If you thought that year on Wall Street was amazing, wait till you see how the bitcoin market performed in 2023. The total value of all cryptocurrencies published on CoinMarketCap.com had climbed by a whopping 115% year to date as of early December 28.
Despite the fact that there are tens of thousands of digital currencies available, Bitcoin (CRYPTO: BTC) and Ethereum have done the majority of the work. By the end of 2022, Bitcoin and Ethereum combined held 58% of the $795 billion cryptocurrency market capitalization. These two titans account for 67% of the $1.71 trillion market capitalization in cryptocurrency as of December 28.
However, the real question is not so much where digital currencies have been, but rather where they are going. Here are four forecasts for cryptocurrencies in 2024, following an incredibly prosperous year.
1. The theme for Bitcoin in 2024 will be “buy the rumor, sell the news.”.
There are several explanations for why Bitcoin increased in value by over 160% in 2023. This includes the expectation of Bitcoin’s “halving” event, which is anticipated to take place in April 2024, the optimism felt throughout major U.S. financial markets, and the hope that the Securities and Exchange Commission (SEC) would approve a spot Bitcoin exchange-traded fund (ETF) in January.
Particularly significant have been the last two triggers. Regulators have rejected financial companies’ years-long attempts to obtain authorization to list a Bitcoin ETF, citing widespread manipulation in the cryptocurrency market. A small number of authorized Bitcoin ETFs (i.e., without having to buy Bitcoin on a crypto exchange) would enable greater access to the most well-known cryptocurrency token through more traditional channels.
Similarly, miners will receive a 50% lower block reward as a result of Bitcoin’s halving event. Since fewer tokens are being created every day as a result of halving events, Bitcoin has a history of rising at these times.
However, the speculation that these events will take place in 2024 has already caused Bitcoin to soar by nearly 160%. For the biggest cryptocurrency by market cap, this year has all the makings of a “buy the rumor, sell the news” scenario.
In addition, Bitcoin still struggles with relevance. The experiment of using Bitcoin as a workable currency in El Salvador hasn’t been well received by the locals. Just $126 million of the more than $7 billion in remittances that were received into El Salvador from overseas in 2022 ended up in bitcoin wallets.
As I’ve said for a long time, other initiatives have surpassed Bitcoin in terms of network and usability; therefore, its competitive advantages have diminished.
2. The wildly popular “dog” coins will keep losing money.
Second, I think the wildly popular “dog” currencies, like Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB), will keep underperforming the overall cryptocurrency market. Tokens for Dogecoin and Shiba Inu increased by 35% and 36%, respectively, in 2023. Although this year-to-date return is superior to that of the benchmark S&P 500, it is still far less than the reported rise of more than 160% for Bitcoin.
The main issue with Shiba Inu and Dogecoin is that they are merely payment currencies. In theory, one might use any of the millions of digital currencies available to pay for goods and services. There is just nothing that sets the two dog-inspired coins apart from the countless other efforts.
Usage data further supports the impracticality of Dogecoin and Shiba Inus. About 2,500 businesses accept DOGE tokens, and about 900 businesses take SHIB coins, according to the online business directory Cryptwerk. In the meantime, there are thought to be 333 million businesses globally. With the exception of a minuscule minority of companies, the extreme volatility frequently linked to joke coins has forced them to steer clear of Dogecoin and Shiba Inu.
Investors ought to be cognizant of the uneven past of payment coins subsequent to enormous surges in value. Payment coins that rise by 10,000% or more usually lose 90% or more of their value in the years that follow, with a few notable exceptions (like Bitcoin). Despite the fact that both SHIB and DOGE tokens have reached this 90% retracement barrier, there is no justification for their current valuations to hold.
I predict another poor year for both “dog” coins, DOGE and SHIB, with nothing more than fervent social media chatter supporting their prices.
3. The bitcoin industry is unable to separate itself from Wall Street once more.
The cryptocurrency market has been heralded as a game-changer for investors for many years. The growing use of smart contracts, which are protocols that facilitate, verify, and enforce contract negotiation, along with the expectation of higher adoption of digital payments, seemed to present investors with an opportunity to profit from cutting-edge innovations that aren’t dependent on the performance of the stock market or the U.S./global economy.
Digital currencies will once again be unable to separate themselves from the stock market, according to my third forecast for 2024. Put another way, the way benchmark indexes, like the S&P 500, perform will eventually dictate how well or poorly the cryptocurrency market does.
Even though investors would prefer to think of Wall Street and the cryptocurrency market as two entirely distinct entities, many of the same elements that influence Wall Street’s success also apply to digital currencies.
For example, having access to capital is crucial. Interest rates were close to historic lows in 2021, and the federal government was providing fiscal stimulus to eligible individuals and families, which caused the majority of asset classes to skyrocket.
But past performance indicates that obtaining financing might be more difficult in the upcoming year. As a result of banks deliberately tightening their lending rules, the money supply in the United States is significantly declining for the first time since the Great Depression. A few critical indicators that have a good history of forecasting declines in the US economy and stock market suggest that 2024 may bring another bear market.
It will be extremely difficult, if not impossible, for digital currencies to divorce from Wall Street performance in 2024 without extraordinarily high positive investor sentiment.
4. The cryptocurrency market will face yet another significant setback.
The last and fourth cryptocurrency forecast for 2024 is that there will be yet another revolutionary failure.
The two biggest collapses in the cryptocurrency market in 2022 were Terra Classic (CRYPTO: LUNC) (formerly known as “Terra”) and TerraClassicUSD (CRYPTO: USTC). With Terra Classic ranking as the fourth-biggest digital currency by market cap, TerraClassicUSD was the fourth-largest stablecoin as of May 2022. But things fell apart very rapidly.
TerraClassicUSD relies on an algorithm, in contrast to the majority of stablecoins, which employ fiat currencies to maintain their peg to the US dollar. When a sizable number of USTC sellers detached this peg, an opportunity for arbitrage arose, which eventually caused a ripple effect in both Terra’s stablecoin and Terra itself.
Shortly following this historic collapse, we witnessed the fraud at the cryptocurrency trading site FTX. Sam Bankman-Fried, the former CEO of FTX, was found guilty on seven counts of fraud and conspiracy against him, less than a year after FTX filed for bankruptcy protection. The former FTX CEO’s sentencing is scheduled for late March, and he could spend up to 110 years behind bars.
The SEC has been reluctant to approve a Bitcoin ETF, mostly because the cryptocurrency industry is not well regulated and has a history of manipulation.
For instance, the SEC charged Coinbase Global (NASDAQ: COIN) and Kraken in 2023 for operating as unregistered securities exchanges. Both organizations’ basic activities are at risk due to these lawsuits, which might lead to significant fines and jeopardize their capacity to develop or remain viable in the long run.
Additionally, there have been rumors that Tether (CRYPTO: USDT), the largest stablecoin by market capitalization, may eventually fail and de-peg from the dollar. Tether has a history of not being transparent about its financials and not disclosing exactly which assets support its $91 billion stablecoin. Considering that a few other stablecoins have failed to maintain their link to the US dollar, Tether’s demise may be the black swan event of cryptocurrency in 2024.