The Breakdown - 10 Crypto Predictions for 2024 [Part 2]

Episode Date: December 23, 2023

The second half of The Breakdown's review and aggregation of various reports and predictions for the coming year. 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 part two of our year and coverage here at the breakdown. But, of course, before we get into that, 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 notes or go to bit.ly slash breakdown pod. All right, friends, now, as a reminder of the way that we are approaching this, instead of it just being a curated list of my 10 predictions, what I try to do is go through all of the various reports and prediction papers and all the sort of stuff that's been flying around and tried to pull

out the cross-cutting themes, even in some cases where people had different feelings about those themes. So what you're getting then is sort of an aggregation and curation of other people's predictions as well, although, of course, I will insert my own opinions when it makes sense to. Yesterday on this 10 predictions list, we talked about one, a Bitcoin-led rally, two, the ETF coming, three, the rise and fall of CME and what it meant symbolically, and four real-world assets. Today, let's once again start with Bitcoin, but let's start with the Bitcoin halving. One of the big focal points for end-of-year predictions was, of course, the having, and particularly whether Bitcoin has enough momentum to reach a new all-time high ahead of it,

which is anticipated in April. Having years have always been bullish for Bitcoin, but typically the first of the market. bull market really heats up once the halving has passed. Some industry figures think that this time it could be different. Blockstream's CEO Adam Back thinks that Bitcoin will reach a new all-time high ahead of the having. That perspective is shaped by the very controversial stock-to-flow pricing model, with Back believing that Bitcoin's price has been suppressed over the past year by the string of bankruptes and impairments throughout the industry. He said, the wave of the contagion, the companies that went bankrupt because they were exposed to 3RO's capital, Celsius, blockfi, and

FTCX, that's mostly done. We don't think there are many more big surprises in store. With that out of the way, Back is sticking to his prediction of $100,000 Bitcoin by the April halving. He said, People thought it was a bit of a crazy assertion that we might get to $100,000 pre-having because I said it when the price was around $20,000. Back noted, however, that repeated trips to the $44,000 level over the past month demonstrate a wave of heavy demand already present in the market. Ryan Selkis from Masari thinks the having will become a boomer meme as Bitcoin is placed front and Center in Financial Media. He wrote, It's less about the positive supply shock and more about the simplicity and consistency of the message.

Central bankers may command the attention of the Wall Street traders glued to their Bloomberg terminals, but there's no need for high priests with a monetary policy this simple. Now, of course, the halving will reduce the reward for Bitcoin mining from 6.25 Bitcoin per block to 3.125 Bitcoin per block. That could be less impactful than the 2020 reduction from 12.5 BTC, but this having will bring Bitcoin's rate of supply below the average production rate for gold for the first time. So I think it's a fair expectation that we'll see the narrative that Bitcoin is more scarce than gold begin to pick up next year. Now, I am fully in this camp that the power of the having, at least in the short term, or at least right around the having, is all about

narrative. It's all about media concentration. It's all about the simplicity of the story. Last time around, it was Bitcoin's issuance cutting in half, right as the money printer was revving up in COVID world. Next on our list, number six overall is stable coins. Right now, it's Stablecoins have a market cap of $131 billion, with almost all of that concentrated in USDC and Tether. This year, however, has been rough for USDC. Their market cap was slashed in half after the March banking crisis, and the related DPEG shocked users of what had previously been considered the safest stablecoin. Tether took the majority of the market share that USDC shed and added significant new volume

over the final months of the year. Over 90 billion in USDT has now been issued, with Tether surpassing its 22 all-time high market cap in October. In a recent interview, Tether CEO, Paulo Arduino, said that 40% of Tether demand is now coming from store of value and payment use cases, particularly in developing countries. That's notable because that means that it's not just for crypto traders anymore. Ongoing currency crises in Argentina, Lebanon, Turkey, and Egypt have made the case for on-chain dollars outside of domestic banking systems. And Selkis noted that the success of Tether brought an unlikely crypto personality along for the ride. He wrote, USDT-on-T-on-T has emerged as the world's top crypto payment network.

