The Breakdown - 10 Crypto Predictions for 2024 [Part 1]

Episode Date: December 22, 2023

NLW aggregates a dozen plus end of year reports to come up with 10 consensus crypto predictions for 2024. Here's part 1! Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Thursday, December 21st, and today we are heading fully into our end-of-year coverage with predictions. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show. or go to bit.ly slash breakdown pod. Hello friends. Well, for content creators, it is that time of year. We are talking, of course, about end of year philosophizing, predictionifying.

And instead of just making predictions myself, what I wanted to do is try to sum up the predictions of all of the other folks out there. We have gotten reports from JP Morgan, Matrix Port, Bitwise, CoinShares, Michael Saylor, Samson Mao, K-33, Lynn Alden. Of course, there's Ryan Selkis and Masari's. Crypto Theses, a mainstay of this season. Arthur Hayes and Raupal are Turbo Bullish. And we have integrated all of that into this conversation.

But before we get into the future, let's talk about what has passed. It's very clear that what we are doing right now is turning the page on crypto winter. 2023 was a brutal year. In many ways, it was a last stand year, the most severe and then they fight you year we've ever had. We had a raft of crypto bankruptcies from Celsius to Voyager to Genesis to BlockFi to FTX, and not only are many of those getting resolved, it doesn't really look like there's any more dead wood to be burnt. We had, of course, a serious crackdown, chokepoint 2.0, a Binance settlement, SBF criminal charges, and a conviction, even tether cozing up to law enforcement.

Speaking of enforcement, we've had the SEC sue every major exchange and also ding NFT projects. We've had the CFTC cracking down on defy derivatives platforms, but we've also had those enforcement cases not exactly working out, as in the case of Ripple. We've seen regulation. Mika passed and will be implemented next year in Europe. Hong Kong has implemented new regulations. The U.S. of course, stalled out on legislation. But at least now we have comprehensive bills proposed and a general idea of what the contours

of U.S. regulatory frameworks might look like. And of course, nothing was more turning the paging than the excitement around a Bitcoin spot ETI. In many ways, it seems that we finally got over the hump or were about to get over the hump, thanks in large part to the gray scale lawsuit. Now, one of the things that has quietly been going on this entire year is that as much as it was brutal in the headlines, firms like 21 shares were still servicing a lot of very quiet institutional demand from family offices and hedge funds.

That sort of institutional allocation during a downturn, rather than a stamping on Bitcoin's supposed grave, is novel behavior for this cycle and seems to indicate some of the same. something new. Now, I called out Ryan Selkis and his Crypto Theses document just a moment ago, and it really is sort of the granddaddy, and if nothing else, longest of all of these, and here's how he put his summary of the journey of this year. By the way, that entire report is around 194 pages. Masari Pro subscribers get it now, of which, of course, I am one, the rest of everyone gets it in the beginning of the year. But anyways, Ryan wrote, The carnage of the past 12 months in crypto has been brutal for all of us. We've grinded through bankruptcies, lawsuits,

layoffs, turnovers, and a general malaise that comes with a bad hangover after a big party. It's been surreal at times, too. In some respects, the industry was blown back to 2013 following its first credit crisis. Survivors include decade-long operators like Coinbase Cracken and Circle. But we have never been operating further out on the cutting edge of tech than we are today. There's lots of secure block space and scaled transaction processing, composable identity and defy-application, etc. And Wall Street's embrace is imminent whether Jamie Diamond likes it or not. I didn't think Sam Bankman-Fried would be in jail by the time I wrote the 2024 thesis. But his swift comeuppance and lengthy prison sentence marked an important turning point for us all.

If last year's report was, it's so over, this year's report is we're so back. We're back to Bitcoin dominance, back to building parallel financial systems just in case national currencies inflate, or we lose access to banking or credit. Back to peer-to-peer applications and permissionless inventions versus cultish centralized services. Back to a focus on an uncensurable internet and an era where free speech and open communications are far from guaranteed. That's why I remain permablish on this technology and this community. There is reason for hope and optimism. A big part of succeeding in crypto is simply surviving from cycle to cycle. If you're reading this, or I will add as editor, if you're listening to this, you're one

of the survivors. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours. overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life.

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Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Cracken. So let's now dig into our big themes and predictions for next year, starting with number one, a Bitcoin-led rally. And again, one more reminder. I am pulling widely from all of these different predictions to try to bring something that is overarching in the way that the breakdown is wanted to do.

Now, the common theme, the most common theme across all end of your predictions is that everyone is expecting a return to a bull market. That said, opinions diverge once we begin to dig into the details. The last cycle's bull market began with a massive Bitcoin-led rally post-having. Bitcoin began 2020, a little over 7,000, and quadrupled in price to mark a new all-time high by the end of that year. That rally was spurred on by macro heavyweights publicly talking about Bitcoin as a legitimate investment for the first time. Paul Tudor Jones published his great monetary inflation thesis and called Bitcoin

the fastest horse in the race. You remember that time, it was this weird moment coming off of COVID, where there was such a contrast between what was happening in the world and what was happening in markets, and crypto was just there surging like nothing else. Now, of course, some tokens outperformed in all of this with Ethereum in particular finding its legs in the closing month to put up in nearly six-fold increase, but in general, Bitcoin led the way and maintained over 60% market dominance throughout almost the entire year of 2020. Back to the current, Selkis again wrote, Bitcoin tends to lead recoveries. We've recently seen multi-year highs for Bitcoin dominance, but still nothing close to the high water mark we attained at the beginning of the 2017 and 2021 bull runs.

