Matrixport Cryptocurrency Industry Outlook for the First Half of 2024

Insights for the Cryptocurrency Industry in the First Half of 2024 by Matrixport

Author: Matrixport Analyst: Markus Thielen

By January 2024, we expect the US Securities and Exchange Commission to approve a Bitcoin ETF, with trading expected to begin in February or March.

Stablecoin issuer Circle may go public on the stock market in April.

While news of FTX bidding may be announced in December 2023, we expect the exchange to be operational in May or June 2024. FTX is anticipated to regain its position as one of the top three exchanges within 12 months.

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These three events, along with the Bitcoin halving cycle, are expected to provide a healthy boost in the coming year.

Although considering it as a significant upward catalyst is challenging, Ethereum’s EIP-4844 upgrade is scheduled for the first quarter of 2024.

This also aligns with the possibility of a mid-2024 interest rate cut by the Federal Reserve, as market pricing indicates the Fed’s first rate cut in June 2024.

If inflation continues to decline, next week’s US CPI data could spark another round of Bitcoin price surge. We expect Bitcoin to attempt to break through the recent trading range of $34,000 to $35,000.

A breakthrough of $36,000 could propel Bitcoin towards the next technical resistance at $40,000, possibly reaching $45,000 by the end of 2023.

With a steady increase in buyers during US trading hours and the ongoing attempts to break through by Bitcoin, we can see a rebound in price at the end of this month (and the end of the year). The Santa Claus rally could begin at any time.

Chart 1: Bitcoin is attempting to break higher levels – target is $40,000, possibly reaching $45,000

Expected Potential Impact of the US-listed Bitcoin ETF in 2024

In the first half of 2024, the crypto industry will have five micro events and one macro event that could have a positive impact on the industry and potentially drive up the price of Bitcoin. In 2023, crypto assets performed strongly, outperforming most other assets. Our fundamental value proposition lies in the US-listed Bitcoin ETF, with potential to manage $5 trillion worth of assets through registered investment advisors (RIAs), positioning Bitcoin as the cornerstone of multi-asset investment portfolios. Just a 1% allocation would result in $50 billion flowing into Bitcoin.

Chart 2: Performance of selected assets from year to date

By January 2024, we expect the US Securities and Exchange Commission to approve a Bitcoin ETF, with trading expected to begin in February or March. Stablecoin issuer Circle may go public on the stock market in April. While news of FTX bidding may be announced in December 2023, we expect the exchange to be operational in May or June 2024.

The above three events and the Bitcoin halving cycle are expected to provide healthy momentum for the next year. Although considering them as important catalysts for an upward trend is challenging, Ethereum’s IEP-4844 upgrade plan will take place in the first quarter of 2024.

At the same time, the Federal Reserve may cut interest rates in mid-2024, as market pricing shows that the Fed will cut rates for the first time in June 2024. This situation occurs when macro liquidity shifts from being driven by interest rates to providing double liquidity through rate cuts.

Our year-end price target has become achievable from ambitious

A year ago, we released a report titled “Bitcoin may rebound to $63,160 in March 2024.” In the report, we believed that the ideal bitcoin buying opportunity historically occurs in the 14-16 months before the next halving, which was late October 2022 when the trading price of bitcoin was about $20,000.

However, it was our report published on December 2, 2022 titled “Bitcoin may reach $29,000 in 2023 driven by macroeconomic factors” that expected bitcoin to rise 70% based on our expectation of a decline in US inflation rates and a substantial liquidity provision for the crypto market. Since then, inflation has indeed dropped significantly, although cryptocurrency fundamentals such as Ethereum revenue data have remained weak, but as we enter 2024, the crypto market’s upward momentum may accelerate again. A month ago, the market reached another turning point, which could provide enough impetus for the continuation of the fifth bull market.

When we published the report, we set a year-end target of $45,000 on February 3, 2023, which seemed ambitious as the trading price of bitcoin was $22,500 at that time. However, with the market approaching the $40,000 level, this price target may be achievable.

