The crypto market is eyeing interest rates and expects bitcoin ETFs in 2024. After finishing 2023 on a high note, cryptocurrency investors will decide how to make their bets for the following year by keeping an eye on the interest rates of central banks and a decision made by the United States regulatory agency on new bitcoin goods.

A market crisis and a succession of scandals, including the collapse of FTX and fraud charges against its CEO, Sam Bankman-Fried, weakened the confidence of the cryptocurrency business in 2022. However, cryptocurrencies rebounded this year after the industry saw a string of scandals that eroded its credibility.

The price of bitcoin, the most famous cryptocurrency and the primary indicator of the market, has more than quadrupled this year, reaching a 20-month high of $42,000 per token in November. Bitcoin is the most valuable cryptocurrency. It was the strongest year since 2020 in percentage growth, and 2023 was doing even better as of Friday.

The market has benefited from the notion that a decline in inflation will allow central banks worldwide to forego future rate increases and start relaxing in the following year, making it more appealing. A spot bitcoin exchange-traded fund (ETF) has also been boosted due to the United States Securities and Exchange Commission (SEC) announcement, which had been expected for a long time.

According to analysts, all of these themes, combined with the anticipated “halving” of Bitcoin in April, which is a procedure that decreases the number of tokens, will continue to be positives for the market in the coming year. However, several analysts noted that it is doubtful the market can rescale its record highs in 2021.

James Butterfill, the head of research at the asset management business CoinShares, stated that quite a few distinct elements are expected to fall in line for the year 2024. In particular, the conclusion of the rate cycle is thought to be one of these causes.

“What popped the bitcoin bubble was rising interest rates, and what will probably help spur the next rally … will be interest rates being cut,” stated the economist.

The benchmark overnight interest rate of the United States Federal Reserve remained unchanged in the range of 5.25% to 5.50% after its policy meeting from October 31 to November 1. The majority of analysts anticipate that the same outcome will occur this week.

With individual investors overflowing with extra cash in the early days of the COVID-19 pandemic and historically low interest rates, Bitcoin reached a record high of $69,000 in 2021. This was because the pandemic was still in its early stages.

Even though the cessation of rate hikes is a favorable development for risk assets, Andrea Filtri, the co-head of research at Mediobanca in Italy, pointed out that the circumstances of the cryptocurrency market are still a long way from where they were in 2021.

The Federal Reserve has indicated that interest rates would not be decreasing shortly, and the robust employment statistics released on Friday showed that market expectations of a rate decrease early in the next year were probably premature.

“It was easy at the time to have proliferation with easy money,” according to Filtri. “I am not so sure that, as interest rates go down, you will have the mirror trajectory.”

HYPE FOR ETF

More controversies that were detrimental to the cryptocurrency business occurred this year. Perhaps most famously, Binance and its CEO, Changpeng Zhao, pleaded guilty to violations of United States regulations on money laundering.

On the other hand, introducing a bitcoin exchange-traded fund (ETF) could assist in legitimizing the business. BlackRock (BLK.N) is one of the significant financial institutions that has submitted applications to the Securities and Exchange Commission (SEC) to form a spot bitcoin exchange-traded fund (ETF). If the applications are granted, the ETF has the potential to attract several billions of dollars of institutional money into the cryptocurrency.

According to a story published by Reuters this week, discussions between the SEC and the industry have progressed in anticipation of a crucial deadline in January, when the SEC is anticipated to give the go-ahead to certain products. This has kept traders positive; however, a sell-off will probably occur due to the news.

“The price could go through a correction immediately after their approvals because the market has been pricing in the event,” said Yuya Hasegawa, a crypto market analyst at bitbank, a Japanese-based cryptocurrency exchange. “However, in the long run, spot bitcoin ETFs could rake in several hundred billion dollars a year to the bitcoin market,” said Hasegawa.

Bitcoin’s next “halving,” anticipated to take place in April, is another topic many cryptocurrency observers are interested in. This procedure is implemented to delay the distribution of Bitcoin, which is limited to 21 million tokens, of which 19 million have already been in circulation.

Every one of the three halvings that came before it, the most recent of which was in 2020, was a success for Bitcoin. Nevertheless, given the differing market conditions, it is not apparent whether it would spark a surge again this time, according to Butterfill, who represented CoinShares.

“If we combine it with the high demand from an ETF in the United States and reduce new supply, it could have an impact, but I’m not holding my breath.”