The cryptocurrency industry had a tough 18 months — the punishing hangover of a pandemic-fueled bubble that frothed over into rampant fraud and stupidity. The bad times started with the collapse of Luna in May of 2022, and didn’t draw to a meaningful close until the criminal conviction of Sam Bankman-Fried on November 2, 2023.
The seeds of a crypto renewal had already been planted in the early fall, with major regulatory wins and slowing inflation. But, as if Sam was the sacrifice that cleansed all crypto sin, his conviction unleashed a wave of good news and bullish sentiment that’s still mounting.
The upshot is that 2024 will see a return to excitement and movement in crypto – but also a fresh wave of chaos, contention and nonsense. Here are a few of the more predictable trends to watch out for.
A really incredible confluence of conditions is pointing to a hugely positive year for crypto overall, both in terms of asset price appreciation and, more importantly, advances in technology and adoption.
On the investment front, the overriding good news is that the U.S. economy, still crypto’s center of economic gravity, has avoided a widely-expected recession, while also bringing down inflation. That makes speculative bets far more appealing, and also allays some of the structural concerns about bank balance sheets that have haunted the markets in 2023. It’s worth keeping in mind that improving macro conditions mean *all* assets are appreciating right now – the Dow Jones is up a staggering 12% since late October, for instance. But futures markets currently expect rate cuts in 2024. That would disproportionately benefit crypto, because its general lack of native yield makes it harder to compete with Treasuries offering 5%.
There are also crypto-specific catalysts in the offing. The next bitcoin “halving” will occur in April, cutting the number of tokens issued as a block reward to miners from 6.25 to 3.125. While it’s still very debatable what material impact this has on price, the narrative of “bitcoin getting scarcer” often helps generate FOMO buying.
Then, of course, there’s the potentially major transformation of a bitcoin ETF approval. The further development of Ordinals on Bitcoin seems incredibly bullish. And Solana, after being financially hammered and besmirched by its connections to Sam Bankman-Fried, is seeing a surge of renewed interest. Read on for more details on those developments.
Bitcoin ETF Approved
Sometimes the conventional wisdom is conventional for a reason. While there’s a genuine chance that Gary Gensler pulls some further subversion of due process as part of the continuing Chokepoint 2.0 agenda to kill crypto, the U.S. justice system has more or less compelled the S.E.C. to approve a bitcoin ETF in 2024. More importantly, people with actual power, like Blackrock’s Larry Fink, might not be inclined to take “no” for an answer.
An ETF (exchange-traded fund) would essentially mean investors could buy bitcoin via a vehicle listed on a conventional stock or asset exchange. This is expected to create a surge of inflows to the asset, and I believe it will permanently reset bitcoin to a higher price. In fact, the ETF is shaping up into a bit of a self-fulfilling bullish prophecy: the price of bitcoin has been creeping up substantially thanks to ETF anticipation, and that price appreciation will lead ETF-curious investors to buy in.
That’s not a particularly grounded thesis, but nobody ever got rich over-estimating the intelligence of speculators. That’s also why active traders might consider selling into the first ETF-approval announcement when it comes – it’s likely to cause a sharp price spike followed by a decline.
Bitcoin Gets Upgraded
While the outcome is uncertain, the fight over innovations on Bitcoin is certain to be the most drama-filled narrative of 2024.
That was previewed in November with the announcement of a seed funding round for Taproot Wizards, the team that effectively pioneered “Ordinals,” which are akin to “NFTs on Bitcoin.” Alongside Ordinals, there has been renewed interest in Stacks, a long-running effort to build a Layer 2 on Bitcoin that can do things like DeFi.
The Taproot Wizards team believes what they’re doing might help save Bitcoin by increasing daily transaction fees. That’s important because of the declining block reward, which can in turn make mining unprofitable, lowering hashrate and making the chain less secure.
But if you ask a Bitcoiner of the laser-eyed maximalist stripe, ordinals and inscriptions are a total subversion of Satoshi’s vision. Among other complaints, it seems maxis don’t actually want fees to rise, because they still dream of bitcoin being used for routine transactions. They also sometimes disagree that the declining security budget is an issue at all. So it seems we’ve got more than enough X/Twitter fights to last all year.
The Scams Won’t Stop
If you’ve just been through your first bubble-then-crash cycle, you may still hope the industry has “learned our lesson” — that this time we’ll get a more sustainable and sane version of a bull market, without all the fraud and screwups. But history isn’t on our side: crypto’s global, borderless nature makes it extremely attractive for con artists and idiots, and they’ll come back as soon as the money does.
