Outlook for 2024
TL; DR
Monetary Policy and BTC Trends:
- Phases analyzed from Powell’s statements to potential rate cuts in 2024.
- BTC experienced declines during early rate hike indications but rebounded during the interest rate pause.
- Anticipated rate cuts may limit BTC’s upward momentum.
BTC ETF and Halving:
- Expected approval of BTC ETFs could bring trillions of dollars into the market.
- Historical trends show BTC price surges linked to ETF developments.
- Bitcoin halving cycle is expected in April 2024, historically leading to significant price increases.
On-chain Data:
- Historical drawdowns during bull markets show a lower drawdown in 2023.
- Short-term holders are in profit, suggesting potential for pullbacks.
- Position distribution indicates a possible correction after ETF approval.
- Stablecoin supplies increased, signalling an influx of funds.
Overall Path for BTC in 2024:
- BTC may experience oscillations until mid-January, with a potential correction after ETF approval.
- ETFs and post-halving dynamics could lead to a major upward trend.
- Institutional forecasts align with a potential BTC price surpassing previous highs before the end of 2024.
BTC has risen from just under $20,000 in early 2023 to over $40,000 at present. In 2024, BTC is poised for its halving cycle, and there’s a significant possibility of BTC ETF approval, potentially bringing trillions into the market. Additionally, during the December FOMC meeting, Powell implicitly acknowledged the end of the rate-hiking cycle, and the market began pricing in rate cuts. Various indicators suggest that the early months of 2024 are pivotal for BTC.
In the following analysis, we will use monetary policy, BTC ETF approval, the halving cycle, and various on-chain data to predict the potential path of BTC in 2024. We believe that in 2024, BTC has the potential to approach $100,000.
· Monetary Policy
It can be seen from the changes in CPI in the past two years that under the influence of continued interest rate hikes, the CPI has dropped below 4% in mid-2023. Although the energy side rebounded which was affected by OPEC cuts in August and September, it has never reached 4% again. For inflation, it has fallen steadily and achieved a soft landing for the economy.
In the latest FOMC report, a 2% inflation target remains the ultimate goal. However, the effects of monetary policy are mostly realized with a delay. Even if the current interest rates are maintained without further hikes, the subsequent Consumer Price Index (CPI) is expected to gradually decrease.
So, in the final December FOMC meeting of 2023, Powell finally acknowledged the end of the tightening cycle, and discussions within the committee have included considerations for a rate cut. Based on the latest pricing in the interest rate swap market, it is believed that there will be five rate cuts in 2024, with reductions of approximately 25 basis points each occurring in the FOMC meetings in March, May, June, July, and September.
Excluding other influences, let’s analyze the impact of the current tightening cycle on Bitcoin (BTC) and combine it with market expectations for a rate cut to infer the macro-level effects on BTC’s trend in 2024.
We have represented the timing and magnitude of the current tightening cycle with red arrows. In contrast, green arrows denote market expectations for the timing and magnitude of a rate cut in 2024. The analysis is divided into five phases:
- Phase Ⅰ: Powell’s November 2021 FOMC statement, acknowledging inflation significantly exceeding expectations and expressing the intention for sustained rate hikes to the formal commencement of the tightening cycle.
- Phase Ⅱ: Bitcoin (BTC) further declines to a low point of $16,000.
- Phase Ⅲ: The beginning of the rebound to the final rate hike.
- Phase Ⅳ: Sustained maintenance of interest rates.
- Phase Ⅴ: Market pricing reflects expectations of ongoing rate cuts in the future.
We can observe that Bitcoin (BTC) experienced significant declines primarily during the early part of Phase Ⅰ and Phase Ⅱ. This is understandable given that, as a susceptible asset in the risk market, BTC faced pricing adjustments from Powell’s indication of an impending rate hike until its actual commencement. Traders had already priced in expectations, leading BTC to drop to around $38,000, nearly halving its value. When the 25 basis points rate hike was officially initiated, the market, having overpriced the impact, saw a 20% rebound in BTC to around $47,000.
Continuing from there, Powell’s announcement in subsequent FOMC meetings that he intends to emulate Volcker significantly heightened rate hike expectations. The incremental increases of 25 basis points, 50 basis points, and 75 basis points had a compounding effect, shattering the confidence of the bullish market and initiating the second major decline in Bitcoin. The primary driver here was the cumulative impact of successive rate hikes.