I didn't have USDT dominance on my bingo card for the year, but Justin's son has pulled off the improbable and facilitated crypto's first truly globally important app. USDT-on-Tron is helping crypto realize its financial inclusion potential. Weird times, man, weird times. Now, one of the most telling signs that Tether has pulled ahead in the Stablecoin Wars is the migration of large balances. USDC has lost around a third of users with balances of over $1,000 this year, while Tether added about the same amount. Now, it is not all doom and gloom for Circle. First of all,

the vast majority of people believe that the hemorrhaging of users and volume is less of an indictment of Circle and more a skepticism of the U.S. government apparatus and traditional financial system that caught Circle up in the SVB collapse. Still, even in spite of that, this year Circle has added global partnerships with SBI Holdings in Japan, Mercado Pago in Latin America, and Coins.ph in Asia Pacific. Circle's Eurostable coin has been launched across four blockings. with Solana support being added last month. 90% of Solana stablecoin volume already uses USDC, which could provide Circle as an avenue to challenge Tether-on-Tron as a cheap and fast payment stablecoin. The business is also a bona fide success. Interest rate increases

have made the stablecoin business model of holding a large stash of interest-bearing U.S. Treasury reserves, one of the best in the world. Circle had $800 million in revenue and $200 million in EBITA in the first half of this year. Selkis thinks this places Circle at the front of the line for a crypto IPO this year. Now, outside of those two biggies, the new PayPal stablecoin, alongside existing offerings from Paxos and MakerDA, will remain in the mix. Binance, however, is something of a question mark. The shutdown of Paxos issued BUSD was a major blow, which went largely under the radar due to the much larger problems facing the exchange. With their own white-labeled stable coin shut down, Binance have pushed users onto a pair of questionable Hong Kong-based

issuers. Time will tell whether these new stablecoins are reliable enough to attract users, but so far their market caps have grown massively. Now, the biggest shift to watch for in the years come is stablecoins integrating into offshore euro dollar markets beyond retail participants. On growth of global stablecoin relevance next year, suggesting that in 2024, stable coins will settle more payments than the Visa network.

Visa settles around 12 trillion this year, while stable coins settled around $7 trillion. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been 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. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, PVI, DBA, Crakken. Now, if a lot of the discussion this year around stablecoins was in the regulatory sphere, that brings us to our seventh area of predictions, regulatory and legislative.

This was sort of supposed to be the year of regulatory clarity in the U.S. After the collapse of FTX, many predicted that 2023 would be the year that Congress finally stepped in to give the industry clearly defined rules of the road. Instead, we got unprecedented ambiguity. Operation Chokepoint 2.0 made it unclear whether banks would be allowed to deal with crypto in any way, debanking hundreds of startups. The SEC doubled down on its campaign of regulation by enforcement, with Chair Gary Gensler declaring that the rules are clear while continuously struggling to apply

existing rules in court. Crypto lawyer Mike Selig called 2024 the year of regulatory compromises. He wrote, It is unlikely that Congress will pass comprehensive crypto legislation during an election year, but regulators may opt to pair back a failing regulation by enforcement strategy and instead work collaboratively with the industry to develop an interim regulatory framework through a combination of notice and comment rulemaking and no action relief. He noted that courts are looking at regulatory overreach with increasing disdain. Both the SEC and the CFTC are being sued by other industries for abusing their authority and breaching due process. There is also the very real possibility that the SEC in particular could end up in the Supreme Court defending the creeping expansion

of their jurisdiction in a major questions doctrine case. After running through a number of questionable regulations currently being proposed, Selig wrote, the reality that these regulations may be held up by legal battles and then abandoned in the event of a change in administration may prompt the SEC to make significant concessions. Overall, he thinks that, quote, after a long year of crypto battles in the new year, we can expect the crypto industry and regulators to warm up to one another, if ever so slightly, and this will be a net positive for us all. Now, Selkis, meanwhile, stated the obvious, writing,

