The remarkable surge in Bitcoin’s value throughout 2023 has escaped widespread public attention, even though the leading cryptocurrency has seen an impressive 190% increase at the time of writing. Nevertheless, momentum appears to be growing, marked by a substantial 62% rally since October, prompting investors to sit up and take notice. The question on everyone’s lips is, “Why now?”.

This article outlines the key drivers of the rally before looking forward to potential catalysts for the price in 2024. Drivers covered include gradual but ongoing adoption, expectations for loosened global monetary policy, growing expectations of an imminent Bitcoin ETF launch in the US, and next year’s Bitcoin halving – where the inflation rate is algorithmically reduced by 50%.

Bitcoin’s rally has gathered steam over the fourth quarter

The Global Macroeconomy

Economic analysts see the macroeconomy at a crossroads. With October’s US inflation reading coming in below expectations and data that reveals a cooling labour market in the US, the popular narrative that central bankers around the globe would need to keep interest rates elevated for a prolonged period of time has largely been abandoned.

Expectations are now for a series of rate cuts from the US Federal Reserve beginning in 2024 – which has had the effect of loosening financial conditions even before the Fed begins cutting. This is most obviously evidenced by pronounced dollar weakness since mid-October.

Adding further support to this changing narrative has been weakness in oil prices – implying that there will be space to cut without inflation resurging.

Investors have flocked into bond markets in response, however, the surge has impacted most asset classes, with November recording the largest cross-asset rally since 2008. In 2008, markets rebounded from months of weakness during the height of the global financial crisis.

Like more traditional assets, both gold and crypto have benefitted from this loosening of financial conditions.

Growing Adoption

Prices would have found some support this year from signs that point to future mainstream adoption. This year, massive players in payments have stepped up their efforts to incorporate crypto into their operations.

Highlights include PayPal’s August launch of their own stablecoin, PYUSD. More recently in September, Visa kicked off its stablecoin pilot by using USDC on the Solana blockchain through a partnership with Solana Pay. The pilot program sees crypto functionality tested across several merchants, including giant online retailer Shopify.

A Bitcoin ETF in the US

Hopes that the US SEC would finally approve an application for a Bitcoin ETF backed by spot Bitcoin holdings have been high ever since prominent firms, most notably Blackrock, the world’s largest asset manager filed applications to launch these vehicles with the SEC in June. Currently, crypto ETFs in the US derive their exposure through futures markets, which is more costly for investors and for which demand does not necessarily translate into demand for actual Bitcoin. It’s widely held that a spot Bitcoin ETF would translate into significant Bitcoin demand and, thus, higher prices.

While the SEC has rejected all previous proposals for a spot ETF to date, Blackrock’s reputation has led many to conjecture that the company would only consider the application if they were reasonably confident in the prospects for success.

Adding to this confidence more recently has been the settlement reached between US regulators and the world’s largest crypto exchange, Binance. As part of this settlement, the US government will now have insight into the company’s day-to-day operations. This oversight into the largest Bitcoin trading venue hurts the argument put forth in the past to reject ETF applications: that the market is subject to significant manipulation.

The 2024 Bitcoin Halving

A Bitcoin halving (in which Bitcoin inflation falls 50%) due April of 2024 has added to market optimism, with much of Bitcoin’s meteoric ascent in the past decade occurring in the year-long periods following a halving. Given that asset prices are determined by the confluence of supply and demand, this is no surprise.

Bitcoin’s Halving Has Always Preceded All-Time Highs

How to Invest

With crypto markets looking like they may be heating up for another major bull cycle, it’s important for those looking to invest in managing their risk by not over-allocating to the sector in the short term. As we saw over November, investing in the wake of a large rally also heightens the risks of poor performance if markets pull back.

For those with conviction in the fundamental value proposition offered by crypto, building a long-term position over time through dollar-cost averaging may be most appropriate.

Jaltech offers investors cryptocurrency exposure through regulated securities, which can be invested via a lump-sum investment or by setting up a debit order – allowing you to implement a dollar-cost averaging strategy seamlessly. Investment options include Bitcoin, Ethereum, and a market-cap-weighted basket of 13 top crypto assets Jaltech’s expert team selected.

Jason Welz – Head of Digital Assets – Jaltech Fund Management