What should you look out for in the crypto industry in 2024?
Find the best narratives and events in this non-exhaustive summary.
ETFs Are a Go
The SEC (and Gary Gensler) have been delaying all applications from traditional funds, such as Fidelity, Grayscale, and Valkyrie. But finally, on January 10, 11 ETF applications were accepted and the first orders arrived as soon as January 11.
Bitcoin ETFs had more assets than silver ETFs the instant the U.S. Securities and Exchange Commission approved them last week and trailed only behind gold among commodity-focused U.S. ETFs. Thanks to the conversion of the existing Grayscale Bitcoin Trust into an ETF, there was immediately almost $30 billion stashed in Bitcoin ETFs. The only commodity that remains more popular is gold (often called non-digital bitcoin) with roughly $95 billion.
That might be a good indicator of the appetite of traditional investors in crypto for the upcoming year.
Bitcoin Halving
The amount of BTC earned from mining Bitcoin set a new record in November, and now the countdown to the next “halving” is now in its final months.
Bitcoin rewards reached approximately £34 million per month in late 2023.
But April 2024 will mark a once-every-four-years event that effectively halves the rate of the cryptocurrency’s supply as the reward that miners earn for adding a block to the Bitcoin blockchain is halved.
From that point, the current reward of 6.25 BTC will fall to 3.125 BTC, massively reducing the rate at which new coins are minted.
In the 12 months prior to the last halving in 2020, the price of Bitcoin rose by 83% from around £3,000 to roughly £5,500 as traders bet on a supply squeeze, pushing up the value of the asset in a sort of self-fulfilling prophecy.
Note: The amount of BTC on exchanges has never been so low. This could indicate one hell of a supply squeeze if big amounts of token were to be bought.
In April 2023, Bitcoin traded for around $20,000. As of this writing (January 2024), one Bitcoin is valued at approximately $41,000.
If current prices were to hold and we saw the same kind of post-halving rally in 2024 as we did in 2020, prices could hit $80,000 – levels we haven’t seen since November of 2021. However, this theory should not be relied upon, as there have been many price fluctuations and all cryptocurrencies including Bitcoin have experienced high volatility throughout this time. And it will also depend on macroeconomic factors, such as CPI inflation numbers, the evolution of wars around the world, and the state of the global supply chain.
ETH Dencun Upgrade
Relative to other tokens, Ethereum is currently underperforming. We think this could change in Q1 of 2024. Ethereum’s next upgrade, the Dencun upgrade, is tentatively scheduled for January 2024. It will be a catalyst that brings attention to the Ethereum ecosystem. The Dencun upgrade will implement “Proto-Danksharding”.
This means that the cost of rollups to settle onto Ethereum will be reduced by more than 90%, which is a gigantic reduction. This, in turn, will make L2s more competitive with Alt-L1s, such as Solana and Avalanche, and activity in the Ethereum ecosystem will likely rise. And this, of course, will benefit $ETH as well. Recently, the TVL of Ethereum L2 has overtaken those of other L1s (combined) for the first time.
Crime Crackdown
Most of the big hacks that happened recently either got solved by white hacking (rewarding the hacker after the hack) or collaboration between CEXs and national authorities, which led to multiple accounts linked to hacks and scams being frozen.
Don’t forget that (almost) everything is traceable on the blockchain.
The increasing regulation and policing of crypto markets could also be a boon next year, adding more legitimacy to an industry not renowned for its safeguarding.
For example, the UK government recently announced an agreement with 48 countries to tackle the problem of people using crypto to avoid tax.
Investors Are Warming Up, Inflation Is Cooling Down
The increasing credibility being lent to crypto markets by the likes of BlackRock, major banks, and regulators appears to be boosting investor sentiment to some extent.
Fear and greed indices are sometimes used to gauge investor sentiment and appetite. Such indices can give us a sense of how investors are likely to act and the impact it might have on markets.
The abatement of inflation in the U.S. and in other developed countries and its implications for interest rates will surely also have an effect on crypto this 2024.
On November 14th, the U.S. Federal Reserve announced that inflation had fallen to 3.2% in October, down from 3.7% in September. The figure was slightly lower than expected and saw the prices of U.S. stocks and bonds skyrocket.
Cryptocurrencies like Bitcoin are often seen as a hedge against inflation due to their limited supply. In 2024, as inflation concerns persist, more individuals and institutions may turn to cryptocurrencies as an alternative investment option.
As we progress towards the rest of 2024, the fate of crypto remains uncertain. However, with technological advancements, regulatory developments, and economic implications set to shape the industry, the future of cryptocurrency promises to be a thrilling and transformative journey.
With inflation largely tamed in the U.S. and with interest rates unlikely to rise as a result, the squeeze that characterized much of 2023 may be over.
The Role of Government Regulations
Government regulations play a vital role in the development and acceptance of cryptocurrency. In 2024, governments worldwide will likely continue to implement regulatory frameworks to ensure crypto’s legitimacy, prevent fraud, and protect investors. These regulations may include measures such as Know Your Customer (KYC) requirements, Anti-Money Laundering (AML) policies, and licensing requirements for crypto service providers.
Furthermore, governments may explore the creation of central bank digital currencies (CBDCs) as a means to maintain control over monetary policy and enhance financial inclusion. CBDCs are digital representations of a country’s fiat currency and can provide benefits, such as faster and cheaper transactions, increased transparency, and improved financial access for unbanked populations.
However, striking the right balance between regulation and innovation remains a challenge. Governments must ensure that regulations are proportionate, flexible, and adaptable to the rapidly evolving crypto landscape. Collaboration between governments, industry participants, and regulatory bodies will be crucial to foster an environment that encourages responsible innovation while mitigating risks.
El Salvador was the first country in the world to legalize $BTC as legal tender. Will another country make headlines in 2024 for the same?
Eyeing you, Argentina.
Nigeria also recently unbanned the use of BTC in the country after enacting a firm ban back in 2021. Will it be the beginning of the normalization of crypto across international payment systems?
The EU also voted on MiCa (to be developed) which should be implemented in EU countries by 2026-2027. This would regulate digital assets in Europe even if some whistleblowers are warning against it, saying the regulations could be too strict and drive away crypto startups.
That’s it for the State of Crypto review.
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