CRYPTO - 21/1/24 - CoinShare - Outlook 2024

Mar 10 (edited) in Outlooks & Research Reports

EXECUTIVE SUMMARY

2024 is set to be a landmark year for digital assets. The launch of spot-based Bitcoin ETFs in the US could potentially raise Bitcoin prices to approximately $60,000. Bitcoin’s value continues to be significantly influenced by monetary policy. With the US Federal Reserve likely to cut interest rates in the first half of 2024, Bitcoin, alongside gold, could see increased appeal due to their role as alternative stores of value.

The diminishing appeal of the US Dollar amid geopolitical shifts and concerns over US debt sustainability could lead to a decreased appetite for the dollar and a corresponding improving interest in Bitcoin. The high correlation between bonds and equities is also driving investors towards Bitcoin for diversification, further influencing its adoption and valuation.

Ethereum saw relatively muted institutional inflow in 2023, attributed to stiff competition from low transaction fee alt-L1 protocols like Solana and scepticism over its scaling roadmap set to take shape in H1 2024. A successful implementation with improving L2 user interaction mechanics, alongside the possibility of a Spot Ether ETF could rekindle inflows.

Developer activity in most crypto ecosystems continues to fall from their peaks in January 2022. Exciting new developments and upgrades in major protocols could spark a resurgence in activity in 2024.

REGULATORY DEVELPMENTS

In 2024 the EU’s Markets in Crypto Assets Regulation will commence and more countries are expected to provide guidance for regulated stablecoins. The Bitcoin mining industry is preparing for the 2024 halving event, with miners in better shape compared to previous halvings. This event, coupled with regulatory advancements and monetary policy changes, could significantly influence Bitcoin’s price.

BLOCKCHAIN EQUITIES AND MACROECONOMIC TRENDS

The report analyzes the impact of the Federal Reserve’s shifting monetary policy, looming corporate debt maturity walls, and interest rate cuts on blockchain equities in 2024.

SOLANA’S SOLIDIFIED RESURGENCE

Advancements in the Solana protocol suggest its potential to significantly impact the DeFi market and data availability sector in 2024.

BITCOIN FEE MARKET DEVELOPMENT

The rising transaction fee market on Bitcoin paves the way for plugin technologies to be put to the test, likely capturing the demand of users looking to decrease their base layer footprint.

MACRO AND ITS IMPACT ON BITCOIN PRICES

Monetary policy remains an important factor in determining Bitcoin’s value. With expectations of the US Federal Reserve cutting interest rates in H1 2024, Bitcoin and gold could see increased appeal as alternative stores of value.

The diminishing appeal of the US Dollar amid geopolitical shifts and concerns over US debt sustainability could lead to decreased appetite for the dollar and increased interest in Bitcoin. Bitcoin typically exhibits a negative correlation with the US Dollar but its correlation has recently increased, a trend often seen during periods of monetary policy shifts – this is expected to revert over the next 12 months. The high correlation between bonds and equities is also driving investors towards Bitcoin for effective diversification, further influencing its adoption and impacting its value in the upcoming year.

THE MINING CYCLE REMAINS IN A REBALANCING PHASE

The Bitcoin mining industry moves in cycles determined by bitcoin prices, the 4-year halvings, and the lag between investment decisions and equipment deployment. 2023 saw mining in a rebalancing phase with price and hashrate moving in balance.

2024 will see the industry enter another cycle as the upcoming halving is expected to lead to a price response and potential reentry into a mining gold rush if price outpaces hashrate growth. This cyclical pattern tends to exacerbate bitcoin’s price volatility.

IF THE MEMPOOL FAILS TO CLEAR, THE STAGE IS FINALLY SET FOR BITCOIN PLUGINS

The persistent failure of the Bitcoin mempool to clear transactions during the bear market is unprecedented. High fees are pricing out low-value transactions, paving the way for plugin technologies to capture user demand looking to decrease their base layer footprint. Increasing fees also incentivize additional mining investment.

HOW PREPARED ARE MINERS FOR THE HALVING?

Bitcoin miners are in better financial shape ahead of the 2024 halving compared to previous events, with lower costs, larger scale operations, less debt, and cash reserves. A bullish price response similar to prior halvings coupled with ongoing efficiency improvements could allow miners to clear the hurdle with similar or better results as last time.

A BITCOIN-BASED STABLECOIN EMERGES

The report predicts 2024 could see the emergence of viable Bitcoin-based stablecoin projects, competing in the modern stablecoin sector and steadily integrating with Bitcoin plugins. This could act as a catalyst increasing bitcoin discovery and reducing barriers to native use.

EIP 4844 – A CRUCIAL PIECE IN ETHEREUM’S SCALING ROADMAP

The Ethereum Dencun upgrade set for H1 2024 will include EIP-4844 introducing “Proto-Danksharding” to optimize Layer 2 data posting costs by orders of magnitude. This is a crucial step towards improving Ethereum’s scalability by allowing for more transactions per second.

FUND FLOWS SUGGEST THE BULL MARKET HAS ONLY JUST BEGUN

Bitcoin captured the majority of digital asset inflows in 2023, indicating its dominance may continue or increase in the short-term following the US spot ETF launch. Ethereum sentiment is also expected to improve in the second half of 2024 following protocol upgrades and potential ETF approval.

DEVELOPER ACTIVITY SET TO REBOUND IN 2024

Developer activity across crypto ecosystems peaked in January 2022 and remains low, however exciting protocol developments could spark a resurgence. Bitcoin, Ethereum and Solana are expected to see growth in activity through 2024.

2024 REGULATORY OUTLOOK

The EU’s Markets in Crypto Assets Regulation takes effect at the end of 2024. More guidance on regulated stablecoins is expected. Potential delays in UK and US legislation due to election years. Focus on MiCA implementation and niche areas like decentralized finance.

DIGITAL ART & CULTURE ON BLOCKCHAINS: BIRTH OF AN ASSET CLASS?

Non-fungible tokens (NFTs) have emerged as a significant phenomenon, with the digital art market on blockchains reaching $6.9 billion in value. The report analyzes scenarios for the future size and adoption of this emerging asset class.

In summary, 2024 is poised to be a transformative year for digital assets as major developments in regulation, adoption, and technology come to fruition. Exciting protocol upgrades, evolving use cases, and shifting macroeconomic conditions are expected to drive the next stage of growth for the industry.

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