Matrixport Research Six Predictions for the Cryptocurrency Market in the First Half of 2024

Author | Matrixport

This article represents the personal opinions of Markus Thielen, analyst at Matrixport, and does not represent the views of Wu Shuo.

Summary

• In the first half of 2024, the crypto industry will experience five micro events and one macro event that could have a positive impact on the industry and potentially drive up the price of Bitcoin.

  • CME Bitcoin futures surpass Binance for the first time a milestone moment for the crypto market
  • Is Bitcoin’s Bull Market Back? Ride the Rollercoaster of Crypto Investing
  • Solana’s Bull Run: A Resilient Rise in the Face of Bankruptcy

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

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

• While news of FTX’s listing may be announced in December 2023, we anticipate the exchange to launch in May or June 2024. FTX is expected to regain its position as one of the top three exchanges within 12 months.

• The aforementioned three events and the Bitcoin halving cycle are expected to provide healthy momentum for the next 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 aligns with the possibility of a mid-year interest rate cut by the Federal Reserve, as market pricing indicates the Fed will make its first rate reduction in June 2024.

If inflation drops again, next week’s U.S. CPI data could trigger another round of Bitcoin price increase. We expect Bitcoin to attempt to break through the recent trading range of $34,000 to $35,000. Breaking $36,000 could propel Bitcoin towards the next technical resistance level at $40,000 and potentially reach $45,000 by the end of 2023. With steady increases in buyers during U.S. trading hours and the ongoing attempts to break through, we could see a rebound in price at the end of this month (and the year). The Santa Claus rally could start at any moment.

Chart 1: Bitcoin is attempting to break higher prices – target of $40,000 and possibly even $45,000

Expected Potential Impact of U.S. Bitcoin ETF Listing in 2024

In the first half of 2024, there will be five micro events and one macro event in the cryptocurrency industry that could have a positive impact and potentially drive up the price of Bitcoin. In 2023, crypto assets performed well, outperforming most other assets. Our fundamental belief is in the listing of a Bitcoin ETF in the US, with the potential of having a Registered Investment Advisor (RIA) managing $5 trillion in assets through ETFs, with Bitcoin as the cornerstone of a multi-asset investment portfolio. Just a 1% allocation could result in $50 billion worth of Bitcoin inflow.

Chart 2: Performance of selected assets 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 could potentially go public on the stock market in April. While the bidding for FTX could be announced in December 2023, we anticipate the exchange to begin operations in May or June 2024. These three events, along with the Bitcoin halving cycle, are expected to provide healthy momentum for the coming year. Although considering them as significant catalysts for upward movement is challenging, in the first quarter of 2024, Ethereum’s IEP-4844 upgrade plan will take place. At the same time, the Federal Reserve may cut interest rates in mid-2024 as market pricing indicates the first rate cut in June 2024. This scenario occurs when macro liquidity transitions from rate-driven headwinds to doubling liquidity through rate cuts.

Our year-end price target goes from ambitious to achievable

A year ago, we released a report titled “Bitcoin may rebound to $63,160 in March 2024.” In the report, we believed the ideal buying opportunity for Bitcoin historically occurs in the 14-16 months leading up to the next halving, around late October 2022, when Bitcoin was trading at around $20,000. However, it was our report published on December 2, 2022, titled “Bitcoin could reach $29,000 in 2023 driven by macroeconomics,” which anticipated a 70% increase in Bitcoin based on our expectations of a decrease in US inflation rate and significant liquidity for the crypto market.

Since then, inflation has indeed decreased significantly, and although cryptocurrency fundamentals such as Ethereum revenue data have remained weak, as we enter 2024, the upward momentum in the cryptocurrency market could pick up again. A month ago, the market entered another turning point, which could provide enough momentum for the continuation of the fifth bull market. When we issued 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 the time. However, with the market approaching the $40,000 level, this price target may be achievable.

Unlocking the Potential of Institutional Investors

Figure 3: The discount of Grayscale’s GBTC relative to net asset value has narrowed from -45% to -14%, outperforming Bitcoin

It seems that Grayscale’s Bitcoin Trust (GBTC) stocks are held by 61 institutional companies – anyone with reported assets of less than $100 million, apart from 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. The Bitwise Bitcoin ETF alone has attracted over 1,000 institutional investors. While around 45 million Americans already own cryptocurrencies, there are 160 million Americans who own stocks. The potential impact of investors on the cryptocurrency market is still significant but often underestimated. This influx can significantly improve the liquidity of the cryptocurrency market and greatly enhance the fiat-to-crypto channels, which currently mainly rely on Tether – at least based on real-time data that we can monitor.

Spillover Effects: Coinbase IPO and the New Owner of FTX

With Coinbase’s initial public offering (IPO) or direct listing expected on April 14, 2021, the price of Bitcoin has soared to $61,500. All parties are coordinating to create as much hype as possible. Market commentator Jim Cramer tweeted, “Our price target for Coinbase is $475,” which gives the company a valuation similar to Goldman Sachs. Although the reference price given by the company is $250 per share, many (mostly retail) investors believe they can acquire shares at that level, thus valuing the company at $65 billion. With increased media coverage, an IPO often brings tremendous momentum to an industry, and Coinbase has attracted the most customers during the pre-IPO stage.

