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

Author: Matrixport

Compiled by: Wu Shuo

Abstract

• In the first half of 2024, there will be five micro events and one macro event in the crypto industry that may positively impact the industry and potentially drive up the price of Bitcoin.

• By January 2024, we expect the U.S. Securities and Exchange Commission to approve a Bitcoin ETF, with trading expected to begin in February or March.

• Stablecoin issuer Circle may go public in April.

• While news of FTX's bidding may be announced in December 2023, we expect the exchange to be operational by May or June 2024. FTX is expected to regain its position as one of the top three exchanges within 12 months.

• The aforementioned three events and the Bitcoin halving cycle are expected to provide healthy momentum for the coming year.

• Although it is challenging to view Ethereum's EIP-4844 upgrade as a significant upward catalyst, it is scheduled for the first quarter of 2024.

• This also aligns with the Federal Reserve's potential interest rate cuts around mid-2024, as market pricing indicates that the Fed will cut rates for the first time in June 2024.

If inflation declines again, next week's U.S. CPI data could trigger another round of Bitcoin rallies. We expect Bitcoin to attempt to break through the recent trading range of $34,000 to $35,000. A breakout above $36,000 could push Bitcoin towards the next technical resistance level of $40,000, potentially reaching $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 could see prices rebound by the end of this month (and year). The Santa Claus rally could start at any time.

Chart 1: Bitcoin is attempting to break through higher price levels------targeting $40,000, and possibly even $45,000

Expected Potential Impact of the Bitcoin ETF Listing in the U.S. in 2024

In the first half of 2024, there will be five micro events and one macro event in the crypto industry that may positively impact the industry and potentially drive up the price of Bitcoin. In 2023, crypto assets performed strongly, outperforming most other assets. Our fundamental value proposition lies in the Bitcoin ETF listed in the U.S., which has the potential to manage $5 trillion in assets through registered investment advisors (RIAs), positioning Bitcoin as the cornerstone of multi-asset portfolios. A mere 1% allocation could lead to $50 billion inflow into Bitcoin.

Chart 2: Performance of selected assets year-to-date

By January 2024, we expect the U.S. Securities and Exchange Commission to approve a Bitcoin ETF, with trading expected to begin in February or March. Stablecoin issuer Circle may go public in April. While news of FTX's bidding may be announced in December 2023, we expect the exchange to be operational by May or June 2024. The aforementioned three events and the Bitcoin halving cycle are expected to provide healthy momentum for the coming year. Although it is challenging to view Ethereum's EIP-4844 upgrade as a significant upward catalyst, it is scheduled for the first quarter of 2024. Meanwhile, the Federal Reserve may cut rates around mid-2024, as market pricing indicates that the Fed will cut rates for the first time in June 2024. This situation arises when macro liquidity shifts from a rate peak-driven tailwind to providing double liquidity through rate cuts.

Our Year-End Price Target Transitions from Ambitious to Achievable

A year ago, we released a report titled "Bitcoin Could Rebound to $63,160 in March 2024." In that report, we argued that the ideal Bitcoin buying opportunity historically occurs 14-16 months before the next halving, which was in late October 2022 when Bitcoin was trading around $20,000. However, it was our report released on December 2, 2022, titled "Driven by Macroeconomics, Bitcoin Could Reach $29,000 in 2023," that anticipated a 70% rise in Bitcoin based on our expectation that U.S. inflation would decline and provide substantial liquidity to the crypto market.

Since then, inflation has indeed decreased significantly, and although fundamentals like Ethereum's revenue data have remained weak, the upward momentum in the cryptocurrency market may accelerate as we enter 2024. A month ago, the market entered another inflection point that could provide sufficient momentum for the continuation of the fifth bull market. When we published the report, our year-end target of $45,000 set on February 3, 2023, seemed ambitious, as Bitcoin was trading at $22,500 at that time. However, as the market approaches the $40,000 level, this price target may become achievable.

Unlocking the Potential of Institutional Investors

Chart 3: Grayscale GBTC's discount to net asset value has narrowed from -45% to -14%, outperforming Bitcoin

Grayscale's Bitcoin Trust (GBTC) shares appear to be held by 61 institutional companies—besides high-net-worth individuals, family offices, and other investors—anyone with reported assets below $100 million holds. The SPDR Gold (GLD) ETF has 1,090 institutional investors, similar to BlackRock's iShares Gold ETF. Just BlackRock's Bitcoin ETF alone could attract over 1,000 institutional investors. While approximately 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 could significantly enhance the liquidity of the cryptocurrency market and greatly improve the fiat-to-crypto channels, which are currently primarily limited to Tether—at least based on the real-time data we can monitor.

Spillover Effects: Coinbase IPO and FTX's New Owner

As Coinbase is expected to go public on April 14, 2021 (or via direct listing), the price of Bitcoin surged to $61,500. Various parties coordinated to hype it as much as possible. Market commentator Jim Cramer stated on Twitter, "Our bullish price for Coinbase is $475," which provided the company with a valuation similar to Goldman Sachs. Although the reference price given by the company was $250 per share, many (mostly) retail investors believed they could buy shares at that level, valuing the company at $65 billion. With increased media coverage, IPOs often bring tremendous momentum to an industry, and Coinbase attracted the most customers during the pre-IPO phase.

The stock opened at $381, peaked at $429.5, and closed its first trading day at $328. Today, the stock price is $88, down 77% from the direct listing price, with a market capitalization of $21 billion. Coinbase has approximately 98 million users, with 9 million trading on Coinbase each month.