Now, for reference, currently Bitcoin dominance is at 54%, and at the beginning of 2020, it was at a cyclical high of 70%. Selkis added, it's difficult to see catalyst for a other crypto boom that do not begin with a sustained face-melting Bitcoin rally, to be honest. He noted that defy is facing regulatory headwinds, NFT activity is mostly dead, and emerging sectors like gaming and social apps will likely be a slow burn. Summing up, he wrote, the highest EB play in the early stages of a crypto bull run has always been to bet on the king, and this cycle has been and will continue to be no different. Now, one of the things that I'm most interested in is the narrative making around this.

I think we got our first glimpses into how this was going to shake out all the way back during the banking crisis earlier this year. There was this remarkable moment where even as Silicon Valley Bank and these others were teetering or collapsing, Bitcoin was going up. Now, I think that historians will show that that probably had more to do with a very public finance bid than it did with any sort of flight to Bitcoin safety, but it didn't matter. Because mainstream media wasn't reporting on Binance buying, but they were reporting on Bitcoin going up as banks went down. That's the kind of thing that can start some serious narrative juice, even before a bull run has begun. Still, when it comes to predictions, JP Morgan analysts have a very different view from Selkis.

They wrote, excessive optimism by crypto investors arising from an impending approval of spot Bitcoin ETFs by the SEC, has shifted Bitcoin to the overbought level seen during 2021. JPM even recycled the classic analysis for this point in the cycle, claiming that the having is, quote, largely priced in. Instead, JPMorgan thinks that Ethereum will outperform over the next year. They cited the EIP 4844 upgrade, which was expected to arrive this quarter, which will introduce proto-dank sharding, which is an infrastructure change which is expected to improve network scalability by splitting the blockchain into multiple shards. Nothing like being a serious podcast and having to use the word proto-dank sharding without laughing. Also in other news, Bankless is

now running J.P. Morgan's analyst group. Now, Bitwise thought the next year's Ethereum narrative would be about cash flow. Their analysts noted that Ethereum is on track to generate $2.3 billion in fees this year and expect that figure to double for 2024. The DeFi frenzy of 2021 saw Ethereum rake in 10 billion in fees, so a similar spike in on-chain activity would make their estimate well within range. Bitcoin fees have of course been spiking throughout this year on the back of the Ordnals craze, even outperforming Ethereum at times. But to the extent that this bull run is shaped by traditional investors who are looking for traditional things like yield, it's hard to imagine that they don't at least take more of a glance at Ethereum. That moves us, though, to our second prediction or category

of predictions, which is, of course, that ETFs are coming. Now, the launch of the Bitcoin spot ETFs is all but confirmed for early next year. Preliminary approvals are expected any day between now and January 10th, but there could be a few weeks delay before products begin trading. J.P. Morgan, once again, is one of the few firms predicting that ETFs could be a negative catalyst. Their analysts wrote, we are cautious on crypto markets into 2024, and we continue to see a high chance of a buy-the-rumor sell the fact effect once the SEC approved spot Bitcoin ETFs next year. Almost every other research firm and talking head is bullish on the event, with a range of euphoria levels. Samson Mao wins the award for most absurd target, thinking that ETFs can drive

Bitcoin to $1 million within days to weeks. He said, you're hitting a very limited supply of Bitcoin on the exchanges and available for purchase with a torrent of money. That is why you can go really high all at one time. Bitwise is predicting a still significant $80,000 Bitcoin as ETFs drive the asset into its quote mainstream era. They believe that $72 billion will be allocated to Bitcoin over the next five years. This back of the napkin prediction is based on Bitcoin ETFs growing to represent 1% of the overall US ETF market cap. Michael Saylor is more focused on the paradigm shift of bringing Bitcoin into traditional financial markets. He told Bloomberg earlier this week that, I think you can't really underestimate the significance of the spot ETFs.

It's not unreasonable to suggest that this might be the biggest development on Wall Street in 30 years. The last thing that was this consequential was the creation of the S&P Index. In other words, Saylor said, I see your enthusiasm and I raise you. Now, when Ask where Bitcoin will be a year from now, Sailor chuckled and simply answered, higher. He added that a team of economists could be kept very busy modeling the supply and demand dynamics, but that fundamentally, quote, I don't think we've ever seen a 2 to 10x increase in demand,

combined with the halving of supply and a scarce desirable asset that people want to hold for a long time. He concluded by saying, we're expecting 2024 is going to be a major bull run for the asset class, we just don't know how far the asset's going to run at this point. Lin Alden agrees that Bitcoin ETFs will change crypto, unleashing a flood of capital moving into Bitcoin for the first time. Alden said, I think it's a demand driver because it unlocks certain types of capital that don't want to invest in a future's ETF that don't want to invest in a trust. It's in an existing brokerage account. Selkis and many others in the crypto-twittersphere focused on the marketing side of the ETF launch, rejecting the idea that it would be a sell-the-news event as Bitcoin advertisements flood every channel.

