Beware of bull market slogans, beware of being thrown off the train

Aside from the high-profile court case, most of 2023 has been a fairly uneventful year for cryptocurrencies. Market activity has been largely flat compared to historical averages. Major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) have traded sideways throughout the year, with the total volume locked (TVL) in the decentralized finance ecosystem fluctuating slightly and well below all-time highs. This lack of wild swings is far from the norm in our usual definition of a market, though a small price increase in the fourth quarter capped a positive end to the year.

It’s not been a money-making year. But the recent approval by the U.S. Securities and Exchange Commission ( SEC ) of 11 bitcoin spot exchange-traded fund (ETF) applications, including heavyweight players such as BlackRock , Ark Investments/ 21Shares , Fidelity, Invesco and VanEck , has led to a surge in bitcoin prices.

Investor enthusiasm is high, and speculation is rife that a sustained bull run will replace the previous crypto winter.

While I remain bullish on digital assets and the broader crypto industry in the long term, there are reasons to be cautious heading into 2024. Investors are facing mixed signals, and the potential for good news in the form of a Bitcoin ETF approval — which has been making headlines in the crypto industry for months — has already been priced in.

While the market didn’t surge last year, it didn’t plummet either, and there was enough optimism to keep prices stable. Much of this optimism has to do with two major events in 2024: the recent approval of a Bitcoin spot ETF and the potential approval of an Ethereum exchange-traded fund (ETF) in the U.S., as well as the upcoming Bitcoin halving.

The approval of the ETF is expected to bring improved trading volume and liquidity to the entire cryptocurrency market, and the halving will prevent BTC from deflation, thereby supporting prices.

Many experts attribute the fourth quarter’s pricing gains to these factors, and bullish activity in the derivatives markets has been accompanying them. Overall, investors appear to be betting that central bank rate hikes are largely a thing of the past, and these optimistic comments carry enough weight to expect a bull market breakout in 2024.

While there is an undeniable positive impact on market sentiment reflected by institutional recognition and recent price gains, I believe there is some truth to what Wall Street says about “buy the rumor, sell the news.” The cryptocurrency market is forward-looking, and traders who have bought into the rumor may be waiting to sell regardless of the news.

After an initial surge driven by the much-anticipated news, the market could quickly pare those gains as broader adoption fails to keep pace. A subsequent correction could occur before a true bull run begins. ETFs are a big step forward, but not enough to declare that we have achieved mass adoption of cryptocurrencies. While the approval of a Bitcoin spot ETF is a big win, I wouldn’t expect all-time highs in crypto asset prices or total value locked (TVL) anytime soon.

As for Bitcoin’s halving in the second quarter, it will support the market but is unlikely to drive a full-blown bull run. This anti-inflationary measure makes it more difficult to mine new Bitcoins, limiting supply. In the absence of mass cryptocurrency adoption, this alone will not be enough to get us back to BTC’s peak near $69,000, let alone surpass it.

On the other hand, another reason for optimism is that 2024 is an election year in the United States. We speculate that U.S. regulators will reduce some of the headline-grabbing legal actions in this high-stakes year. Therefore, there may be less bad news on the cryptocurrency side to dampen investor enthusiasm , which could set the stage for the next bullish trend.

All in all (black swan events aside), crypto asset prices will be more stable in 2024. My base case is that the market will bottom out and begin a more meaningful recovery in the fourth quarter of 2024. In the meantime, we can expect some minor volatility as investors move from excited expectations to mild disappointment.

However, the relatively low overall volatility suggests that the crypto financial markets are maturing, and therefore our investing and trading strategies must mature as well.