Chart 4: Valued as a percentage of creditor value, FTX's claims have doubled this year

A year ago, when FTX collapsed, Coinbase's market capitalization was $12 billion. In the last round of financing, FTX was valued at $32 billion, reportedly having 8 million registered users, of which 5 million were active users. Despite the scandal surrounding Sam Bankman-Fried and his recent conviction, the FTX brand and its user base still hold significant value. By December 2023, new owners may take over the exchange. We believe FTX's price tag could be between $2 billion and $3 billion, which is an attractive price considering the number of registered users and its global brand recognition. Customer attrition is mainly attributed to SBF's inner circle, while the exchange's brand value remains relatively intact.

Matrix on Target expects the little-known cryptocurrency exchange "Bullish" to acquire the entity. With ample funding obtained through Block.one ownership and good connections with well-funded investors, "Bullish" desperately needs a better name (in Matrix on Target's humble opinion) as its exchange lacks an active user base. FTX's price tag could continue to benefit FTX creditors. According to some estimates, the trading price of FTX creditors' claims is above 55 cents, and this is before any clear news about selling the exchange to another investor. SEC Chairman Gensler has also indicated that FTX may restart under new leadership. This suggests that cryptocurrencies will continue to exist and that the SEC has not explicitly excluded cryptocurrencies. The new owners may use substantial marketing resources and offer incentive fees to retain users of the exchange. This will create significant momentum favorable to the overall sentiment in the cryptocurrency market.

Circle's IPO Ambitions and Tether's Remarkable Market Cap Growth

Stablecoin issuer Circle is also expected to restart its IPO plans. At the end of 2022, a SPAC (Special Purpose Acquisition Company) deal failed, which aimed to value the company at $9 billion but ultimately fell through. This indicates that cryptocurrency operators are increasingly confident that the cryptocurrency bull market will continue into 2024 (if not longer). However, skeptical investors may point out that Coinbase's IPO occurred when the market was nearing an absolute peak, leaving many investors "waiting to lose."

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

Chart 5: Tether USDT's market cap has surged significantly, with new minting indicating new inflows, reaching $86 billion

While USDC's market cap has declined over the past year, Tether's USDT has grown by 30%, increasing from $66 billion to $86 billion, reaching an all-time high. Even last month, as the market cap continued to grow, it seemed that another $3 billion flowed into the crypto market. Since mid-October 2023, as investors have become increasingly confident that the macro environment is favorable for cryptocurrency liquidity, these flows have risen again.

With strengthening macro data signals, Bitcoin is about to break through the influence of inflation and macro factors on Bitcoin trading behavior.

Two months ago, U.S. inflation (CPI) unexpectedly rose from 3.2% to 3.7%. This increase broke the continuous decline in inflation, which may explain why Bitcoin's trading price was relatively calm between $25,000 and $26,000 at the end of summer.

As our readers know, the decline in inflation since November 2022 has been a significant driver of macro liquidity, which is a key reason why Bitcoin's price 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 viewed it as a temporary rise, Bitcoin's price rose from $27,000 to $34,000 a week after the inflation data was released.

Chart 6: Along with inflation, U.S. Treasury yields have been a resistance for cryptocurrencies in 2022

Other factors may also have played a role, such as the short gamma of Bitcoin options market makers or positive statistics related to buying Bitcoin on "unlucky" Friday the 13th. However, as we have demonstrated multiple times, the decline in inflation data triggered the rise in Bitcoin prices earlier this year. Crude oil prices have risen over 30% from summer lows, which could affect inflation expectations. Nevertheless, since late September, oil prices have dropped by 20%. Traders may expect inflation to decline again, which supports risk assets from a macro liquidity perspective.

Chart 7: The decline in oil prices could trigger another round of U.S. inflation decline

If inflation declines again, next week's U.S. CPI data could trigger another round of Bitcoin rallies. Before this data release, we can see Bitcoin attempting to break through the recent trading range of $34,000 to $35,000. A breakout above $36,000 could push Bitcoin towards the next technical resistance level of $40,000, potentially reaching $45,000 by the end of 2023.

Trading Patterns: Stable Bitcoin Buying Activity in the U.S.

Chart 8: Bitcoin prices surged mainly during U.S. trading hours

Notably, while Bitcoin experienced declines during Asian trading hours, there has been sustained and gradual buying activity during U.S. trading hours. One possible explanation is that Asian traders prefer altcoins over Bitcoin.

However, despite Ethereum's return rate growing by +16%, it is noteworthy that 70% of that return (equivalent to +11%) occurred during U.S. trading hours. On the other hand, Solana maintained a more balanced performance across all three regions. This is surprising, as the capital flow from Europe is relatively small compared to trading volumes in the U.S. and Asia. The even distribution of flows can be attributed to the Solana breakout conference in Europe (Amsterdam).

Last week, three "macro-positive" data points emerged: 1) The U.S. Treasury slowed the issuance of long-term bonds, indicating that bond yields should decline; 2) Chairman Powell's dovish stance at the FOMC press conference indicated that the Fed is unlikely to raise rates again during the cycle; 3) Disappointing U.S. employment data reinforced the first two points.

Chart 9: A slight increase in summer CPI has kept Bitcoin within a range of fluctuations

The next key macro data point will be the U.S. CPI (inflation) data, scheduled for release next Tuesday (November 14). With a steady increase in buyers during U.S. trading hours and ongoing attempts to break through, we may see prices rebound by the end of the month (and this year). The Santa Claus rally could start at any time.