Blog: Year 2024 in the Cryptocurrency Markets
While the year 2023 has been notably positive in terms of price movements for several cryptocurrencies, 2024 is likely to be even more interesting from the perspective of a cryptocurrency investor. This text predicts what the year 2024 might look like from a cryptocurrency investor's standpoint.
Bitcoin and Ethereum Spot ETFs in the United States
Bitcoin and Ethereum spot ETFs in the United States have arguably been the hottest topic in the cryptocurrency world in 2023. An ETF refers to an exchange-traded fund, while a spot ETF refers to an ETF backed by an underlying asset, in this case, bitcoins and ethers. Major asset managers like BlackRock and Fidelity both submitted Bitcoin and Ethereum spot ETF applications to the U.S. Securities and Exchange Commission (SEC) in 2023. Additionally, several other entities have pending applications. As of December 2023, analysts at Bloomberg, specializing in financial news and data, anticipate the first Bitcoin spot ETF approval likely in January 2024. Predictions for Ethereum ETF approval timing are less clear, but it's probable that the first Ethereum spot ETF will be approved sometime after the Bitcoin spot ETFs.
Spot ETFs are generally expected to help cryptocurrencies solidify their position as a legitimate investment alongside assets like stocks, government bonds, and commodities like gold. Spot ETFs are also believed to facilitate institutional participation in the market, as trading and custody of cryptocurrencies are managed by the ETF issuer and its partners. Spot ETFs are likely to directly and indirectly increase the number of individuals holding cryptocurrencies and enhance their liquidity. Liquidity measures how easily large amounts of, for example, bitcoins can be converted into cash.
The next Bitcoin halving event, which occurs approximately every four years, is expected around mid-April 2024. The last Bitcoin halving took place on May 11, 2020. Halving refers to the halving of block rewards that occur with each Bitcoin block. Currently, a new Bitcoin block is mined approximately every ten minutes, with a block reward of 6.25 bitcoins. Thus, during the halving in April 2024, the block reward will decrease to 3.125 bitcoins. Considering that the block reward was 50 bitcoins when Bitcoin started operating, the 2024 halving will be the fourth in order.
In essence, halving means the creation of new bitcoins halves. Historically, Bitcoin halving has acted as a catalyst for bull markets in cryptocurrencies. This is partly because if demand for Bitcoin remains the same or increases while the new supply of bitcoins decreases, according to the basic principles of supply and demand, the price should rise. At the end of 2023, approximately 19.6 million out of a maximum of 21 million bitcoins had been mined.
Economic and Geopolitical Uncertainty and Central Bank Actions
The year 2023 has been marked by economic and geopolitical uncertainty, much like previous years. This uncertainty is expected to continue into 2024. At the end of 2023, expectations are that neither the U.S. Federal Reserve (Fed) nor the European Central Bank (ECB) will raise interest rates further. In a nutshell, the interest rate is the rate at which central banks lend money to banks. Thus, the interest rate can be seen as the price of money and is therefore considered by many to be the most important tool central banks use to influence the general economic situation.
Both the Fed and the ECB raised their interest rates to the highest levels in years during 2023. The Fed's interest rate reached its highest level in 22 years, while the ECB's interest rate was at its all-time high since its inception in 1999. For several months, analysts have been expecting no further increases in interest rates. During the autumn and early winter of 2023, analysts' forecasts were for both the Fed and the ECB to start cutting interest rates in the second half of 2024. However, analysts' forecasts have changed as the end of the year approaches, with December forecasts suggesting that both the ECB and the Fed are likely to start cutting interest rates in March 2024. As interest rate cuts make money cheaper, they will in principle increase the money supply in the market. This, in turn, has historically been positive for cryptocurrency and stock markets.
MiCA Cryptocurrency Legislation
The MiCA, or Markets in Crypto-Assets, legislation adopted in the European Union this year, is expected to take effect gradually between the second half of 2024 and the beginning of 2025. MiCA aims to provide regulatory clarity concerning cryptocurrencies, which has been previously lacking. It also seeks to create common rules for all crypto-asset providers operating within the EU, aiming for a fairer and safer competitive environment. Additionally, MiCA will enhance consumer protection for those involved in the crypto markets, which is generally beneficial for individual cryptocurrency investors.
MiCA represents a significant step forward in international cryptocurrency regulation, being the most extensive legislation globally concerning cryptocurrencies to date. One of MiCA's potentially most significant practical impacts is facilitating the entry of institutional players into the cryptocurrency markets by reducing regulatory uncertainty associated with cryptocurrencies within the EU.
Bitcoin's Position in Latin America
In Central America, El Salvador became the first country to adopt Bitcoin as legal tender in September 2021 and has since started accumulating Bitcoin reserves. Following this, politicians from several Latin American countries have recently commented on Bitcoin in a positive tone. Based on this and other reasons, many experts anticipate that another Latin American country will follow in El Salvador's footsteps in the near future.
In Latin America, we saw a significant step forward for Bitcoin in November 2023, according to many experts. This happened when the pro-Bitcoin Javier Milei won the presidential election in Argentina, which has an inflation rate of over 140%. Milei, who has been described as an anarcho-capitalist, has commented on the current central bank-led monetary system and Bitcoin as follows: "With legal tender, they scam you with the inflationary tax. Bitcoin is the natural reaction against central bank scammers; to make money private again." Based on Milei's comments, it would therefore not come as a big surprise to see positive developments for Bitcoin in Argentina in the near future.
From a cryptocurrency investor's perspective, 2024 looks very promising. Throughout the coming year, it may be worth monitoring developments concerning cryptocurrency adoption in Latin America and their implications for other nations. The broader cryptocurrency market is likely to be influenced by the ongoing trend of institutional players entering the market. This trend is expected to accelerate in 2024, especially with the potential approval of spot ETFs and the phased implementation of MiCA cryptocurrency legislation in the EU. The ease of institutional participation, combined with Bitcoin halving in April and likely concurrent interest rate cuts by the Federal Reserve and ECB, sets the stage for a positive price trajectory for cryptocurrencies in 2024.Ville Viitaharju Cryptocurrency specialist