December 21st Bitfinex Alpha | Bitcoin Rise in 2024, But Not in a Straight Line
On Bitfinex Alpha
As we head into 2024, our outlook for Bitcoin and cryptocurrency assets in general remains very positive. If 2023 has proven anything, it is Bitcoin’s remarkable resilience despite reputational and regulatory challenges.
However, this does not mean that it is a straight line from here. We note that a downtrend is very likely based on past market behavior. With the total market capitalization of the cryptocurrency market reaching approximately $1.6 trillion, we believe the asset value could oscillate in this range, pushing the total market capitalization up to $3.2 trillion.
It is constructive to look at various indicators, sentiment indicators and performance at similar points in the cycle. In our Crypto Fear Greed Index, we predict that 2024 will likely see an extended visit to “extreme greed” sentiment territory, which is correlated with new BTC highs during the bull market.
The long-awaited spot Bitcoin ETF could be a catalyst as institutional investors increase their exposure to cryptocurrency assets. Institutional investment is expected to continue, although capital may shift into higher-risk cryptocurrency assets in the coming year. Bitcoin is mainly preferred until at least the first half of 2024.
In the short term, it is a good idea to look at Bitcoin’s market value, or MVRV, indicator in relation to its realized value. Current valuations suggest that market conditions are similar to the period around June 2019 and July 2016, when prices initially declined before a sustained recovery. This is another reason why we expect a decline to occur after tagging the $44,000-$45,000 area and expect the price to range further from this price or decline instead of an immediate rise.
It is also important to monitor Bitcoin miner activity. Specifically, 2024 is the halving and miners are revitalizing their operations and selling Bitcoin on the market to become profitable. Faced with the prospect of only getting half of a Bitcoin after halving, miners must prove they can continue to operate efficiently and profitably.|
Puell Multiple’s analysis shows that the market is currently healthy, and with expected sales from miners limited, there is plenty of room for Bitcoin prices to continue to rise.
Miner exchange inflows are expected to remain subdued throughout the year, although there may be a slight surge over the next two months as miners further upgrade their machines and sell BTC to fund this investment. Higher prices limit the need for miners to sell.
The outlook for Bitcoin adoption in certain key markets also looks promising.
In El Salvador, where Bitcoin was declared legal tender in 2022, adoption is gradually increasing. We believe that as 2024 approaches, there will be an even stronger focus on strengthening the infrastructure to support Bitcoin transactions. This includes plans to increase public awareness and education about Bitcoin, especially among those who have traditionally been excluded from the formal banking system.
Perhaps even more important is the likelihood that Argentines will increasingly adopt cryptocurrency assets as a means of accessing relatively stable and inflation-free assets. Although Argentina is unlikely to follow the same path as El Salvador, the government wants to provide economic security for its citizens and sees value in decentralized assets like Bitcoin. Given the history of economic volatility, especially due to high inflation rates, it is reasonable to expect citizens to continue to turn to cryptocurrencies as a hedge against currency devaluation and inflation.
Looking ahead to 2024, we expect the number of global cryptocurrency holders to increase from 850 million to 950 million, up from the current 575 million, depending on market conditions.
We also maintain a positive outlook on the broader macroeconomy. Wage growth is likely to continue to slow through 2024. Workers could target a one-time wage adjustment to compensate for the decline in real wages due to the unexpected spike in inflation experienced in 2022. However, this trend is expected to stabilize in 2024 as labor demand declines. In the short term, slowing economic growth is expected to increase unemployment, rising from 3.7% in November 2023 to an average of 4.3% in 2024. However, this increase is relatively modest compared to past recessions. in America.
The inflation rate is also expected to decline in 2024. A combination of factors, including a slowing global economy and more efficient supply chains, is expected to keep raw material prices in check and support the manufacturing sector. The increase in labor supply observed in late 2023 is likely to be associated with a softening labor market that will moderate wage growth, keeping inflation at manageable levels.
Core inflation, a key measure the Fed monitors outside of volatile food and energy prices, could fall below expectations due to tight credit conditions and a weak global economy. However, there is a risk of increased headline inflation due to geopolitical tensions and the possibility of lower oil production. Avoiding a recession in 2024 (still a significant possibility) does not guarantee a return to the ideal 2% inflation rate that central banks so covet. Headline inflation is expected to recover to 2.9% year-on-year and not fall further until the end of next year.
We really enjoy sharing our views on the markets and analysis with you. I hope you found this information helpful. We look forward to a fascinating 2024.
Happy holidays and happy trading.