Bitfinex Alpha | Bitcoin up in 2024, but not in a straight line

21 Dec Bitfinex Alpha | Bitcoin up in 2024, but not in a straight line

As we head into 2024, we remain very positive on the outlook for Bitcoin and crypto assets in general. If 2023 has demonstrated anything, it is the remarkable resilience of Bitcoin despite reputational and regulatory challenges.

This does not mean that it is straight line from here. We note that we are highly likely to see pull backs, based on historical market behaviour. With the total market capitalisation of the crypto market at approximately $1.6 trillion, we believe we could see total market cap climb as high as $3.2 trillion, with asset values oscillating in this range.

Looking at range of different metrics and sentiment indicators and their performance at similar points in the cycle is constructive. On the crypto fear and greed index we forecast that there there is a high probability that we will see an extended visit to “extreme greed” sentiment area in 2024, which will correlate to new BTC highs during the middle of a bull market.

As institutional investors increase their exposure to crypto assets, of which the long awaited spot Bitcoin ETF will be a catalyst, there may be some shifting of capital into higher-risk crypto assets in the coming year, but we anticipate that institutional investment will continue to predominantly favour Bitcoin, at least through the first half of 2024.

In the shorter-term, it is instructive to look at the market value of bitcoin in relation to its realised value: the MVRV metric. Current valuations imply that the market environment is analogous to the period around June 2019 and July 2016 which saw initial dips in price before sustained recoveries. This is another reason why we expected a pullback to occur post tagging the $44,000-$45,000 zone and why we expect prices to range further at these prices or pullback instead of an immediate move upwards.

Bitcoin miner activity is also important to monitor, particularly as 2024 is a halving year, and miners fuel their operations and derive their profitability from sales of Bitcoin  into the market. Facing the prospect of seeing only half the Bitcoin being earned post halving, miners will need to demonstrate that they can continue to run their operations efficiently and profitably.|

An analysis of the Puell Multiple indicates that the market is currently in a healthy state, and ample room for continued growth in Bitcoin prices with limited anticipated selling by miners.

Exchange inflows from miners is also expected to remain subdued for the majority of the year even if we have some spikes in the the next 2 months due to miners upgrading machinery further and selling BTC down to fund this investment. As the price goes higher there is limited need for miners to sell. 

The prospects for Bitcoin adoption in certain key markets also looks promising.

In El Salvador, where Bitcoin was declared legal tender in 2022, adoption continues to gradually increase . We believe that as 2024 unfolds, the focus on bolstering the infrastructure to support Bitcoin transactions is likely to intensify. This includes initiatives to increase public awareness and education about Bitcoin, especially among those who have traditionally been excluded from the formal banking system.

Perhaps even more significant is the possibility that Argentinians will increasingly adopt crypto assets as a means of gaining access to a relatively stable and non-inflationary asset. Even if it is less likely that Argentina will follow the same route as El Salvador, its government wants to provide economic stability for its citizens and sees the value in decentralized assets like Bitcoin. Given its history of economic volatility, especially with high inflation rates, it’s reasonable to expect that citizens will continue to turn to cryptocurrencies as a hedge against currency devaluation and inflation.

Looking ahead to 2024, and contingent upon market conditions, we anticipate that the number of global cryptocurrency owners could escalate to between 850 and 950 million (from 575 million currently).

In the broader macro economy, we also maintain a positive outlook. It’s likely that wage growth will continue to decelerate into 2024. Workers may be aiming for a one-time adjustment in wages to compensate for the unexpected surge in inflation experienced in 2022, which led to a decline in real wages. However, this trend is expected to stabilise in 2024 as the demand for labour diminishes. In the short term, we anticipate that the slowing of economic growth will cause an increase in the unemployment rate, averaging around 4.3 percent in 2024, up from 3.7 percent in November 2023. This increase however, is relatively moderate when compared to past economic downturns in the US.

The inflation rate is also projected to decline in 2024. A combination of factors, including a subdued global economy and more efficient supply chains, is expected to keep commodity prices in check and support the manufacturing sector. An uptick in labour supply, observed in the latter part of 2023, is likely to moderate wage increases, helping to maintain inflation at manageable levels while correlating with a softening labour market.

Core inflation, the key metric watched by the Fed and which excludes volatile food and energy prices, might even fall below expectations due to tighter credit conditions and global economic weaknesses. However, geopolitical tensions and possible oil production cuts pose risks of increased headline inflation. Avoiding a recession in 2024—still a significant possibility—doesn’t guarantee a return to the ideal two percent inflation rate so coveted by central bankers. We see a return to 2.9 percent YoY headline inflation and not any lower by the end of next year.

We have really enjoyed bringing you our views on the markets and our analysis. We hope you have found it useful . We look forward to what should be a fascinating 2024.

Happy holidays and happy trading.