is already priced.
Although the markets didn't rise significantly last year, they didn't collapse either. There was enough optimism to keep prices stable. This optimism is largely related to two major events in 2024: the recent approval of a spot Bitcoin ETF and the potential approval of Ethereum exchange-traded funds (ETFs) in the US, as well as the upcoming Bitcoin halving. ETF approvals are expected to improve trading volumes and liquidity in cryptocurrency markets overall, and the halving will prevent Bitcoin deflation and thus support prices.
Many pundits have attributed the Q4 pricing pump to these factors, and this has been coupled with bullish activity in the derivatives market as well. Investors generally seem to believe that central bank rate hikes are mostly behind us and that there is enough weight to these optimistic rumblings to look forward to a significant rise in 2024.
Despite the undeniable positive impact of institutional endorsement and market sentiment reflected in the recent price rise, I think there is some truth to Wall Street's “buy the rumor, sell the news” saying here. The cryptocurrency market is looking to the future, and traders who have already bought the rumors may be waiting to sell regardless of the news.
After an initial rally on the news, markets may quickly pare these gains as broader adoption fails to keep pace. It is possible that a subsequent correction will occur before the actual uptrend begins. ETFs are a big step – but not enough to declare that we have achieved mass adoption of cryptocurrencies. While the approval of spot bitcoin ETFs is a big win, I wouldn't hold my breath for new all-time highs for crypto asset prices or total value locked (TVL) in the short term.
As for the Bitcoin halving in the second quarter, it will support the markets but is unlikely to lead to a full rally. This anti-inflationary measure makes new Bitcoin more difficult to mine, limiting supply. Absent significant adoption of cryptocurrencies, this alone is not enough to get us back to BTC's peak of around $69,000, let alone surpassing it.
On the other hand, an additional reason for optimism is the fact that 2024 is an election year in the United States. We can expect US regulators to ease their headline-seeking activities in this high-stakes year. As such, there should be less bad news on the horizon for cryptocurrencies that have the potential to dampen investor enthusiasm. This could pave the way for the next uptrend.
Overall (black swan events aside), 2024 looks to be similar for crypto asset prices. My base scenario is that the market will bottom out and begin to recover more clearly by the fourth quarter of 2024. In the meantime, we can expect some minor volatility as investors swing from intense anticipation to mild disappointment.
However, the overall relative lack of volatility indicates that the crypto finance market is maturing, and therefore our investment and trading strategies should be maturing as well.
Rachel Lynn He is the co-founder and CEO of SynFutures, a decentralized derivatives trading platform.
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