Cryptocurrencies hop up and down in value on a daily and weekly basis. This is the basis of short term crypto trading. Cryptocurrencies also follow longer term swings in value such as in 2017 to 2018, 2020 to 2022, and from the end of 2022 to the present. Short term up and down movements in crypto prices have to do with short-term market sentiment. Movements over the longer term have to do with fundamentals that drive crypto as well as other markets such as the stock market. That having been said, will 2024 be a good year for crypto?
Crypto and Interest Rates
Crypto winter came about when the US faced the highest rate of inflation in four decades. Like when that happened 40 years ago, the US central bank, the Federal Reserve, raised interest rates month by month. The point was to slow the economy and bring inflation under control. They have nearly succeeded as inflation has cooled significantly. Thus, the Fed has paused their monthly rate increases. This has encouraged folks trading crypto as well as the stock market. Rate increases drove both stocks and crypto down. Now that investors expect an end to repeated rate hikes, there is the potential for crypto (as well as stocks) to have a couple of great years going forward.
Spot Bitcoin ETFs As a Stimulus to Bitcoin Trading
A lot of folks who invest in things like stocks and bonds might be interested in crypto investments as well. However, many of them are not interested in having a crypto wallet, remembering keys or passwords, or worrying about blockchain hacks. They like the idea of buying Bitcoin like they buy stocks using an exchange traded fund or ETF. There are currently several spot Bitcoin ETFs waiting for approval with the Securities and Exchange Commission. If these get approval, it holds the potential for Bitcoin trading to multiply in volume. How these systems work is that a person buys shares of the ETF and the EFT buys and holds Bitcoin. The more folks who buy into the ETF the more Bitcoin is bought and sold. If rates stay put or even start to fall and more trading of Bitcoin happens via ETFs, we could be seeing a spectacular year for Bitcoin.
Regulatory Activity and Crypto Prices
The crypto market outlook going into 2024 is still somewhat uncertain in regard to regulatory activity. The downward price pressures on crypto during crypto winter uncovered lots of dumb business practices and some outright fraud. Crypto businesses have collapsed and crypto star, Sam Bankman-Fried, is currently standing trial for fraudulent actions committed as FTX fell apart. Binance and Coinbase are both being sued by regulators. The bottom line is whose rules crypto will follow going forward, its own or those of the larger financial community. While some regulators would just as soon that crypto went away, it is not going to. Regulations may make more work for companies doing business in crypto but they will also most likely make crypto investments safer for those who have no interest in gaming the system. It is our considered opinion that by making the crypto world safer it will increase interest in long term investments and lead to greater price stability. All in all we expect 2024 to be a good year for crypto.