Analyst Next year there will be a significant influx of venture capital into Bitcoin

Analysts Predict a Substantial Increase in Venture Capital Investment in Bitcoin Next Year

Author: Brian McGleenon, The Block; Translator: Song Xue, LianGuai

Analysts say that Bitcoin and other risky assets may see a significant influx of capital next year, as market indicators suggest the Federal Reserve may shift towards a more dovish monetary policy stance.

According to the CME Group’s FedWatch tool, recent futures trading data indicates that investors expect the Federal Reserve to take a more dovish stance.

The latest indications from FedWatch show that there is almost a 100% chance that the Federal Reserve will keep the target interest rate in the current range of 5.25% to 5.50% at its next meeting on December 13th.

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The data also shows that futures traders currently expect the Federal Reserve to cut interest rates at least four times by the end of its policy meeting in December 2024.

Impact of the Federal Reserve’s shift to risky assets

Considering that it is widely believed that the Federal Reserve may reverse its “long-term tightening” monetary policy, Ruslan Lienkha, Market Manager at YouHodler, explains that this could lead to a surge in Bitcoin by the end of 2024. Due to the economic recession in the United States, the risk asset market could see a significant influx of capital in the second half of 2024.”

However, Lienkha warns that the first rate cut “will not happen before mid-2024, which means that risk assets will face pressure at least until then.”

James Butterfill, Research Director at CoinShares, pointed out historical examples of loose monetary policy causing a rise in Bitcoin value. Butterfill added, “During the period of loose monetary policy from 2019 to 2021, Bitcoin prices rose, while subsequent tightening of monetary policy led to a decline in Bitcoin prices.”

“A shift from the Federal Reserve’s current tightening stance to a more accommodative policy could have a positive impact on risk assets, including cryptocurrencies with higher beta coefficients,” said analysts at Bitfinex when interviewed by The Block. The Bitfinex analysts further explained that the Federal Reserve’s shift would signal a decrease in investor aversion to risk. Analysts added, “This could lead to more capital flowing into high-risk asset categories such as cryptocurrencies.”

In addition, Bitfinex analysts stated that if the Federal Reserve signals a reversal of interest rates in 2024, it would indicate that the central bank expects economic indicators to rebalance, “which could further promote a more optimistic sentiment among investors.”

Bitcoin Supply Scarcity

A reversal of Federal Reserve interest rates may coincide with Bitcoin’s fourth halving. This event is expected to occur in April 2024, when the block rewards for mining new Bitcoins will be halved. The halving has an impact on the supply and valuation of Bitcoin.

“Historically, Bitcoin halving has led to a significant price increase,” Bitfinex analysts told The Block. The analysts explained how the reduction in new Bitcoin supply puts upward pressure on prices. This assumes that demand remains unchanged or increases.

Bitfinex analyst added, “This usually attracts more investors, and the price is expected to rise, potentially pushing it higher due to increased demand.” However, they warned that the “sell-off event” phenomenon could lead to a decrease in valuation, which from a historical and technical perspective, is a bullish event.

Bitcoin liquidity supply at historic lows

The upcoming Bitcoin halving is likely to impact the liquidity supply of Bitcoin, which is already at historic lows. Glassnode analysts note that long-term Bitcoin holders are accumulating market share of digital assets and gradually transferring them to cold wallet storage. Glassnode analysts added in a report sent to The Block, “Short-term holder supply is currently at multi-year lows, at 2.33 million Bitcoins.”

Ruslan Lienkha stated, “As the global economy overcomes current difficulties, we will see the comprehensive impact on Bitcoin supply. If authorities manage to find a path to soft landing, Bitcoin prices will soar significantly by the end of 2024.”

He pointed out other indicators showing trader sentiment. Lienkha added, “Most BTC purchases are made through stablecoins. Therefore, the increase in total stablecoin capital combined with rising token prices will indicate market liquidity saturation and continued growth.”

Other indicators showing bullish sentiment

Bitfinex analysts added specific indicators for investors to pay attention to when trying to predict future market reactions.

According to Bitfinex, some notable indicators include supply indicators, long-term and short-term holder supply, and SOAB. Bitfinex analysts added, “It is worth noting that the SOAB indicator recently showed a devaluation of Bitcoin to around $34,500 within a week, actually increasing the supply concentration of Bitcoin holders who bought 6-18 months ago, which could also be due to the halving expectation.”

Analysts stated that, in contrast, the supply of short-term holders holding for one to three months has significantly decreased. Analysts said, “This reflects the fact that experienced investors who accurately seize market opportunities are actually increasing their holdings, while new market entrants panic sell their positions when the stock price falls below the buy price or declines significantly.

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