During the latter part of Phase Ⅱ, despite the continuation of 75 basis points hikes, the rate of market decline began to decelerate. Subsequently, Phase Ⅲ saw a bottoming out and recovery as the rate hikes gradually decreased. In Phase Ⅳ, during the interest rate pause, Bitcoin experienced a substantial uptrend.
After reviewing the monetary policy and Bitcoin (BTC) trends over the past two years, we have projected the future path of BTC using a black line. Of course, this projection is solely based on monetary policy. Discussions related to the halving and BTC ETFs will be addressed in the subsequent context. Furthermore, the consideration for rate cuts assumes a uniform reduction of 25 basis points, following the current market expectation, without incorporating incremental or decremental adjustments.
We believe that from the current point until the actual commencement of interest rate hikes (Phase Ⅳ), the bulls still have strength and are priced in advance. As a result, Bitcoin (BTC) may continue its upward trend. The extent of the upward movement depends on the market’s anticipation of the magnitude of rate cuts in the interest rate swap market. If there is only a 125 basis points rate cut in 2024, then by the end of Phase Ⅳ, BTC may hover around $45,000.
BTC has already begun its ascent during the decreasing interest rate hikes, and pricing for the rate cut has already started. From the low point to the present, BTC has risen by 161.99%, recovering from the early 2022 decline caused by the ‘three-pronged interest rate hike.’ Likely, the anticipated 125 basis points rate cut has already been overshot. This period will determine most of the remaining gains in the rate-cut cycle.
In Phase Ⅴ, we also believe that based on the current data, the upward momentum for BTC is limited. When the first rate cut occurs, a correction similar to the initial stages of a rate cut may occur, leading to a price pullback. The overall increase in Phase Ⅴ may not surpass the gains observed before the onset of rate cuts.
To summarize, considering only the shift in monetary policy and assuming a uniform rate cut of 25 basis points in line with market expectations, BTC is unlikely to experience significant upward movement. Caution is warranted for a potential pricing correction, or retracement, in March. In the subsequent majority of the time, BTC is expected to maintain modest upward oscillations.
· BTC ETF & BTC Halving Cycle
After the macro perspective, let’s turn our attention to two major events in the industry in early 2024: the approval of BTC ETFs and the Bitcoin halving cycle. Progress seems to be smooth based on the recent disclosures from the SEC and the content provided by ETF applicants. On the crucial issue of the redemption mechanism, applicants have made concessions.
Therefore, for BTC ETFs, there is a high likelihood of smooth approval, and it is quite possible that in mid-January (with the earliest final deadline for SEC response being January 10 for Wood’s Ark Fund, and BlackRock’s third deadline on January 15), the majority of applicants may receive approval.
If BTC ETFs successfully receive approval, the influx of funds from these asset management companies could reach the trillion-dollar level. (BlackRock manages assets worth $9.1 trillion; Fidelity manages $4.4 trillion; and Invesco manages $1.45 trillion). Currently, the total market capitalization of the crypto is around $1.35 trillion. The market could likely return to ATH with such substantial capital inflows.
If you had been closely following BTC in 2023, you would have noticed that nearly every upward surge was driven by developments in BTC ETFs. In March, discussions about BTC ETF resurfaced, propelling BTC to $30,000. In June, several asset management companies, including BlackRock, submitted applications for BTC spot ETFs to the SEC, alleviating the FUD caused by Binance being mentioned by the SEC. This submission helped BTC recover from $25,000 to $30,000.
In October, the registration of ETFs with the DTCC by companies like BlackRock marked a crucial step in the ETF registration process. This event prompted BTC to break out of the six-month-long oscillation around $30,000, reaching above $35,000.
However, for the pump from $35,000 to above $40,000 in BTC, we have not identified a specific corresponding event. This part might be corrected or clarified after the approval of the ETFs.
After discussing BTC ETFs, let’s turn our attention to the Bitcoin halving cycle. The current expected halving date is April 15, 2024. Here is an overview of BTC’s performance in past halving cycles.
