January 2024 Crypto Market Forecast
Bitcoin (BTC) and other major cryptocurrencies surged to new 2023 highs in December as a handful of major financial institutions await the hoped-for approval of the first U.S. spot Bitcoin exchange-traded fund.
In December, the U.S. Securities and Exchange Commission reportedly met with representatives from at least seven companies seeking to launch spot Bitcoin ETFs in early 2024, including BlackRock, Grayscale Investments, ARK Investments and 21Shares.
But while many crypto investors believe spot Bitcoin ETFs would open the door for institutional crypto investment and be a bullish catalyst for the market, some critics are concerned about the potential negative implications of an influx of institutional cash.
Meanwhile, the legal and regulatory environment for crypto remains uncertain as investors anticipate major court rulings in the coming months related to ongoing SEC cases against Ripple, Coinbase, Binance and Kraken. Looking ahead to 2024, crypto industry experts are monitoring spot crypto ETF developments, institutional crypto activity and a potential slowdown in the U.S. economy.
Optimism surrounding a potential wave of spot Bitcoin ETF approvals sent Bitcoin surging to new 52-week highs above $44,700 in December, but Bitcoin pared back some of its gains in the closing week of the month.
Bitcoin ended December up 12.6% for the month, finishing off 2023 above $42,600. Bitcoin prices gained 156% for the year, the leading crypto’s best annual performance since 2020.
Ethereum (ETH) prices rose 15.7% in December to close out the year at $2,353. Ethereum prices gained 91% in 2023.
Inflation trended lower in 2023, triggering a rebound in cryptocurrencies and other risk assets.
Among the most popular altcoins, Solana (SOL) and Avalanche (AVAX) were top performers in 2023. Solana’s recent rally has been driven in part by investor enthusiasm for its network’s fast transaction speeds and cheap fees, as well as a handful of meme coin air drops to Solana users.
The total market capitalization of the global cryptocurrency market peaked at over $2.8 trillion in November 2021 but dropped back below $800 million during the worst of the crypto winter in 2022. That market cap has recovered to $1.7 trillion heading into 2024.
At least 13 asset management firms, including BlackRock, WisdomTree, Valkyrie and others, are still awaiting an SEC ruling on proposals to launch spot Bitcoin ETFs, which would invest in the cryptocurrency itself rather than Bitcoin futures contracts.
The SEC is approaching a January 10 deadline to rule on a joint proposal from ARK and 21Shares, but institutional insiders anticipate the SEC will approve several applications in the opening business days of 2024 before it reaches the deadline.
The SEC met with at least seven spot Bitcoin ETF applicants on December 21, according to executives from two of the firms who asked not to be identified. Speaking on background, the insiders said the SEC gave the applicants until December 29 to amend their applications before the regulator makes its final rulings.
Any applicant that did not submit the final version of its application by December 29 will reportedly not be included in the first wave of approved funds in early January.
The SEC has approved several cryptocurrency ETFs that trade Bitcoin and Ethereum futures contracts, but it has repeatedly rejected applications for spot crypto ETFs. In its rejections, the SEC has argued spot crypto ETFs are not safe for investors because of the crypto market’s vulnerability to manipulation.
One of the changes the SEC has reportedly requested ahead of its rulings is for issuers to allow cash redemptions of their Bitcoin funds, which would require issuers to make Bitcoin transactions using cash rather than swapping the ETF’s underlying assets with a market maker.
This cash redemption model would keep broker-dealers out of the equation, but it could potentially raise transaction costs for issuers and fees for investors.
James Koutoulas, crypto trader and founder of Typhon Capital, says the cash redemption model will allow Wall Street banks to freely create new fund shares using cash.
“The way ETFs work, banks, brokers and arbitrage traders build a portfolio of the assets underlying then exchange them for shares of the ETF. Given many traditional finance shops aren’t allowed to trade crypto for a whole host of reasons, allowing them to process creations and redemptions for cash opens up a much larger audience than if it was limited to crypto,” Koutoulas says.
Cryptocurrency purists have raised concerns over the possibility that allowing Wall Street access to the crypto market would create exactly the type of centralization that cryptos were designed to avoid.
If massive companies like BlackRock and other ETF issuers end up owning a large portion of the world’s Bitcoin for their ETFs, the market may stagnate. In addition, if ETF issuers maintain custodial rights over the Bitcoin held in their funds, Bitcoin’s appeal as a means for investors to exercise sovereignty over their own wealth may be negated.
Nigel Green, founder and CEO of deVere Group, says approval of the first wave of Bitcoin spot ETFs will open the floodgates for institutional investors to pile into cryptocurrency.
“This growing acceptance of cryptocurrencies by traditional financial institutions, along with regulatory clarity in many jurisdictions, is likely to contribute to their mainstream adoption,” Green says. “We predict that crypto will play an increasingly important role in diversifying investment portfolios and facilitating cross-border transactions, thereby reshaping the global financial landscape.”
Spot Bitcoin ETF rulings will likely generate the biggest crypto market headlines in the opening weeks of 2024, but cryptocurrency investors have several other key themes and catalysts to monitor in the coming year as well.
Bitcoin is on track to experience its next halving event in May 2024, which will cut the rewards paid out to miners for each block of transactions added to the blockchain.
Bitcoin halvings occur every time an additional 210,000 blocks are added to the Bitcoin blockchain, and they have historically served as bullish catalysts for Bitcoin prices.
The SEC and other regulators are widely expected to continue their courtroom battles against cryptocurrency issuers and exchanges in early 2024, and the judicial system could provide U.S. crypto investors with some much-needed clarity on how digital assets should be classified and how much reach the SEC and the Commodity Futures Trading Commission should have.
The SEC is currently battling XRP (XRP) issuer Ripple in court over whether Ripple’s sales of XRP to institutional investors were unregistered security sales. The SEC has also sued cryptocurrency exchanges Coinbase, Binance and Kraken and accused them of operating unregistered exchanges.
Crypto investors may see more crypto laws on the books from Congress in 2024 as well. In a December Senate hearing, JPMorgan CEO Jamie Dimon recommended lawmakers ban cryptocurrency outright.
“The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance,” Dimon said. “If I was the government, I’d close it down.”
At the same hearing, Democratic Senator and cryptocurrency critic Elizabeth Warren called the topic a matter of national security.
“Terrorists, drug traffickers and rogue nations should be barred from using crypto for their dangerous activities. It is time for Congress to act,” Warren said.
In 2024, more countries around the world may launch central bank digital currencies, digital versions of legal tender currency that are issued by a country’s central bank.
The Bahamas, Jamaica and Nigeria have already launched CBDCs, and more than 100 additional countries are reportedly exploring the possibility of launching their own CBDCs.
Crypto investors will also be monitoring the U.S. economy, particularly inflation and interest rates.
One of the tailwinds that drove the strong crypto market performance in 2023 was the U.S. Federal Reserve’s ability to bring down inflation without tipping the U.S. economy into a recession. If the Fed can continue to navigate a soft landing for the economy in 2024 and begin cutting interest rates sooner and more aggressively than previously anticipated, it could trigger a rally in stocks, cryptos and other risk assets.
Matthew Sigel, head of digital assets research at VanEck, says even a mild U.S. recession in early 2024 may not be enough to hold Bitcoin prices down.
“As debt levels are more concerning at the sovereign than corporate or household levels, we expect more than $2.4 billion will flow into newly approved U.S. spot Bitcoin ETFs in Q1 2024 to keep the Bitcoin price elevated. Notwithstanding the possibility of significant volatility, the Bitcoin price is unlikely to fall below $30,000 in Q1 2024,” Sigel says.
