The most recent crypto winter—a prolonged period of price weakness—started in 2022, triggered by US inflation reaching multi-decade highs. Record-high inflation promoted the Federal Reserve to raise interest rates, heavily impacting risk assets like stocks and cryptocurrencies.
By November of that year, FTX, an exchange once valued at $32 billion, collapsed, taking crypto sentiment downhill and prices on a freefall. Before the FTX collapse, Bitcoin hit an all-time high of $68,569. Shortly after the widely-known exchange’s failure, Bitcoin’s price plummeted.
The effects of crypto winter combined with rising interest rates, insufficient risk management, and the regulatory crackdown on financial institutions supporting crypto companies led to the bank runs and eventual failure of crypto- and startup-friendly Signature Bank and Silvergate Bank.
Bitcoin and crypto prices partially rebounded in 2023, with Bitcoin’s price reaching a critical resistance level of $30,000 and ending the year with a 155% gain.
On a risk-adjusted basis, Bitcoin ranked third in risk-adjusted returns, after NVIDIA and Meta—two of the world’s largest tech companies. Nonetheless, 2023 did not feel like a full recovery. It only felt like the start of potentially better things to come, especially with the regulatory uncertainty continuing to surround crypto.
In early 2024, however, market sentiment appears to have fully reversed. The total crypto market cap recently reached $2.5 trillion, with Bitcoin surging to its highest level since its previous all-time high. Here, we discuss why 2024 could mean a different time for Bitcoin and the rest of crypto by identifying the catalysts that could push crypto prices to new levels.
Five Catalysts That Could Drive Crypto to New Highs in 2024
The year 2024 started with many positive developments, the foremost of which has been the US Securities and Exchange Commission’s historic approval of 11 spot Bitcoin ETFs, nine entirely new. Any or all such developments could drive a new crypto bull market:
Bitcoin Spot ETF approvals
After over a decade of denials, spot Bitcoin ETF applicants came through with 11 approvals on January 10, 2024. The ETFs will make exposure to Bitcoin much more accessible for millions of traditional investors with little or no experience in the crypto markets.
The spot Bitcoin ETFs represent a significant milestone in the history of crypto and financial markets. While the US SEC’s approval was lukewarm, the response was overwhelmingly positive. With billions of dollars in net inflows in their first weeks, the Bitcoin ETFs catalyzed FOMO (fear of missing out) among traders, pushing the price of Bitcoin to near all-time highs in a short period.
The recent performance of Bitcoin ETFs has been astounding. Soon after their launch, the demand for BTC ETFs accelerated, raking in a record $2.4 billion out of $2.45 billion flowing into crypto investment products, according to a CoinShares report.
Daily inflows per fund reached as high as hundreds of millions of dollars. As of March 1, 2024, BlackRock’s iShares Bitcoin ETF (IBIT) tallied $203 million in inflows, according to BitMEX Research.
The Spot Bitcoin ETFs usher in a new era of Wall Street involvement. The potential future inflows could be in the tens of billions of dollars, driving the demand for the underlying asset, Bitcoin, to new levels.
The impact on price is already being felt today. Bitcoin price jumped over 45 percent in the last month. By the end of February, the combined daily volume of 10 ETFs amounted to $7.7 billion, driven by institutional speculation and leveraged bets.
Moreover, Bitcoin ETFs are gaining on gold ETFs at record speed. By February 29, the combined holdings of all US-based Bitcoin ETFs reached roughly half the total value of all gold ETFs.
Those who predicted the enormous impact on Bitcoin demand of the spot ETFs were right. Aside from providing retail investors with convenient and familiar exposure to Bitcoin’s price, just as with any stock or bond in a traditional brokerage account, the implications for institutional demand are more significant.
Pension funds, endowment funds, broker-dealers, registered investment advisors, and banks will now be free to acquire spot Bitcoin. Such institutions manage billions to trillions of dollars of wealth. The security wrapper provided by the ETF fits into their existing regulatory frameworks.
As retail and institutional demand heightens over time, Bitcoin price could be pushed to new heights, and an actual bull run for crypto could soon follow. Those who desire exposure to traditional assets like stocks, gold, and cryptocurrency must find an FX broker that provides comprehensive options for forex, precious metals, and crypto trading in a single account.