The first Bitcoin halving occurred on November 28, 2012. In the subsequent 12 months, the price of BTC surged from $12 to $1,150.
The second Bitcoin halving took place on July 9, 2016. In the following 12 months, the price of BTC increased from $649 to $3,000. Furthermore, it rose to $19,000 within 18 months after the halving.
The third Bitcoin halving occurred on May 11, 2020. In the subsequent 12 months, the price of BTC increased from $9,000 to $60,000.
The first two halving cycles occurred during Bitcoin’s early stages, and their reference significance is relatively low. However, the third halving, despite initial months of oscillation, was followed by nearly a year of upward movement.
In conjunction with the potential impacts of BTC ETF approval, the Bitcoin halving, and the broader macroeconomic monetary policy, we have reconfigured the potential path for BTC. Two vertical red lines have been added to signify the ETF deadline and the Bitcoin halving date, while the black line represents the new path. In this scenario, the dominant factors are expected to be the approval of BTC ETFs and the Bitcoin halving, with monetary policy playing a supporting role.
Overall, we believe that BTC’s pricing for the approval of the ETF (assuming approval only) is currently ahead of itself. Therefore, until mid-January, BTC may experience primarily oscillations and could see a pullback or correction after formal approval to rectify the overvaluation. In the subsequent year, with the influx of significant funds into the market due to spot ETFs and the redefinition of supply and demand dynamics post Bitcoin halving, BTC is likely to enter a major upward trend. There is a high probability of surpassing previous highs before the end of 2024.
· On-chain data
With the overall trend pattern roughly determined, let’s delve into the details by examining on-chain data.
The chart above is from Glassnode’s Insight Week 49 report, detailing the historical maximum drawdowns during bull markets. The black section on the far right represents the upward trend that began in 2023. By excluding ancient history (the orange and red sections on the left), we observe that even during the upward trends that commenced in 2015 and 2019, the maximum drawdowns were 36% and 62.6%, respectively. In the current cycle, the drawdown is only 20.1%, occurring in September 2023, significantly lower than historical levels. This situation has resulted in the majority of traders in the market being in a profitable position.
On the data table from Glassnode’s Week 49 report, we can observe that after the BTC price touched $44,000, 95% of short-term holders (holding for 155 days) were in a profitable state. Historically, after such a situation occurs, BTC tends to experience either significant or minor pullbacks. We believe this scenario will not be an exception, and the red candle on the weekly chart from last week also supports this observation.
Based on Glassnode’s definition of short-term holders, we traced the position distribution of short-term holders. The chart above represents BTC/USDT on Coinbase. Data from Binance and other stablecoin pairs reflect a similar pattern. Over 70% of short-term holders have positions below $30,000, while above $30,000 is relatively thin.
Considering the historical pullbacks during BTC bull markets, this is also the reason why we anticipate a significant correction after the approval of BTC ETFs, possibly retracing to around $35,000 to shake out short-term holders and leveraged positions.
In the final part of this section, let’s examine the current state of the market’s funding. After BlackRock registered ETF names with the DTCC in October, the supply of stablecoins began to rise, indicating an influx of funds into the crypto market. The data reflected on this chart reveals the following:
- From October, the circulating supply of stablecoins increased from 119 billion to 124 billion, a 4% increase. During the same period, BTC’s price rose from $28,000 to $44,000, a 57% increase.
- The current uptrend on stablecoins has been sustained, marking the longest upward trend of the year. However, this influx of funds represents only a small portion, falling far short of the volume expected after the approval of BTC ETFs.
- Even if the funds remain at their current levels, they could still support BTC’s price reaching an all-time high (ATH).
Currently, BTC’s market capitalization is 0.8 trillion dollars, with a price of $41,000. Institutional forecasts suggest that the successful launch of BTC ETFs could bring in around 1 trillion dollars in funds. Combined with new funds entering through other channels, BTC will likely reach a price of around $100,000 in the medium to long term.
· Summarize
After taking all of the above into account, back to the possible path for BTC, leaving out some trivial changes, this is what it would look like.
Disclaimer: Nothing in the article constitutes investment advice. The article objectively expounded the market situation and should not be construed as an offer to sell or an invitation to buy any cryptocurrencies.
Any decisions based on the information contained in the article are your sole responsibility. Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives.
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