Crypto is political now. Heading into a presidential election year, crypto will be on the ballot with unprecedented industry donations from a newly formed super PAC and multiple candidates putting their crypto policy on the debate stage. This year's attempts to make a bill into law have just not quite gone through. We've had two near misses on government shutdowns, not to mention a month-long leadership debate that ground Washington to a halt. Two crypto bills have passed the committee stage, one dealing with stable coins and the other establishing market structure and regulatory jurisdiction. There are also, of course, multiple anti-money laundering bills looming, the worst of which

would cripple the industry in the U.S. Selkis, for his part, is very worried about a bad outcome from an AML bill, writing, my friends in D.C. tell me I'm too pessimistic on these, but I think the odds are far too high for negative surveillance-oriented legislation to get crammed into a must-pass bill like the National Defense Authorization Act. Overall, Selkis agrees that we don't really get any progress on crypto legislation next year, but suggests that that might not be a bad thing. He writes, I don't mean to sound sanguine, but we are less than a year away from a fairly consequential election,

and retrenching and living to fight another day isn't a bad strategy. No law is better than bad law, and expensive court battles are preferable to negotiated surrenders that cripple the long-term viability of crypto-in- the U.S. Moving to our next and eighth topic, let's talk about the industry moving on-chain. Throughout this year, Dex Spot volumes have averaged around 15% of their centralized counterparts. Uniswap cemented their place as the dominant on-chain trading venue, marginally outperforming

Coinbase in terms of volume across multiple quarters. Solana Defi experienced massive success late this year, with on-chain volume increasing 6x just in December. The coming cycle will be the first with developed DeFi ecosystems present as an alternative to centralized exchanges right from the beginning. Defi existed in 2020, but the story of that cycle included major hacks every other week. And even more than that, it was just very clearly the first flush of experimentation. With the benefit of a crypto winter to battle-hardened systems, it's totally possible that decentralized trading will be ready for prime time next year. One of the market segments

that many think is set to succeed during the next cycle is defy lending. Indeed, a major takeaway of the 2022 collapses was that centralized crypto lenders can't be trusted. Now that on-chain lending has matured a little bit more, it could represent a viable alternative. As the demand for leverage and yield increases into the bull market, the question will be whether crypto users trust the next Mischinsky or start using smart contracts. Another clear area where DeFi has an opportunity to shine is derivatives. DYDX has quietly cornered the market for on-chain perps over the past year, becoming more dominant than Uniswap in its respective niche. That market, however, is comparatively tiny, with on-chain markets representing a diminutive 2% of overall crypto derivatives trading.

The issue for centralized exchanges is that offering derivatives products to U.S.-based retail traders has been a key enforcement focus for the CFTC. While the regulator has made a token effort to crack down on on-chain derivatives, this has been a time-intensive process. Investigations of centralized exchanges, on the other hand, have been much more straightforward and successful, with the lawsuit targeting finance settling for a record-breaking fine. In other words, during the next bull run, we may see U.S.-based DGens locked out of high-levered trading on centralized exchanges, but easily able to find their way onto on-chain venues.

Now, another emergent theme for this year were L2s. The successful rollout of arbitram and optimism led to an explosion of alternatives scrambling for market share. The biggest shift came from centralized exchanges catching up to Binance and offering their own affiliated on-chain experience. Coinbase's base network was a major success, encouraging Cracken and OKX to launch their own affiliated layer two networks. Now, one dark horse prediction that some have is that Bitcoin defy will finally arrive. Although the programmability upgrade from Taproot was mild, Bitcoin builders cobbled together a functional NFT and all-coin market from the Ordinals primitive. Layer 2s and scalability solutions like Lightning, stacks, and rootstock have also seen

low-key growth this year. There's also been a groundswell around the need for additional base layer tools to enable better side chain designs. Paul Varad Attaqatatatat At a partner at Pintera Capital wrote, on the infrastructure level, we believe we will see a proliferation of Bitcoin L2s and other scalability layers to support smart contracts. The Bitcoin ecosystem should coalesce around one or two Turing-complete smart contract languages with two contenders including Rust, Solidity, or the extension of a Bitcoin native language such as clarity. This language will become the quote-unquote standard for Bitcoin development, similar to how solidity is considered to be the standard for Ethereum development.

All right, friends, we are getting close. cruising through number nine on this prediction list is that the Bull Run runs through Asia. Now, coming out of Crypto Winter, one of the most surprising things to the Western industry is how positive the Asian crypto community remained throughout. While American crypto insiders were waiting on the Sam-Bankman-Fried trial to begin, Singapore hosted one of the most high-spirated crypto events in recent memory. This year even saw Hong Kong establish crypto regulations to allow retail trading, which was unthinkable two years ago when China instituted their ban on the industry.

