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Crypto prices have been rallying on the back of speculation about new ways to invest in the market. Here’s how that and other factors are shaping our outlook for crypto as we approach 2024.
ETFs are go?
Some Bitcoin (BTC) investors are pinning their hopes on US financial regulators approving a long-mooted Bitcoin spot Exchange Traded Fund (ETF). This would mean investors could buy exposure to Bitcoin on the US stock market, watching their investment grow when the Bitcoin price rises and shrink when the price falls.
Glen Goodman, author of The Crypto Trader, thinks ETFs will play a big role in the coming months: “This is a huge deal because a lot of traditional investors are understandably nervous about buying Bitcoin on unregulated crypto exchanges. If they could buy it on a trusted, regulated stock exchange, it would encourage a lot more ordinary people and big fund managers to invest in Bitcoin.
“Blackrock, the world’s largest asset manager, is one of the companies hoping to launch a Bitcoin ETF. So this is seriously big business, and the price of Bitcoin has been rising in anticipation of a boom in demand.”
Meanwhile, as the amount of BTC earned from mining Bitcoin set a new record in November, the countdown to the next ‘halving’ is now in its final months.
Bitcoin rewards reached approximately £34 million this month, beating the previous record of £33 million, set in May.
But April 2024 will mark a once-every-four-years event that effectively halves the rate of the cryptocurrency’s supply as the reward miners earn for adding a block to the Bitcoin blockchain is halved.
From that point, the current reward of 6.25BTC will fall to 3.125BTC, massively reducing the rate at which new coins are minted.
In the 12 months prior to the last halving in 2020, the price of Bitcoin rose 83% from around £3,000 to roughly £5,500 as speculators bet on the supply squeeze pushing up the value of the asset in a sort of self-fulfilling prophecy.
And, in the three months after the 2020 halving, the price of Bitcoin went up from £5,052 to £7,411, representing a 46% increase.
In April this year, 2023, Bitcoin traded for around £22,000. As of the time of writing (November 2023), one Bitcoin is valued at approximately £29,500.
If current prices were to hold and we saw the same kind of post-halving rally in 2024 as we did in 2020, prices could hit £43,000 – levels we haven’t seen since November of 2021.
Reflecting further widespread warming to crypto assets beyond Bitcoin, HSBC has partnered with Swiss crypto safekeeping company Metaco to offer a digital assets custody service.
The service will focus on tokenised securities for institutional investors. Tokenised securities are when ownership of a security (such as an equity or a bond) is materialised through the issuance of a token registered on a blockchain.
Once launched in 2024, the service will complement HSBC Orion, the bank’s platform for issuing digital assets, as well as its recently launched offering for tokenised physical gold.
The increasing regulation and policing of crypto markets could also be a boon next year, adding more legitimacy to an industry not renowned for its safeguarding.
For example, the UK government recently announced an agreement with 48 countries to tackle the problem of people using crypto to avoid tax.
Under the Crypto-Asset Reporting Framework (CARF), crypto platforms will need to start sharing taxpayer information with tax authorities. Work on getting CARF ready for its 2027 launch will begin in 2024.
Victoria Atkins, financial secretary to the UK Treasury, said: “We will not allow criminals to use crypto to avoid paying their fair share.”
Investors warming up, inflation cooling down
The increasing credibility being lent to crypto markets by the likes of Blackrock, major banks and regulators appears to be boosting investor sentiment. Crypto could go from strength to strength in 2024 if this continues.
Fear and greed indices are sometimes used to gauge investor sentiment and appetite. Such indices can give us a sense of how investors are likely to act and the impact that might have on markets.
The widely cited crypto fear and greed index at alternative.me currently has a score of 69, indicating greed. This is up from last month’s fear-indicative score of 45 and a prolonged period of fear.
While far from an exact science, it could foreshadow a surge in demand that might put upward pressure on prices.
The cooling-off of inflation in the US, and its implications for interest rates, is sure to have an effect on crypto into the New Year too.
On 14 November the US Federal Reserve announced inflation had fallen to 3.2% in October, down from 3.7% in September. The figure was slightly lower than expected and saw the prices of US stocks and bonds jump.
With inflation largely tamed in the US and interest rates unlikely to rise as a result, the squeeze that characterised much of 2023 may be over, which means prices could rise.