Unlocking the potential of institutional investors

Chart 3: The Grayscale GBTC discount to net asset value has narrowed from -45% to -14%, outperforming bitcoin

It seems that 61 institutional companies hold shares of Grayscale’s Bitcoin Trust (GBTC) – anyone with less than $100 million in reportable assets, in addition to high net worth individuals, family offices, and other investors. SPDR Gold (GLD) ETF has 1,090 institutional investors, similar to BlackRock’s iShares Gold ETF.

Only one Belad Bitcoin ETF can attract over 1,000 institutional investors. Although about 45 million Americans already hold cryptocurrencies, 160 million Americans own stocks. The potential impact of investors on the cryptocurrency market is still significant but often underestimated. This influx can significantly improve liquidity in the cryptocurrency market and greatly enhance the fiat-to-cryptocurrency channel, which currently mainly relies on Tether – at least based on real-time data we can monitor.

Spillover Effect: Coinbase IPO and FTX’s New Owner

With Coinbase expected to go public on April 14, 2021, Bitcoin price has skyrocketed to $61,500. All parties are coordinating and hyping it up as much as possible. Market commentator Jim Cramer tweeted, “Our bullish price target for Coinbase is $475,” which gives the company a valuation similar to Goldman Sachs. Although the company’s reference price is $250 per share, many (mostly retail) investors believe they can buy stocks at that level, valuing the company at $65 billion. With intensified media coverage, IPOs often bring tremendous momentum to an industry, and Coinbase has attracted the most customers in the pre-IPO stage.

The stock opened at $381, reached a high of $429.5, and closed at $328 on its first trading day. Today, the stock price is $88, down 77% from the direct listing price, with a market value of $21 billion. Coinbase has approximately 98 million users, with 9 million people trading on Coinbase each month.

Figure 4: Debt-Credit Value Percentage of Debt-FTX’s debt has doubled this year

A year ago, when FTX collapsed, Coinbase had a market value of $12 billion. In the last funding round, FTX was valued at $32 billion, reportedly with 8 million registered users, including 5 million active users. Despite Sam Bankman-Fried’s scandals and recent convictions, the FTX brand and its user base still hold significant value.

By December 2023, the new owner may take over the exchange. We believe the selling price of FTX could be between $200-300 million, given the number of registered users and its global brand recognition, which is an attractive price. Customer attrition is mainly attributed to SBF’s core circle, while the exchange’s brand value remains relatively intact.

Matrix on Target predicts that the obscure cryptocurrency exchange “Bullish” will acquire the entity. With sufficient funds from Block.one ownership and good connections with well-funded investors, “Bullish” lacks an active user base (and desperately needs a better name, in the humble opinion of “Matrix on Target”).

The price tag of FTX may continue to benefit FTX debt creditors. According to some estimates, the trading price of FTX debt credits is higher than $0.55, and this is before any explicit news about selling the exchange to another investor. SEC Chairman Gensler also indicated that FTX may relaunch under new leadership. This suggests that cryptocurrencies will continue to exist, and the SEC does not explicitly exclude cryptocurrencies. The new owner may use a significant amount of marketing resources and provide incentives to retain users of the exchange. This will create a huge incentive and benefit the overall sentiment of the cryptocurrency market.

Circle’s IPO Ambition and Tether’s Astonishing Market Cap Growth

It is expected that stablecoin issuer Circle will also resume its IPO plans. By the end of 2022, a transaction by SLianGuaiC (a special purpose acquisition company) ended in failure. The transaction aimed to value the company at $9 billion, but it ultimately failed. This indicates that cryptocurrency operators are increasingly confident that the cryptocurrency bull market will continue until at least 2024, if not longer. However, skeptical investors may point out that Coinbase’s IPO occurred near the market’s all-time high, leaving many investors “holding the bag”.