The stock opened at $381, reached a high of $429.5, and closed at $328 on the first trading day. Now, the stock is at $88, 77% lower than the direct listing price, with a market cap of $21 billion. Coinbase has approximately 98 million users, with 9 million people trading on Coinbase monthly.

Figure 4: Crypto collateralized debt obligations (CCDO) priced as a percentage of face value – FTX CCDO has doubled this year

A year ago, Coinbase had a market cap of $12 billion when FTX collapsed. In the latest funding round, FTX was valued at $32 billion and reportedly had 8 million registered users, with 5 million of them being active users. Despite the scandals surrounding Sam Bankman-Fried and recent convictions, the FTX brand and its user base still hold significant value. By December 2023, the new owners may take over the exchange. We believe the selling price of FTX could be $200-300 million, considering the number of registered users and its global brand recognition. Customer attrition is mainly attributed to SBF’s core circle, while the brand value of the exchange remains relatively intact.

Matrix on Target predicts that the little-known cryptocurrency exchange “Bullish” will acquire the entity. Block.one has secured sufficient funding through ownership and has good connections with well-funded investors, but “Bullish” lacks an active user base (and desperately needs a better name, in my humble opinion, “Matrix on Target” perhaps?). The price tag of FTX may continue to benefit FTX creditors. According to some estimates, the trading price for FTX creditor claims is above 55 cents, and this is before any explicit news of 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 offer incentives to retain users of the exchange. This will create significant motivation and favor the overall sentiment of the cryptocurrency market.

Circle’s IPO ambition and the astonishing market cap growth of Tether

It is expected that stablecoin issuer Circle will also resume its IPO plans. At the end of 2022, a deal by SLianGuaiC (Special Purpose Acquisition Company) ended in failure, aiming to value the company at $9 billion, but ultimately failed. This indicates that cryptocurrency operators are increasingly confident in the cryptocurrency bull market continuing until 2024 (if not longer). However, critical investors may point out that Coinbase’s IPO occurred near the market’s absolute top, leaving many investors “waiting for a loss.”

In the past 12 months, Circle’s USDC market cap has dropped by -47%, from $45 billion to $24 billion. Most of the decline occurred in March 2023 when the US government seized three important banks for cryptocurrency investors. Circle itself also ran into trouble as at least one of these banks held several billion dollars. But despite (or because of) providing details of regular audits and closely cooperating with US regulatory agencies, investors still prefer Circle’s big brother – USDT.

Figure 5: Tether USDT market cap significantly increased, new minting means new influx, $86 billion.

Although the market cap of USDC decreased last year, Tether’s USDT increased by 30%, from $66 billion to $86 billion, reaching a historical high. Even in the past month, as the market cap continues to increase, it seems that another $3 billion has flowed into the cryptocurrency market. Since mid-October 2023, with investors increasingly believing that the macro environment is favorable for cryptocurrency liquidity, these inflows have once again risen.

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 United States’ Consumer Price Index (CPI) unexpectedly rose from 3.2% to 3.7%. This increase broke the continuous decline in inflation, which may explain why the price of Bitcoin was relatively stable between $25,000 and $26,000 in late summer.

As our readers know, the decline in inflation has been a huge driver of macro liquidity since November 2022, and it is also a key reason why Bitcoin prices have soared over 113% this year. One month ago, the US inflation rate was still at 3.7%. As traders became more accustomed to this level and considered it a temporary increase, the price of Bitcoin rose from $27,000 to $34,000 a week after the inflation data was released.

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

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

Chart 7: Falling oil prices may trigger another round of US inflation decline

If inflation falls again, next week’s US CPI data may trigger another round of Bitcoin price increases. Before this data is released, we can see Bitcoin attempting to break through the recent $34,000 – $35,000 trading range. Breaking $36,000 may push Bitcoin towards the next technical resistance level of $40,000, potentially reaching $45,000 by the end of 2023.

Trading Pattern: Stable US Bitcoin Purchasing Activity

Chart 8: Bitcoin prices primarily surge during the US trading session

It is worth noting that despite Bitcoin’s decline during the Asian trading session, there has been consistent and gradual buying activity during the US trading session. One possible explanation is that Asian traders prefer altcoins over Bitcoin.

However, despite Ethereum’s +16% increase in returns, it is worth noting that 70% of the returns (equivalent to +11%) occurred during the US trading session. On the other hand, Solana has maintained 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 Asia. The even distribution of liquidity can be attributed to the Solana breakthrough conference in Amsterdam, Europe.

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

Chart 9: Bitcoin maintains range volatility due to a slight increase in summer CPI.

The next key macro data point will be the US CPI (inflation) data, which is scheduled to be released on Tuesday (November 14th). With a steady increase in buyers during the US trading session and continued attempts at breaking through, we may see a rebound in prices at the end of the month (and year). The Santa Claus rally could start at any time.

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