Matrixport: Cryptocurrency Industry Outlook for the First Half of 2024

By January 2024, we expect the SEC to approve a Bitcoin ETF, with trading expected to begin in February or March.

Stablecoin issuer Circle may list on the stock market in April.

While FTX's winning bid may be announced in December 2023, we expect the exchange to be operational in May or June 2024. FTX expects to regain its top 3 exchange position within 12 months.

The above three events and the Bitcoin halving cycle are expected to provide healthy momentum in the coming year.

Although it is challenging to view it as a significant upside catalyst, Ethereum’s EIP-4844 upgrade is scheduled for Q1 2024.

This also coincides with a possible Fed rate cut in mid-2024, as market pricing suggests the first Fed rate cut will be in June 2024.

Next week’s US CPI data could spark another rally in Bitcoin if inflation falls again. We expect Bitcoin to attempt to break out of its recent trading range of $34,000 to $35,000.

A break above $36,000 could push Bitcoin towards the next technical resistance level of $40,000 and potentially $45,000 by the end of 2023.

With a steady increase in buyers during US trading hours, and continued attempts at a Bitcoin breakout, we could see prices rebound towards the end of the month (and year end). A Santa Claus rally could start at any time.

Chart 1: Bitcoin is trying to break higher – targeting $40,000, and possibly $45,000

Expected potential impact of US-listed Bitcoin ETFs 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, potentially driving up the price of Bitcoin. Crypto assets have performed strongly in 2023, outperforming most other assets. Our fundamental value proposition lies in a U.S.-listed Bitcoin ETF with the potential for Registered Investment Advisors (RIAs) to manage $5 trillion in assets primarily through ETFs, using Bitcoin as a cornerstone of a multi-asset portfolio. Just a 1% allocation would result in $50 billion in Bitcoin inflows.

Chart 2: Year-to-date performance of selected assets

By January 2024, we expect the SEC to approve a Bitcoin ETF, with trading expected to begin in February or March. Stablecoin issuer Circle could list on the stock market in April. While FTX’s winning bid may be announced in December 2023, we expect the exchange to be operational in May or June 2024.

The three events mentioned above and the Bitcoin halving cycle are expected to provide healthy momentum in the coming year. Although it is challenging to view it as a significant upside catalyst, in the first quarter of 2024, Ethereum’s IEP-4844 upgrade is scheduled to proceed.

Meanwhile, the US Federal Reserve could cut rates in mid-2024 as market pricing suggests the first rate cut will be in June 2024. This happens when macro liquidity shifts from a rate peak-driven tailwind to providing double liquidity via rate cuts.

Our year-end price target moves from aspirational to achievable

A year ago, we published a report titled “Bitcoin Could Rally to $63,160 by March 2024” in which we argued that the ideal Bitcoin buying opportunity has historically occurred 14-16 months before the next halving, in late October 2022, when Bitcoin is trading around $20,000.

However, it was our report published on December 2, 2022, "Bitcoin could reach $29,000 in 2023, driven by macroeconomic factors", which predicted a 70% increase in Bitcoin based on our expectation that US inflation will fall and provide abundant liquidity to the crypto market.

Since then, inflation has indeed fallen significantly, and while crypto fundamentals such as Ethereum revenue data have been weak, the upward momentum in the crypto market could reaccelerate as we head into 2024. A month ago, the market entered another inflection point, which could provide enough impetus for the continuation of the fifth bull run.

Our year-end 2023 target of $45,000, set on February 3, 2023, when we published the report, appeared ambitious as Bitcoin was trading at $22,500 at the time. However, as the market moves higher towards the $40,000 level, this price target may be achievable.

Unleashing the potential of institutional investors

Chart 3: Grayscale GBTC’s discount to NAV has narrowed from -45% to -14%, outperforming Bitcoin

Grayscale’s Bitcoin Trust (GBTC) shares appear to be held by 61 institutional firms — anyone with less than $100 million in reportable assets, in addition to other investors such as high-net-worth individuals, family offices, etc. The SPDR Gold (GLD) ETF has 1,090 institutional investors, similar to BlackRock’s iShares Gold ETF.

The BlackRock Bitcoin ETF alone could attract more than 1,000 institutional investors. While approximately 45 million Americans already hold cryptocurrencies, 160 million Americans have stock investments. The potential impact of investors on the cryptocurrency market remains huge, but often underestimated. This influx could significantly increase liquidity in the cryptocurrency market and greatly improve the fiat-to-crypto on-ramp, which is currently limited primarily to Tether — at least based on the real-time data we can monitor.

Spillover Effect: Coinbase IPO and FTX’s New Owner

The price of Bitcoin has surged to $61,500 in anticipation of Coinbase's initial public offering (or direct listing) on ​​April 14, 2021. There was a coordinated effort to generate as much hype as possible. Market commentator Jim Cramer tweeted that "we're bullish on Coinbase at $475," giving the company a similar valuation to Goldman Sachs. Although the company gave a reference price of $250 per share, many (mostly) retail investors believed they could buy shares at that level, valuing the company at $65 billion. IPOs tend to bring huge momentum to an industry as media coverage intensifies, and Coinbase attracted the most customers in the pre-IPO phase.

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

Chart 4: Claims as a percentage of creditor value - FTX claims have tripled this year

When FTX collapsed a year ago, Coinbase had a market cap of $12 billion. In its last funding round, FTX was valued at $32 billion and reportedly had 8 million registered users, of which 5 million were active. Despite the Sam Bankman-Fried scandal and recent conviction, the FTX brand and its user base remain of significant value.