Although the Luna collapse emanated from South Korea and the 3AC bankruptcy occurred in Singapore, the Asian crypto community made it through the winter with relatively high morale. While U.S. lawmakers are busy pushing the industry offshore and European governments are on the fence about how permissive their regulation should be, multiple Asian jurisdictions are opening their arms to the industry. Japan and Singapore both have their ambitions set on being a major crypto hub, and despite some early setbacks, Hong Kong is staying the course to allow the domestic industry to establish routes. New crypto projects are now typically launching with U.S. customers locked out, and this year even saw Coinbase and Gemini launch offshore exchanges.

While launching spot trading earlier this month, Coinbase pointed out the issue stating, we recognize the hesitancy among some asset issuers and members of the crypto community to engage with U.S. exchanges due to the evolving and uncertain regulatory landscape in the United States. If 2024 is the year that the U.S. loses its status as the home of the crypto industry, Asia clearly stands ready to pick up the pieces. And now, friends, we come to number 10, the most common aspect of year-end reports and prediction articles, which is, of course, the price target section. Indeed, tis the season for excessive price predictions, and one of the best in the game

game is Bitmex founder Arthur Hayes. Following a doveish Fed meeting to end the year, Hayes tweeted, at this point, there is no excuse not to be long crypto. How many more times must they tell you that fiat in your pocket is a filthy piece of trash? Bitcoin equals one million. Now for a more, quote-unquote, scientific approach to price prediction, we turn to Real Vision CEO Raoul Paul. Raoul has tracked Bitcoin price action alongside his proprietary global liquidity index dating back to 2014 and finds a very plausible correlation. In the most recent update to his chart, Raoul set enthusiastic but well-reasoned price targets. By May 2024, Raul thinks that year-on-year liquidity will increase by 20%, with a corresponding Bitcoin price target of $218,000. He sees the

following year as a slowdown with only a 5% increase in liquidity and Bitcoin moderating to $209,000. Things get really wild when we get to 2026, where Raul predicted a 9% annual increase in liquidity and attached an eye-popping $520,000 price target. Now, of course, fundamentally, Raoul is still drawing lines on a chart when it comes to predicting global liquidity levels, but at least there's a method behind the madness. Dan Tapiero of 10T Holdings thinks that Bitcoin following Raoul's model would be a paradigm shifting event. He tweeted, The world is not ready for this chart. A 200K Bitcoin in 2024 suggests a true and imminent change in the world. Zero exposure will pose career risk for many traditional money managers.

Money and value get redefined. Now, macro savant, Lynn Alden has a much more conservative Outlook. Refusing to give a short-term prediction, she said, I am very bullish with a two-year view. So, by the end of 2025, I would expect it to be notably higher than it is now, and I'd be pretty surprised if it was not. That's kind of my more high-conviction time frame. Alden, with her low-time preference thinking on full display, added, basically if Bitcoin's hash rate remains secure and decentralized and it gets through the various challenges with it, I would expect seven figures in the 2030s. Now, as we wrap up, I would say that the overall sentiment is that we are not a lot of the not just in a cycle shift in crypto and Bitcoin, but in an actual transition from different parts

of the entire industry and asset class's life. Noel Atchison told Bloomberg this week, it's about Bitcoin not just being a speculative asset anymore. Bitcoin will go from being a standalone speculative asset to being a portfolio diversifier. Economic historian Neil Ferguson wrote an opinion piece for Bloomberg. A year ago, he wrote, many of us thought, I certainly did, that it was game over for crypto and that the naysayers were going to be vindicated. Still, he noted that high inflation is making the case for alternative currencies, saying, after two decades of historically low inflation, the world is witnessing so much mismanagement of fiat currencies that the appetite for crypto is bound to keep on growing. And then there was

the economist. A recent article tried to unpack Bitcoin's 160% gain this year. Puzzled why cryptocurrency refused to die off? The author came to the conclusion that, quote, with each boom and bust cycle, it becomes clearer that crypto is not a bubble. Although Bitcoin is a volatile asset, its price history looks more like a mountain range than a single peak. They added, crypto has its uses, such as portfolio diversification and keeping money safe under despotic regimes. And, as has been shown, it is just about impossible to kill. If you're listening to this right now, you can relax into the new year with the satisfaction knowing that you have made it through one of the most brutal periods in crypto history, and you have lived to tell the tale. Until next time,

guys, be safe and take care of each other. Peace.