Crypto market eyes interest rates and expected bitcoin ETFs in 2024
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[December 11, 2023] By
Hannah Lang
(Reuters) - After ending 2023 on a high, crypto investors will be
watching central bank interest rates and a U.S. regulatory decision on
new bitcoin products as they decide how to place their bets next year.
Cryptocurrencies staged a recovery this year after a torrid 2022 in
which a market meltdown and a string of scandals, including the collapse
of FTX and fraud charges against its CEO, Sam Bankman-Fried, undermined
the credibility of the industry.
The price of bitcoin, the biggest cryptocurrency and the market's chief
barometer, has more than doubled this year, reaching a 20-month high in
November of $42,000 per token. As of Friday, 2023 was its best year
since 2020 in terms of percentage gains.
The market has been buoyed by expectations that cooling inflation will
allow central banks globally to forgo further rate hikes and start
easing next year, making risk assets more attractive. A long-anticipated
move by the U.S. Securities and Exchange Commission(SEC) to approve a
spot bitcoin exchange-traded fund (ETF) has also been a boost.
Those themes, along with bitcoin's expected April "halving" - a process
that reduces token supply - will continue to be positives for the market
next year, said analysts, although some cautioned the market is unlikely
to rescale its 2021 record highs.
"There's quite a few different factors that are likely to fall in line
for 2024," said James Butterfill, head of research at asset management
firm CoinShares, particularly the end of the rate cycle.
"What popped the bitcoin bubble was rising interest rates, and what will
probably help spur the next rally ... will be interest rates being cut,"
he said.
The U.S. Federal Reserve held its benchmark overnight interest rate
steady in the 5.25%-to-5.50% range at the end of its Oct. 31-Nov. 1
policy meeting - and analysts overwhelmingly expect the same outcome
this week.
Bitcoin hit a record high of $69,000 in 2021, thanks to retail investors
flush with spare cash amid the early days of the COVID-19 pandemic and
historically low interest rates.
While the end of rate hiking is a positive for risk assets, Andrea
Filtri, the co-head of research at Italy's Mediobanca, noted crypto
market conditions are still far from where they were in 2021.
Fed officials have signaled rates will not be dropping soon, while
strong Friday employment data suggested market expectations of a rate
cut early next year were probably premature.
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Representations of cryptocurrencies including Bitcoin, Dash,
Ethereum, Ripple and Litecoin are seen in this illustration picture
taken June 2, 2021. REUTERS/Florence Lo/Illustration/File Photo
"It was easy at the time to have proliferation with easy money,"
said Filtri. "I am not so sure that, as interest rates go down, you
will have the mirror trajectory."
ETF HYPE
The crypto industry endured more damaging scandals this year. Most
notably, Binance and its CEO, Changpeng Zhao, pleaded guilty to
breaching U.S. rules on money laundering.
The launch of a bitcoin ETF, however, could help legitimize the
industry, some say.
Several major financial firms, including BlackRock, have filed
applications with the SEC to launch a spot bitcoin ETF which, if
approved, could potentially draw several billions of dollars of
institutional money into the cryptocurrency.
Reuters reported this week that industry talks with the SEC have
advanced ahead of a key January deadline when the SEC is expected to
give some products the green light. That has kept traders bullish,
although a sell-off on the news is possible.
"The price could go through a correction immediately after their
approvals since the market has been pricing in the event, but in the
long run spot bitcoin ETFs could rake in several hundred billion
dollars a year to the bitcoin market," said Yuya Hasegawa, a crypto
market analyst at bitbank, a Japanese-based crypto exchange.
Many crypto watchers are also eyeing the next bitcoin "halving,"
expected in April. That process is designed to slow the release of
bitcoin, whose supply is capped at 21 million tokens - of which 19
million have already been created.
Bitcoin rallied on the previous three halvings, the most recent of
which was in 2020. But, given the different market conditions, it's
unclear whether it will cause a rally again this time, said
CoinShares' Butterfill.
"If we combine it with the high demand from an ETF in the United
States and reducing new supply coming in, it could have an impact,
but I'm not holding my breath."
(Reporting by Hannah Lang in Washington; Additional reporting by
Elizabeth Howcroft and Tom Wilson in London; Editing by Michelle
Price and Jonathan Oatis)
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