By December 2023, a new owner is likely to take over the exchange. We believe FTX could be sold for $2-3 billion, an attractive price considering the number of registered users and its global brand recognition. Customer churn is mainly attributed to SBF’s inner circle, while the exchange’s brand value is relatively intact.

Matrix on Target anticipates that the lesser-known cryptocurrency exchange “Bullish” will acquire the entity. Well-funded through Block.one ownership, and well-connected to deep-pocketed investors, “Bullish’s” exchange desperately lacks an active user base (and desperately needs a better name, in “Matrix on Target’s” humble opinion).

FTX’s price tag will likely continue to benefit FTX creditors. According to some estimates, FTX creditor claims were trading above 55 cents on the dollar, and that was before definitive news about the exchange’s sale to another investor. SEC Chairman Gensler also said that FTX may restart under new leadership. This suggests that cryptocurrencies are here to stay and that the SEC is not explicitly ruling them out. The new owner will likely use significant marketing resources and offer incentive fees to retain the exchange’s users. This will create a huge momentum that will benefit the overall sentiment in the cryptocurrency market.

Circle’s IPO ambitions and Tether’s astonishing market cap growth

Stablecoin issuer Circle is also expected to restart its IPO plans. A SPAC (special purpose acquisition company) deal that aimed to value the company at $9 billion failed in late 2022. This shows that cryptocurrency operators are increasingly confident that the cryptocurrency bull run will continue until 2024, if not longer. However, critical investors may point out that Coinbase's IPO occurred when the market was close to its absolute top, leaving many investors "sitting on the sidelines."

Over the past 12 months, Circle’s USDC market cap has fallen by -47%, from $45 billion to $24 billion. Most of the decline occurred in March 2023 when the U.S. government seized three important banks for cryptocurrency investors. Circle itself got into trouble, as billions of dollars were stored in at least one of the three banks. But despite (or because of) Circle providing regular audit details and working closely with U.S. regulators, investors still prefer Circle’s big brother, USDT.

Chart 5: Tether USDT market value has risen sharply, new minting means new inflows, $86 billion

While USDC’s market cap has fallen over the last year, Tether’s USDT has grown by 30%, from $66 billion to $86 billion, reaching an all-time high. Even in the last month, it seems that another $3 billion has flowed into the crypto market as the market cap continues to increase. Since mid-October 2023, these flows have risen again as investors have become increasingly convinced that the macro environment is favorable for cryptocurrency liquidity conditions.

As macro data signals strengthen, Bitcoin is on the verge of breaking through the influence of inflation and macro factors on Bitcoin trading behavior.

Two months ago, the U.S. inflation rate (CPI) unexpectedly rose from 3.2% to 3.7%. This rise broke the downward trend in inflation, which may explain why Bitcoin was relatively quiet in the late summer, trading between $25,000 and $26,000.

As our readers know, falling inflation has been a huge driver of macro liquidity since November 2022, and a key reason why the price of Bitcoin has surged over 113% this year. A month ago, inflation in the United States was still at 3.7%. As traders became more comfortable with this level and believed that this was a temporary increase, the price of Bitcoin rose from $27,000 to $34,000 a week after the inflation data was released.

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

Other factors may also have played a role, such as short-term gamma for Bitcoin options market makers or positive statistics associated with buying Bitcoin on “unlucky” Friday the 13th. However, as we have demonstrated many times, falling inflation data triggered the rally in Bitcoin prices earlier this year. Crude oil prices have risen by more than 30% from their summer lows, which may have influenced inflation expectations. Nonetheless, oil prices are down -20% since late September. Traders may expect inflation to fall again, which supports risk assets from a macro liquidity perspective.

Chart 7: Lower oil prices could trigger another round of lower US inflation

Next week’s US CPI data could spark another rally in Bitcoin if inflation falls again. Ahead of this data release, we could see Bitcoin attempt to break out of the recent $34,000 – $35,000 trading range. A breakout above $36,000 could push Bitcoin towards the next technical resistance at $40,000 and potentially $45,000 by the end of 2023.

Trading Patterns: U.S. Bitcoin Buying Activity Steady

Chart 8: Bitcoin prices surged mainly during US trading hours

It is worth noting that despite Bitcoin’s decline during the Asian trading session, there was a sustained and gradual buying activity during the U.S. trading session. One possible explanation is that Asian traders favor altcoins over Bitcoin.

However, despite Ethereum’s +16% returns, it’s worth noting that 70% of these returns (equivalent to +11%) occurred during the US trading session. Solana, on the other hand, maintained a more balanced performance across all three regions. This is surprising, as flows from Europe are relatively small compared to volumes during the US and Asian trading sessions. The even distribution of flows can be attributed to the Solana breakout conference in Europe (Amsterdam).

Three “macro-positive” data points emerged last week: 1) the U.S. Treasury slowed its pace of long-term bond issuance, suggesting that bond yields should fall; 2) Chairman Powell’s dovish stance at the post-FOMC press conference indicated that the Fed is unlikely to raise rates again this cycle; and 3) disappointing U.S. jobs data, reinforcing the first two points.

Chart 9: A slight rise in summer CPI keeps Bitcoin range-bound

The next key macro data point will be the US CPI (inflation) data, due out next Tuesday (November 14). With a steady increase in buyers during the US trading session and Bitcoin’s continued breakout attempts, we may see a rebound in price towards the end of the month (and the year). The Santa Claus rally could start at any time.