Crypto ETF approvals and the upcoming Bitcoin halving are fueling optimism among crypto watchers. Getty Images
Aside from the high-profile court cases, much of 2023 was a pretty bad year for crypto. Market activity remained mostly flat compared to the historical average. Major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) have traded sideways all 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 usually associate with crypto assets. The slight price pump in Q4 ended the year on a positive note.
It was not a year to make money. But the recent green light from the Securities and Exchange Commission for 11 Bitcoin spot exchange-traded funds (ETFs) applications, with heavyweights such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck has led to a notable upswing in the crypto market, expressing optimistic prospects. A sustained bull run is speculated to supersede this latest crypto winter.
While I remain bullish on digital assets and the broader crypto industry on a long-term horizon, there is reason to remain cautious in 2024. Investors are facing mixed signals, and that may be the good news regarding Bitcoin ETF approval — which has led to crypto headlines for several months — has already been priced in.
Although markets did not soar last year, they did not crater either. There was sufficient optimism to maintain price 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 US, 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, thereby supporting prices.
Many experts attributed the Q4 price pump to these factors, and it was also accompanied by bullish activity in the derivatives market. Investors generally believe that central bank rate hikes are mostly behind us and that there is enough weight to these optimistic murmurs 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 price rally, 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 may be waiting to sell regardless of what the news is.
After the initial surge on the back of the highly anticipated news, markets can quickly pare these gains as wider adoption fails to keep pace. A subsequent correction may occur before an actual bull run begins. ETFs are a big step – but not nearly enough to declare that we’ve reached mass crypto adoption. While the approval of Bitcoin spot ETFs is a big win, I wouldn’t hold my breath for new highs for crypto asset prices or total value locked (TVL) in the near term.
As for BTC’s halving in Q2, it will support markets, but is unlikely to drive a full-fledged bull run. This anti-inflationary measure makes mining new BTC more difficult, limiting supply. In the absence of significant crypto adoption, this alone is not enough to take us back to BTC’s high 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 US. We can expect US regulators to scale back their headline-seeking operations this year with major stakes. As such, there should be less bad news on the horizon for crypto that has the potential to dampen investor enthusiasm. This could potentially set the stage for the next bullish trend.
All things considered (and Black Swan events aside), 2024 is shaping up to be more of the same for crypto-asset prices. My base scenario is that the market will bottom out and start to recover more significantly by Q4 2024. In the meantime, we can expect some minor volatility as investors whipsaw from intense anticipation to mild disappointment.
However, the overall relative lack of volatility suggests that the crypto-finance market is maturing, and so our investment and trading strategies need to mature as well.
Rachel Lin is a co-founder and CEO of SynFutures, a decentralized derivatives trading platform.
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