In the past 12 months, Circle’s USDC market cap has dropped by -47%, from $45 billion to $24 billion. The majority of the decline occurred in March 2023, when the US government seized three major banks involved in cryptocurrency investments. Circle itself also faced difficulties, as at least one of the three banks held billions of dollars. However, despite (or because of) Circle providing regular audit details and closely cooperating with US regulatory agencies, investors still prefer Circle’s big brother – USDT.

Chart 5: Tether USDT market cap has significantly increased, with new minting meaning new inflows, reaching $86 billion.

Although USDC’s market cap declined last year, Tether’s USDT grew by 30%, from $66 billion to $86 billion, reaching an all-time high. Even in the past month, as the market cap continues to increase, it seems that another $3 billion flowed into the crypto market. Since mid-October 2023, with investors increasingly believing that the macro environment favors cryptocurrency liquidity, these inflows have risen again.

With the strengthening of macro data signals, Bitcoin is about to break through the influence of inflation and macro factors on Bitcoin trading behavior.

Two months ago, the US inflation rate (CPI) unexpectedly rose from 3.2% to 3.7%. This rise broke the steady decline in inflation, which may explain why Bitcoin’s trading price remained relatively calm between $25,000 and $26,000 in late summer.

As our readers know, the decline in inflation has been a huge driving force behind macro liquidity since November 2022, and it’s a key reason why Bitcoin’s price has surged more than 113% this year. A month ago, the US inflation rate was still at 3.7%. With traders becoming more accustomed to this level and considering it a temporary rise, the price of Bitcoin rose from $27,000 to $34,000 one week after the inflation data was released.

Chart 6: Along with inflation, US Treasury yields have been a resistance for cryptocurrencies in 2022.

Other factors may also be at play, such as the short-term gamma values of Bitcoin options market makers or positive statistical data related to buying Bitcoin on an “unlucky” Friday the 13th. However, as we have proven multiple times, the decrease in inflation data triggered the rise in Bitcoin prices earlier this year. Crude oil prices have risen by over 30% from their summer lows, which could impact inflation expectations. Nevertheless, oil prices have fallen by -20% since late September. Traders may anticipate another decrease in inflation, which supports risk assets from a macro liquidity perspective.

Chart 7: Falling oil prices could trigger another round of declining US inflation.

If inflation decreases again, next week’s CPI data in the US could spark another rally in Bitcoin. Before this data is released, we can see Bitcoin attempting to break through the recent trading range of $34,000 – $35,000. Breaking $36,000 could propel Bitcoin towards the next technical resistance level of $40,000, with a potential target of $45,000 by the end of 2023.

Trading Pattern: Stable Bitcoin buying activity in the US

Chart 8: Bitcoin prices soar mainly during US trading hours.

It is worth noting that while Bitcoin experiences a decline during the Asian trading session, there is consistent and gradual buying activity during the US trading hours. One possible explanation is that Asian traders prefer altcoins over Bitcoin.

However, despite Ethereum’s growth of +16%, it is noteworthy that 70% of the returns (equivalent to +11%) occurred during the US trading hours. On the other hand, Solana maintains a more balanced performance across all three regions. This is surprising as the flow of funds from Europe is relatively small compared to the trading volumes from the US and Asian trading sessions. The even distribution of flows can be attributed to the Solana breakout event in Europe (Amsterdam).

Three “macro-positive” data points emerged last week: 1) The US Treasury slowed down the pace of long-term bond issuance, suggesting that bond yields are expected to decline; 2) Fed Chair Powell’s dovish stance during the press conference following the FOMC meeting, indicating that the Fed is unlikely to raise rates again in the near term; 3) Disappointing US employment data, reinforcing the first two points.

Chart 9: Bitcoin maintains a range-bound pattern due to a slight increase in summer CPI

The next key macro data point to watch for will be the US CPI (inflation) data, which is scheduled for release next Tuesday, November 14th. With steady growth in US buyers during the trading session and constant attempts to break through, we may see a bounce in prices by the end of the month (and this year). The Santa Claus rally could start at any time.

Original text: techflowpost.com/article/detail_14507.html

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