They will have fresh victims, too: despite the shenanigans of SBF and his ilk, I already have relatives asking me about tokens again, with the same slightly feverish, greedy tone we heard in 2020. That’s the root of more chaos and wasted capital, and you should do your best to discourage naive speculators. But it’s the nature of the beast.
On-Chain Fundamentals Ascendant
As predictable as the crypto bubble cycle is in some ways, things do also change over time. The big change for the current cycle will be a new import given to the fundamentals of actual adoption, particularly of established chains like Bitcoin and Ethereum.
It probably won’t happen until after the frenzy around the Bitcoin ETF approval, which might not calm down until late in 2024, or even early 2025. But once we get past that, serious analysts will begin to be able to get meaningful data from stuff like transaction volume and geographic adoption patterns. To get warmed up on thinking in terms of numbers instead of hopium, I recommend Coinmetrics’ 2023 State of the Network report.
Solana Returns to Legitimacy
Maybe no blockchain has suffered more undeserved drama than Solana. After its launch in 2020, the chain was widely touted as a candidate for crypto’s third, big base chain after Bitcoin and Ethereum. But it had the bad luck of catching the attention of Sam Bankman-Fried, and the association helped push its price down 95% after FTX’s collapse and exposure as a fraud.
It didn’t help that Solana experienced a series of outages in 2022, making it seem extremely risky for activities like DeFi and NFT trading – finding your assets frozen at random times for no apparent reason is the exact opposite of what you want out of a blockchain. But all the way back in March 2023, Messari analysts declared that “Most of the causes behind Solana’s downtime issues have been solved.”
That has turned out to be mostly correct, with just one major outage in February and 100% uptime since then. Many, many more people are likely to try out a chain that actually works as advertised.
Dishonest Politicized Attacks on Crypto Will Continue
Crypto has been the target of a seemingly coordinated attack from regulators and legislators for the duration of the Biden administration, most recently exemplified by Senator Elizabeth Warren’s continuing, shameless falsehoods. And cravenly leveraging the situation in Gaza to attack crypto is by no means the limit of how far they’re willing to go: Gensler’s SEC has now been reprimanded by a Federal judge for alleged deception in pursuing a crypto case. Gensler also sent a company effectively backed by the Chinese Communist Party to testify before Congress to support Gensler’s refusal to do any crypto-specific rule-making.
All of which is just to illustrate how far this faction’s frothing, irrational hatred of crypto can and will drive them. While the 2024 election could change things, that won’t mean anything until 2025, and figures like Warren will likely continue their crusade in some form even if their party is out of power. It’s a good time to remember that in the proverbial path to acceptance of new ideas, “Then they fight you” comes right before “Then you win.”
Restaking L2s Get Blown Up
Recent weeks have seen the launch of Blast and Manta, a pair of Ethereum layer 2s with “native yield.” In very simplified terms, this means they’re taking the nominally risk-free rate of return from Ethereum staking and funneling it into direct returns from their respective L2 tokens. Many finance-savvy crypto observers are worried that this novel structure introduces opaque risk to these systems, or to other systems that use their assets. Those risks will hopefully become clearer when both systems are live, but the layering and obscuring of risk inherent to their structure leads me to bet a restaking project will see a bad meltdown in 2024.
CoinDesk Fades Away
I unfortunately have to end my predictions roundup with one that’s a bit too close to home. I was deeply skeptical of the acquisition of my former employer CoinDesk by the crypto exchange Bullish, largely because of its roots in the badly mismanaged EOS crowdsale and rollout. But things already seem even worse than I’d feared, with the recent layoffs of key editorial personnel, most notably its Head of Multimedia Joanne Po. Po built the CoinDeskTV and podcasting slate from scratch in a few short years, and her ouster alongside many of her staffers amounts to abandoning the goal of building a crypto-first broadcast counterpart to CNBC.
That seems to reflect the broader pivot away from serious journalism that I expected under Bullish’s ownership, and towards the Consensus conference and other lines of business. What Bullish and others driving the change may not understand is that CoinDesk’s ability to draw people to its conference, or any other service, hinges on its journalistic reputation. Once that’s gone, there won’t be much left of the greatness that was — leaving a huge gap for other news operations to capitalize on crypto’s coming resurgence.