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

If inflation continues to decline, next week's CPI data in the United States could trigger another round of

Bitcoin price

increases. We anticipate that Bitcoin will attempt to break through the recent trading range of $34,000 to $35,000. Breaking through $36,000 could propel Bitcoin toward the next technical resistance level of $40,000, with a potential target of $45,000 by the end of 2023. With a steady increase in buyers during U.S. trading hours and ongoing attempts to break through, we may see a rebound in prices at the end of this month (and the end of the year). The “Santa Claus rally” could potentially commence.

The Anticipated Potential Impact of a Listed Bitcoin ETF in 2024

In the first half of 2024, the crypto industry is anticipated to witness five micro-level events and one macro-level event that could potentially have positive implications for the industry, possibly driving up the price of Bitcoin. In 2023, crypto assets performed strongly, outpacing many other assets. Our fundamental thesis revolves around the potential for a Bitcoin ETF listed in the United States, catering to registered investment advisors (RIAs) managing a significant $5 trillion in assets through ETFs, positioning Bitcoin as a cornerstone in multi-asset investment portfolios. With just a 1% allocation, this could result in a substantial $500 billion inflow into Bitcoin.

By January 2024, it is expected that the U.S. Securities and Exchange Commission (SEC) will approve a Bitcoin ETF, with trading likely commencing in February or March. Stablecoin issuer Circle might go public on the stock market in April. While news about FTX winning a bid may be announced in December 2023, the exchange is anticipated to start operating in May or June 2024. These three events, along with the Bitcoin halving cycle, are expected to provide robust momentum for the coming year. Despite viewing them as significant upward catalysts, the first quarter of 2024 will see Ethereum's EIP-4844 upgrade plan. Meanwhile, the U.S. Federal Reserve may cut interest rates in mid-2024, as market pricing indicates the Fed's first rate cut in June 2024. This scenario arises as macro liquidity shifts from rate-driven headwinds to double liquidity provided through rate cuts.

Our Year-End Price Target Has Shifted from Ambitious to Achievable

A year ago, we released a report titled “Bitcoin May Rebound to $63,160 by March 2024.” In that report, we believed that the ideal Bitcoin buying opportunity historically occurred 14-16 months before the next halving, which was around late October 2022, when Bitcoin was trading at approximately $20,000. However, it was our report released on December 2, 2022, titled “Bitcoin Could Reach $29,000 in 2023 Driven by Macroeconomics,” that projected a 70% increase in Bitcoin based on our expectations of a decline in the U.S. inflation rate and ample liquidity for the crypto market.

Since then, inflation has indeed decreased significantly. Although

cryptocurrency

fundamentals, such as Ethereum revenue data, have been weak, as we enter 2024, the upward momentum in the cryptocurrency market may accelerate again. A month ago, the market entered another inflection point, which could provide enough impetus for the continuation of the fifth bull market. When we set the year-end target for 2023 at $45,000 on February 3, 2023, the goal seemed ambitious as Bitcoin was trading at $22,500 at that time. However, with the market approaching the $40,000 level, achieving this price target may be within reach.

Unlocking the Potential of Institutional Investors

Grayscale's Bitcoin Trust (GBTC) stock appears to be held by 61 institutional companies—excluding high-net-worth individuals and family offices, anyone with reportable assets below $100 million. SPDR Gold (GLD) ETF has 1,090 institutional investors, similar to BlackRock's iShares Gold ETF. Just the BNY Mellon Bitcoin ETF can attract over 1,000 institutional investors. While about 45 million Americans already hold cryptocurrencies, 160 million Americans own stock investments. The potential impact of investors on the cryptocurrency market remains significant but is often underestimated. This influx can significantly boost liquidity in the cryptocurrency market and greatly improve the fiat-to-crypto channels, currently mainly limited to Tether—at least based on real-time data we can monitor.

Spillover Effect: New Horizons for Coinbase IPO and FTX

Due to the anticipated initial public offering (IPO) of Coinbase on April 14, 2021, Bitcoin's price surged to $61,500. With coordinated efforts, there was widespread speculation. Market commentator Jim Cramer tweeted, “Our target price for Coinbase is $475,” providing the company with a valuation similar to Goldman Sachs. Although the company's reference price was $250 per share, many (mostly retail) investors believed they could purchase shares at that level, valuing the company at $65 billion. With intensified media coverage, IPOs often bring significant momentum to an industry, and Coinbase attracted the most customers in the pre-IPO stage.

The stock opened at $381, reached a high of $429.5, and closed at $328 on its first trading day. Currently, the stock is priced at $88, a 77% decrease from the direct listing price, with a market value of $21 billion. Coinbase has approximately 98 million users, with 9 million trading monthly on the platform.