Potential Fed rate cuts on the horizon
In 2022, most asset prices suffered due to one of the Federal Reserve’s fastest hiking cycles in history.
In addition, the US continued on a spending spree, running trillion-dollar deficits quickly and conflicting with the Fed’s goals to bring down inflation to a minimum through rate hikes. The CBO projects that the deficits will only grow within the coming years.
With the US government’s spending spree remaining in place, the Fed appears ready to end its successive rate hikes. The Fed has been signaling rate cuts despite CPI inflation exceeding its 2 percent target. The market expects the US Fed to cut rates approximately six times or drop the Fed funds rate to 1.65 percent.
In this scenario, inflation could come back with a vengeance. Rising inflation could be a natural consequence when the Fed stops shrinking its balance sheet and reverses rate cuts even as the US government continues running its trillion-dollar deficits.
In a stimulative fiscal and monetary policy environment, we could see liquidity flowing into financial markets again. Asset prices will inevitably run as a consequence.
Given such an environment, scarce, hard assets benefit and appreciate the most. Bitcoin is a very scarce asset and arguably the hardest asset in existence.
FASB updates on Bitcoin accounting rules
Chief Financial Officers or CFOs face hurdles when allocating capital to Bitcoin. Businesses would need to classify it as an intangible asset. This approach means that any Bitcoin in a company’s treasury or balance sheet has to be marked when the price goes down. However, the company cannot record its value if the price appreciates.
This discrepancy causes significant impairments in companies’ balance sheets should the Bitcoin price drop. In other words, the Bitcoin on a balance sheet would be marked lower than the actual market price if held as a treasury reserve asset.
However, the rules around corporate accounting for Bitcoin have changed in 2024. The FASB has approved some changes that apply fair accounting for BTC starting December 2024. The new rules fix the impairment problem and allow businesses to accurately record gains and losses on their BTC positions, thus treating BTC like any other financial asset on a balance sheet.
As a result of the new rule, Bitcoin could see wide adoption as a treasury reserve asset for corporations. Corporations could use BTC to protect their treasuries from inflation and currency debasement.
Bitcoin Holders Refuse to Sell
Bitcoin’s supply side also plays a significant part in propping up the price. So far, the previous variables, like Spot Bitcoin ETFs, revised FASB rules, and favorable monetary policy, all point to the demand side of the occasion. However, the supply-side factors could positively impact BTC prices over the next year or so.
Photo by Mediamodifier on Unsplash
On-chain data shows that Bitcoin investors are barely moving their BTC. Up to 70 percent of all circulating supply hasn’t moved in at least a year, a near-record high of static addresses.
This phenomenon of non-moving Bitcoin could further restrict the amount of available BTC. As large institutions have begun to allocate at a rate unseen in financial history, the supply of Bitcoin has become even more scarce. The acquisition will become difficult without driving prices up, given that current holders are reluctant to part with their coins.
Upcoming Bitcoin Halving in April 2024
Bitcoin’s block reward will be reduced from the current 6.25 BTC to 3.25 BTC. Thus, the Bitcoin production rate through mining will drop from about 900 BTC to 450 BTC daily. Historically, we’ve seen Bitcoin’s price rally just before its halving.
It would be reasonable to expect the price to front-run the halving this year, given the higher number of investors interested in BTC and their increased familiarity with it. Over 95 percent of Bitcoin will have been mined as of this halving, which will resonate with the markets given its definitive scarcity.
How To Capitalize on Bitcoin’s Uptrend: Monitor the Catalysts
In 2024, many factors point to a better year for Bitcoin. For the first time, a confluence of factors brings together a considerable rise in demand and a potential supply crunch. The approval of several Spot Bitcoin ETFs from some of the world’s largest asset managers, the changes in the Fed’s policy, and the changes in FASB’s accounting rules affecting corporate treasuries all point to higher demand from institutions.
On the other hand, the unwillingness of Bitcoin holders to sell their coins and the diminishing rate of Bitcoin production through the upcoming halving point to supply scarcity. All factors point to a period of significant price growth for BTC. Crypto traders understand that, like a tide that raises all ships, BTC buoys the entire crypto market, leading to a more significant crypto market cap.
Those who wish to capitalize on this potential uptrend must monitor the above catalysts carefully and decide on their trading strategies and positions in 2024 based on their financial goals and risk tolerance.
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