He wrote, You want to hold assets that Black Rock, Fidelity, Wisdom Tree, Franklin Templeton, and BESCO, Grayscale, Bitwise, Ark, Faneck, and Valkyrie are all tripping over themselves to sell harder than each other. And that's exactly what's going to happen with Bitcoin as soon as the ETF floodgates open. With billions of dollars of fees on the line, there will be enough shilling to make even the most cringe crypto-yutube personality uncomfortable. Now, since we are on the theme of institutions, one little sub-prediction theme that I thought was worth noting, even though it's much smaller than the rest of them, is the rise and fall of the CME.

One of the most surprising stories of the year was the rise of the Chicago Mercantile Exchange to become the largest Bitcoin futures trading venue. Better known for hosting trading in oil and other commodities, the CME overtook Binance in October, and will end the year as the largest Bitcoin market in the world. Now, the rise of the CME was viewed as an indication that institutional investors were flooding into the market ahead of ETF approvals. Open interest began picking up when BlackRock applied for their ETF in June, and the CME is one of the few fully regulated futures venues appropriate for financial institutions. Still, K-33 suspects that next year will see a dramatic collapse in CME open interest.

Their report forecasts a 50% drop as traders migrate to new spot Bitcoin ETFs as their product of choice. The batch of futures-based ETFs, which currently trade add a large amount of baseline open interest to the CME Bitcoin contracts. If spot-based ETFs drain assets from the existing products, we could see the CME Bitcoin markets being deserted. Institutional traders would presumably start trading derivatives based on the new ETFs instead, but when all is said and done, a major shift in market structure often comes with a host of unforeseen ramifications.

No matter what happens with the CME next year, I think that the flippening from Binance to to CME as the biggest Bitcoin venue in the world, will be seen. long term as a major, seminal moment, telling of the shift between the two eras. Number four on our list and staying in the institutional theme, RWA finally happens. It is not fetch. At least lots of people aren't thinking it's fetch. Throughout this year, experimentation in real-world asset tokenization has accelerated. It began with small pilot projects, but the fourth quarter saw the launch of a stable coin from French Megabank, Society, Hennaral, excuse me for not having an accent, plus the

announcement of Coinbase's RWA platform regulated in Abu Dhabi, and the legislative approval of El Salvador's volcano bonds. CBDC chatter has also ramped up, but continual opposition from citizens has made wholesale infrastructure upgrades the far more likely path compared to dystopian retail digital currency. Selkis again wrote, I take the retail-focused CBDC projects about as seriously as I take Doge and Pepe. They're fun to play with and talk about, and they'll have a similar amount of near-term impact on the world. That's a good thing, too, because the way that global bankers are talking about these tools of surveillance and financial control is a bit too erotic for my liking." End quote. Now, internationally, many of the retail CBDC discussions are raising an interesting

problem, which is that they could blow up the banking system. In the UK, for example, the banking lobby suggested small holding limits to ensure that bank runs do not inadvertently threaten financial stability. In the U.S., constitutional rights, privacy concerns, and skepticism of government power have made CBDCs a toxic political subject. Salkis added, I like the idea that CBDCs will prove to be so painfully bad, compared to private sector-driven crypto protocols, that we should welcome them and let them expose themselves as inferior goods. Now, that said, tokenization of real-world assets, on the other hand, could see massive growth next year.

Numerous projects in Europe and Asia have passed the proof-of-concept stage and could look to scale. 2024 could also be the year that U.S. financial institutions adopt distributed ledger technology. J.P. Morgan's Onyx, for example, is reportedly settling a billion dollars a day. The bank's blockchain team has also been cooking up a fun tokenization platform called Project Guardian, which would also allow asset managers to automate rules-driven active portfolios. Now, when all is said and done, real-world assets could remain a meme in 2024, but if they succeed at any real level, they would give financial institutions a glimpse into the efficiency of blockchain platforms.

Adoption begets more adoption, and financial firms are just as prone to worry about missing out on the next big thing as anyone else. Colin Erickson and Mark Nagar of RWA.xy Z wrote, the flurry of 2023 headlines depicting multinational financial institutions, launching tokenization products, signals growing institutional interest in blockchain technology. In 2024, we expect this trend to continue. Institutional money managers are likely to feel a sense of urgency to explore tokenization, likely motivated by a desire to keep pace with early movers. 2024 could easily be the year of significant growth in digital bond issuance, if not in volume,

certainly in count. So here we are, and we've actually only gotten through four of these 10 areas. That just means we will have to come back with part two of our predictions discussion tomorrow. For now, one more big thank you to today's sponsor, Cracken. Go to crackin.com and see what crypto can be. And until next time, be safe and take care of each other. Peace.