A year ago, when FTX collapsed, Coinbase's market value was $12 billion. In the previous funding round, FTX was valued at $32 billion, reportedly with 8 million registered users, including 5 million active users. Despite Sam Bankman-Fried facing scandals and recent convictions, the FTX brand and its user base still hold significant value. By December 2023, new owners might take over the exchange. We estimate FTX's sale price could range from $2-3 billion, considering the number of registered users and its global brand recognition, making it an attractive offer. Customer attrition is mainly attributed to SBF's inner circle, while the brand value of the exchange remains relatively intact.

Matrix on Target predicts that the relatively unknown

cryptocurrency exchange

“Bullish” will acquire this entity. Backed by Block.one's ownership and having ample funding with good connections to well-funded investors, “Bullish” lacks an active user base (and needs a better name, in the humble opinion of “Matrix on Target”). The price tag for FTX might continue to benefit FTX creditors. According to some estimates, the trading price of FTX creditors' claims is above $0.55, and this is before explicit news about selling the exchange to another investor. SEC Chairman Gensler also indicated that FTX might relaunch under new leadership, suggesting that cryptocurrencies will continue to exist, and the SEC has not explicitly ruled out cryptocurrencies. The new owners might use substantial marketing resources and offer incentives to retain users of the exchange. This would create significant momentum favorable to the overall sentiment in the cryptocurrency market.

Circle's Ambitious IPO Plans and Tether's Astonishing Market Cap Growth

It is expected that stablecoin issuer Circle will also restart its IPO plans. At the end of 2022, a SPAC (Special Purpose Acquisition Company) deal ended in failure, aiming to value the company at $9 billion, but ultimately failed. This indicates that cryptocurrency operators are becoming more confident that the cryptocurrency bull market will continue into 2024 (if not longer). However, investors with a critical attitude may point out that Coinbase's IPO occurred when the market was approaching an absolute peak, leaving many investors “holding the bag.”

In the past 12 months, the market capitalization of Circle's USDC has decreased by -47%, dropping from $45 billion to $24 billion. Most of the decline occurred in March 2023 when the U.S. government seized three major banks for cryptocurrency investors. Circle itself faced challenges as at least one of these banks held billions of dollars. But despite (or perhaps because of) Circle providing regular audit details and closely cooperating with U.S. regulatory agencies, investors still prefer Circle's big brother—USDT.

While the market value of USDC declined last year, Tether's USDT grew by 30%, increasing from $66 billion to $86 billion, reaching an all-time high. Even in the last month, it appears that an additional $3 billion entered the cryptocurrency market as the market value continued to rise. Since mid-October 2023, with investors increasingly believing that the macro environment favors cryptocurrency liquidity, these inflows have risen again.

As macro data signals strengthen, Bitcoin is poised to break through the impact of inflation and macro factors on Bitcoin trading behavior.

Two months ago, the unexpected rise in the U.S. inflation rate (CPI) from 3.2% to 3.7% broke the sustained decline in inflation, which may explain why the trading price of Bitcoin was relatively calm between $25,000 and $26,000 in late summer.

As our readers know, the decline in inflation has been a significant driver of macro liquidity since November 2022, and it is a key reason why the price of Bitcoin has surged over 113% this year. A month ago, the U.S. inflation rate was still at 3.7%. As traders became increasingly accustomed to this level and believed it was a temporary rise, the price of Bitcoin rose from $27,000 to $34,000 a week after the release of inflation data.

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

If inflation were to decline again, next week's US CPI data could trigger another round of Bitcoin price increases. Ahead of the release of this data, we may observe Bitcoin attempting to break through the recent trading range of $34,000 to $35,000. Breaking through $36,000 could propel Bitcoin towards the next technical resistance level at $40,000, with a potential target of $45,000 by the end of 2023.

Trading Patterns: Stability in U.S. Bitcoin Purchasing Activity

It is noteworthy that, despite a decline in Bitcoin during the Asian trading session, there has been sustained and gradual buying activity during the US trading session. One possible explanation is that Asian traders prefer altcoins relative to Bitcoin.

However, despite Ethereum's return increasing by +16%, it's worth noting that 70% of this return (equivalent to +11%) occurred during the US trading session. On the other hand, Solana maintained a more balanced performance across all three regions. This is surprising, considering that the flow of funds from Europe is relatively small compared to the trading volumes in the US and Asia. The even distribution of the flow can be attributed to the Solana Breakpoint Conference in Europe (Amsterdam).

Three “macro bullish” data points emerged last week: 1) The US Treasury slowed down the issuance of long-term bonds, indicating that bond yields are expected to decline; 2) Chair Powell's dovish stance in the post-FOMC press conference, suggesting that the Fed is unlikely to raise interest rates again in the near term; 3) Disappointing US employment data, reinforcing the first two points.

The next key macroeconomic data point will be the US Consumer Price Index (CPI) data, scheduled for release next Tuesday (November 14th). With the steady increase in buyers during the US trading session and ongoing attempts by Bitcoin to break through, we might see the price rebound by the end of the month (and the year). The Santa Claus rally could potentially begin at any time.