After finishing 2023 on a high, cryptocurrency investors will be keeping an eye on central bank interest rates and a US regulatory decision on new bitcoin products as they decide how to place their bets next year.
Cryptocurrencies rebounded this year after a torrid 2022 in which a market crisis and a series of scandals, including the collapse of FTX and fraud charges against its CEO, Sam Bankman-Fried, undermined the industry's credibility. .
The price of bitcoin, the largest cryptocurrency and the main market barometer, has more than doubled this year, reaching a 20-month high of $42,000 per token in November.
As of Friday, 2023 was its best year since 2020 in terms of percentage gains.
The market has been buoyed by expectations that cooling inflation will allow central banks around the world to forgo further rate hikes and begin easing them next year, making risk assets more attractive. . A long-awaited move by the US Securities and Exchange Commission (SEC) to approve a spot bitcoin exchange-traded fund (ETF) has also been a boost.
Those themes, along with bitcoin's expected "halving" in April - a process that reduces the supply of tokens - will continue to be positive for the market next year, analysts said, although some cautioned that the market to scale its 2021 all-time highs again.
โThere are quite a few different factors that will likely align by 2024,โ said James Butterfill, head of research at asset management firm CoinShares, particularly the end of the rates cycle.
"What burst the bitcoin bubble was rising interest rates, and what will likely help spur the next rally... will be lower interest rates," he said.
The US Federal Reserve held its benchmark overnight interest rate stable in the range of 5.25% to 5.50% at the end of its October 31-November 31 meeting. 1 monetary policy meeting, and analysts overwhelmingly expect the same outcome this week.
Bitcoin hit an all-time high of $69,000 in 2021, thanks to retail investors holding plenty of cash amid the early days of the COVID-19 pandemic and historically low interest rates.
While the end of rate hikes is positive for risk assets, Andrea Filtri, co-head of research at Italy's Mediobanca, noted that cryptocurrency market conditions are still far from where they were in 2021.
Fed officials have signaled that rates will not fall anytime soon, while Friday's strong jobs data suggested market expectations of a rate cut early next year were likely premature.
"At that time it was easy to have proliferation with easy money," Filtri said. "I'm not so sure that as interest rates go down, the mirror path will follow."
ETF EXCURSION
The crypto industry suffered more damaging scandals this year. Notably, Binance and its CEO Changpeng Zhao pleaded guilty to violating US anti-money laundering regulations.
However, some say the launch of a bitcoin ETF could help legitimize the industry.
Several major financial firms, including BlackRock, have filed applications with the SEC to launch a bitcoin spot ETF that, if approved, could potentially attract several billion dollars of institutional money into the cryptocurrency.
Reuters reported this week that industry talks with the SEC have moved forward ahead of the key January deadline, when the SEC is expected to give the green light to some products. That has kept traders optimistic, although a sell-off is possible following the news.
"The price could see a correction immediately after its approval, as the market has been pricing in the event, but in the long term, bitcoin ETFs could raise several hundred billion dollars a year for the bitcoin market" said Yuya Hasegawa, a Crypto Market Analyst at bitbank, a Japan-based crypto exchange.
Many cryptocurrency observers are also considering the upcoming bitcoin "halving," scheduled for April. That process is designed to slow the release of bitcoin, whose supply is limited to 21 million tokens, of which 19 million have already been created.
Bitcoin rallied in the three previous halvings, the most recent of which was in 2020. But, given the different market conditions, it's unclear whether it will spark a rally again this time, CoinShares' Butterfill said.
"Combined with the high demand for an ETF in the US and the reduction in new supply coming in, it could have an impact, but I'm not going to hold my breath."
(Reporting by Hannah Lang in Washington; Additional reporting by Elizabeth Howcroft and Tom Wilson in London; Editing by Michelle Price and Jonathan Oatis)
