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Bitcoin ETFs, Scalability And More: These Factors Will Influence the Crypto Market in 2024

Last Updated December 13, 2023 1:12 PM
Giuseppe Ciccomascolo
Last Updated December 13, 2023 1:12 PM

Key Takeaways

  • The approval of Bitcoin ETFs could be a major catalyst for the crypto market in 2024.
  • Scalability remains a key challenge for the crypto market.
  • The development of new technologies could also influence the market.
  • Here’s everything you need to know to prepare your portfolio for the next year.

As we head into 2024, the cryptocurrency market is poised for continued growth and innovation. Several factors are expected to influence the trajectory of the market, including the launch of Bitcoin ETFs, the scalability of blockchain technology, and the development of new applications.

Regarding Bitcoin exchange-traded funds (ETFs), the approval of these investment vehicles could provide a major boost to the legitimacy and accessibility of Bitcoin, attracting institutional investors and retail traders alike. This could lead to an influx of capital into the market, driving up prices and fostering further adoption.

Better Macro Environment

In a recent survey conducted by WisdomTree , featuring responses from 803 professional investors across Europe, 36% expressed their intention to augment their allocation to digital assets and cryptocurrencies. According to WisdomTree, investing in digital assets holds the potential to enhance the overall return of a multi-asset portfolio.

The firm conducted multiple portfolio simulations, allocating varying percentages – ranging from 1% to 5% – of a multi-asset portfolio to digital assets. In each scenario, the annual return of the digital asset portfolio consistently outperformed that of a traditional 60/40 stock-bond portfolio, with only a limited increase in volatility. It’s noteworthy that the simulation mandates a quarterly rebalancing of the illustrative portfolio to mitigate downside risks.

Crypto portfolio beats 60/40 portfolio
The superior performance of the digital asset portfolio compared to the traditional 60/40 portfolio

Mirva Anttila, Director of Digital Assets Research division at WisdomTree, noted that the current momentum in the cryptocurrency sector appears positive. There are also signs of improvement in the macroeconomic environment.

Anttila suggested that the era of interest rate hikes seems to be behind us. Market expectations also indicate a potential reduction in interest rates in the coming year. This is a development that could favor cryptocurrencies.

Additionally, WisdomTree observed a gradual improvement in central bank liquidity, which had declined between December 2021 and December 2022. This improvement in liquidity is anticipated to have a positive impact on digital assets.

Correlation between market liquidity and the price of Bitcoin
Correlation between market liquidity and the price of Bitcoin.

Bitcoin ETFs Approval

Antilla added that Bitcoin, the largest cryptocurrency with a market capitalization of more than 50% in the sector, “will likely be impacted by the highly likely approval of several spot bitcoin exchange-traded funds in the United States“.

She added: “For asset advisors and institutional investors, the eventual approval of such an ETF wrapper will make it easier to invest in the largest digital asset, efficiently and at a very low cost. If spot Bitcoin ETFs are approved, it is possible that tens of billions and, over the years, over a hundred billion dollars could flow into spot products dedicated to cryptocurrencies in the US.

As Bitcoin continues its ascent, the launch of the Spot Bitcoin ETF in the US emerges as a pivotal moment with far-reaching implications. This milestone has played a crucial role in igniting heightened interest among investors in Bitcoin.

Standard Chartered said: “The ETF represents a regulated and easily accessible investment tool, drawing both institutional and retail investors. The infusion of capital from these diverse investor segments contributes significantly to the expanding market capitalization of Bitcoin.”

This foresight from Standard Chartered is grounded in an acknowledgment of Bitcoin’s resilience and its capacity to navigate through the storms of market volatility. The cryptocurrency’s ability to rebound from the challenges faced in 2022 underscores its inherent strength and adaptability.

BTC Halving

Next year, the potential approval of a spot Bitcoin ETF could coincide with the cryptocurrency’s halving. This is an event in which the number of new Bitcoins assigned to the relevant miners per block will halve, going from 6.25 to 3.125. As a result, miners will have less Bitcoin to sell on the market.

Anttila said: “This could generate a significant imbalance between supply and demand, causing the price to increase, given that the number of bitcoins available on the market will be lower.”

Standard Chartered, which predicts Bitcoin to reach $100,000 in 2024, highlighted that the reduction in supply of new Bitcoin, combined with sustained demand, creates an imbalance between supply and demand, contributing to upward pressure on prices. This inherent scarcity aligns with the decentralized nature of Bitcoin and its appeal as a deflationary digital asset.

Blockchains Scalability

In the recent month or so, we’ve witnessed a surge in the price of Ethereum, the second-largest cryptocurrency. It commands a 17% share of the cryptocurrency market capitalization. Additionally, Solana has seen a notable uptick despite having a market capitalization of less than 2%.

As Anttila highlighted: “In our view, it is highly probable that, following the introduction of a Bitcoin product in the United States, a spot ETF for Ethereum will soon follow suit.

“Both Ethereum and Solana are diligently upgrading their blockchains to enhance scalability. Ethereum, deferring its scalability update, proto-danksharding, to early 2024, while Solana has introduced the Firedancer scalability update to its testnet, with the official mainnet launch scheduled for early 2024.”

The preceding year, during the last cryptocurrency bull market, witnessed the launch of several layer 1 networks, spurred by Ethereum’s inability to manage a surge in transactions, resulting in exorbitant fees. Solana, conceived as a faster and more cost-effective alternative, encountered stability challenges initially. Nonetheless, the report underscores, ‘the network has cultivated a steadfast developer base, making it an attractive proposition for institutional investors.

With a market share of less than 2%, many institutional investors perceive Solana as having greater upside potential than Ethereum. Scalability enhancements are paramount for the emergence of a true mass market. Blockchains must seamlessly handle a substantial volume of transactions at a minimal cost and in a matter of seconds, a benchmark not currently met.

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