2024 Crypto Forecast: ETFs Driving Momentum for Digital Assets

• Reflecting on the Crypto Market Landscape in 2023
• Changes in Crypto Exchanges Leadership
• Renewed Efforts for Spot Token ETFs
• 2023: A Year of Reduced Macroeconomic Correlations
• Outlook for 2024
• The Launch of a Spot Bitcoin ETF
• Influx of New Capital into the Crypto Ecosystem
• Bitcoin and Ether as Primary Stores of Value
• Expected Top Performers in 2024
• Investors and Risk Tolerance

Reflecting on the Crypto Market Landscape in 2023

In retrospect, the year 2023 marked a significant transitionary period for the emerging asset class. Any positioning, leverage and speculative excesses from the previous market cycle were thoroughly eradicated in 2022, allowing the next cycle to take root in 2023. The resultant market saw increased interoperability across protocols and projects, with builders and market participants catering to regulated institutional investors, aiming towards greater real-world applications.

Changes in Crypto Exchanges Leadership

Once well-regarded crypto exchanges such as FTX$3.28 -5.38% and Binance experienced changes in leadership, with more regulated players like Coinbase, Bullish - now owner of The Source - and EDX taking the helm. Traditional futures exchanges like CME witnessed an uptick in volumes for bitcoin and ether-linked futures contracts, which now surpass Binance in bitcoin futures open interest.

Renewed Efforts for Spot Token ETFs

We saw revived endeavors in the U.S. to list spot token ETFs, with Blackrock surprising the market with its application to the SEC in June. This promising institutional development supported the demand for bitcoin as a real asset and a currency debasement hedge for a financial system overflowing with fiat liquidity and supportive stimulus, reinforcing the narrative of broader adoption for digital assets.

2023: A Year of Reduced Macroeconomic Correlations

The period of 2023 also experienced reduced macroeconomic correlations across digital assets. Crypto was allowed to be crypto, and mostly decoupled from US equities and gold over the year. Interestingly, ether displayed nearly the same level of volatility as bitcoin in 2023, deviating from the historical norm of generally realizing approximately 20% higher. Bitcoin$42,260 -0.64%'s volatility, on the other hand, dropped to levels comparable to single stock volatility, aligning more with traditional asset classes.

Outlook for 2024

In 2024, further maturation of the crypto market towards institutional investors is projected. This institutionalization is happening concurrently with a period of strong performance for bitcoin and ether, even during the ending stages of a U.S. interest rate hiking cycle and the decoupling from short-term macro risk factors. This indicates that they are increasingly recognized as unique real assets, akin to gold and oil. We anticipate these properties will augment demand for bitcoin and ether as liquid alternatives and diversifiers to traditional bonds. This will assist asset allocators to refresh their traditional stock/bond portfolios with a new and innovative source of price appreciation.

The Launch of a Spot Bitcoin ETF

A launch of a spot bitcoin ETF is expected in the first quarter of 2024. Despite this view being widely agreed upon, it's unlikely that the approval will result in the classic "buy the rumor, sell the news" event, considering the medium to long term horizon. This is largely because it opens up a significant new avenue of capital into the asset class through the familiar and regulated exchange-traded product.

Influx of New Capital into the Crypto Ecosystem

These newly launched ETFs will enable a wider range of investors, such as Registered Investment Advisors (RIAs), pension funds, and hedge funds to gain exposure to the asset class. This could potentially bring an additional 1 to 2.5 Trillion of new capital into the crypto ecosystem, assuming a 1-2% portfolio allocation to digital assets via a spot ETF product.

Bitcoin and Ether as Primary Stores of Value

If the U.S. economy finds itself in a recession in the later half of 2024 due to the lagged effects of an accelerated rate hiking cycle and interest rates are cut in response, we would anticipate digital assets to benefit broadly from expected and anticipated stimulus measures. Ether's post-merge tokenomics have also become increasingly deflationary, further sweetening the appeal of Ether in this potential scenario.

Expected Top Performers in 2024

Under this macroeconomic backdrop, we would expect the Smart Contract Platform, Decentralized Finance (DeFi) and Computing token sectors to be top performers in 2024. This is because all three of these sectors benefit from increased on-chain activity as they interplay together.

Investors and Risk Tolerance

Investors should also consider their risk tolerance and time commitment when investing in digital assets. For those seeking more passive exposure, major tokens like Bitcoin and Ethereum$2,315 -2.42%, in their expected and regulated ETF wrappers, may be safer choices for many seeking to gain beta exposure to the asset class. Additional yield can be generated on top of ether positions through staking, with annualized

Edited by Jonathan Stoker