The Breakdown - 2024: Bitcoin's Big Year

Episode Date: December 24, 2023

A reading of: https://www.coindesk.com/business/2023/12/20/tis-the-season-to-be-jolly-about-the-crypto-market-in-2024/ and https://www.coindesk.com/consensus-magazine/2023/12/19/etfs-halving-upgrades-what-to-expect-with-bitcoin-next-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 Sunday, December 24th. Happy Christmas Eve. And that means it's time for one final long read Sunday. 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 notes or go to bit.ly slash breakdown pod. Well, friends, I am so sorry to say that this will be the last breakdown episode of the year.

Tomorrow is obviously Christmas and then we are headed out for a week between now and New Year's, but I will be back on January 2nd and I am convinced that 2024 is going to be nothing short of amazing. And indeed, that is the theme of the pieces that I have selected for today. They both come from Coin Desk's end-of-year prediction type coverage where they've asked people at all sorts of different places to share what they think the next year is going to look like. And so the first post we're going to read is from Kelly Yee at DeCentral Park Capital, and the piece is called Tis the season to be jolly about the crypto market in 2024.

With TradFi moving in, the crypto industry is finally taking its place as the future of finance. Kelly begins. As 20203 concludes, the crypto market emerges from failed ventures and outright fraud, embracing real progress towards mainstream adoption. As global tensions rise in regional banks falter, Bitcoin reclaims its status as a reliable store of value. Meanwhile, Tradfai giants filing for Bitcoin spot ETFs and tokenizing real-world assets signify the convergence of the two worlds. With crypto now 15 years old, the year 2024 holds the promise of being a defining moment in its evolution. The recent surge in Bitcoin prices serves as a prelude to an anticipated bull market of 24, and several other factors align to set the stage for a crypto resurgence.

Macro factors. Global liquidity conditions have been on the upswing since October. October 2023. The Fed's change in tone during the December FOMC confirmed market expectation of potential rate cuts in early 2024, creating more favorable conditions for risky assets. Mainstream adoption. The advent of spot ETFs expected to be approved as early as January, and tokenization represents a pivotal moment in crypto's integration into the broader financial landscape. Allocating a small percentage of U.S. wealth management assets to Bitcoin ETFs could yield significant ETF sizes. Simultaneously, DFI protocols are diversifying their yield sources into RWAs like U.S. Treasuries, attracting more crypto-native capital.

Technological advancements. Major upgrades in blockchain stability and UIUX development are breaking barriers in the transition from Web 2 to Web 3. If Web 3-based apps offer the ease of use found in Web 2, coupled with the advantages of self-sovereignty, user migration is inevitable. Is crypto heading towards mass adoption or experiencing irrational exuberance? Three plausible scenarios for 2024 emerge. The first is Cambrian explosion.

Bitcoin could surpass it. all-time high above 69,000 in January, with selected sectors witnessing price action reminiscent of the defy summer of 2021. A second possibility? Steady growth. Bitcoin might follow similar pattern as 2023, with 20 to 50% rallies driven by positive news and intermittent sideways movement culminating a 50 to 100% return. Three, reset and rebuild. Major market corrections could occur pushing Bitcoin prices below $30,000. The first two scenarios appear more likely supported by macro tailwinds, mainstream adoption, and technological advancement. Moreover, long-term Bitcoin holders continue to accumulate, and stablecoin supply has rebounded,

indicating potential external capital to flow into crypto. Looking forward, past cycle winners might not lead the charge this time. Successful projects often boast a robust community of developers and users, such as these exciting themes. Solana Renaissance Solana, riding high behind the FTX Shadow, has established a flying wheel effect, attracting developers and users with its high-performance blockchain. A mini-Defi summer in Solana is evident as its Dex monthly trading volume surges almost tenfold this year. Defy 2.0. Despite being a mature sector in crypto, Defy remains ripe for innovation.

Derivative dexes with enhanced settlement times and lower costs could challenge centralized exchange dominance in that field. Tokenized assets and restaking could make DeFi yield attractive again compared to U.S. Treasury Gaming. Past VC investments in Web3 Gaming are poised to bear fruit. Platforms like IMX are gaining a network effect, providing the technology and resources for a thriving Web3 gaming community. Twenty-24 is destined to be an exciting time for crypto-investment. investors and builders. All right, so a couple quick notes from me before we jump into the second piece. First of all, let's talk about the three, quote, exciting themes that Kelly identifies at the end of her piece, Salana Renaissance, Defi 2.0, and Web3 Gaming. Of these, it strikes me that two are internal

facing and one is possibly external facing. The internal facing are, of course, Solana and Defi 2.0. Now, when I say internal facing, what I mean is that the people who care most about these things, who are excited about them happening, are industry insiders, people who have stuck around, or people who are never that far from the sidelines, and who are comfortable with and excited about the weird experimental financial games that make up such a big part of the crypto industry. Now, this is not a knock on them. One of the things that I see at the beginning of each cycle is that the beginning of the bull market is shaped by three narrative simultaneously. One, Bitcoin leads always happens. And if you look at last cycle, it was once again an institutional narrative. Two, there has to be something

that excites insiders and gets the flow of assets moving around. Think back to Defy Summer the last time around, and that's exactly where I see the Solana and Defi 2.0 fitting it now. Web3 gaming, of course, is a contender for a more public-facing opportunity, the type of role that NFTs played last time around. Now, of course, nothing is guaranteed in that space at all. There is still huge skepticism for many around the entire blockchain gaming space. However, what Kelly is pointing out that past investments are poised to bear fruit relates to the fact that a lot of the biggest bets that were made on blockchain gaming are among studios and titles that haven't been released yet because they've been building quietly this whole time.

I think it's pretty clear at this point that just being a quote-unquote crypto game is an insufficient condition to get people excited. The bigger question is whether the big game titles of the future use inherent crypto mechanics underneath because they're better for the game's purpose. That's what I think we'll have to see this cycle. Now, of course, the macro factors I agree with, I think we are heading into a better liquidity period than we've been in for some time. And just the crush of the relentless hiking cycle is finally easing up with pretty significant impacts to Bitcoin and other risk assets. Now, with that, let's shift over to a piece from Swan CEO, Corey Clipson, called

ETFs having upgrades what to expect with Bitcoin next year. Corey writes, as usual, the price of Bitcoin was a big story and in 2023, it was good news. Bitcoin is once again the best performing asset class beating stocks, bonds, and gold by a wide margin. As of today, the price is up more than 150% since the beginning of the year. 2023 marked a tremendous surge in institutional interest, highlighted by BlackRock's application for an ETF in June. There are currently as many as 12 open applications, including those from Invesco, ARC, Fidelity, Van Eck, and Franklin Templeton. Although the SEC refused GBTC's application, a court rule that the SEC's reasoning for doing

so wasn't valid. Even just a rumor of approval in October sent Bitcoin's price skyrocketing. The energy used to mine and secure Bitcoin also saw significant growth, with the mining hash rate up 100% from 240 X-a-Hash to 482XHash year-to-date. The hash rate is the measure of how many calculations per second are required to add another block of transactions to Bitcoin's ledger, an average of once every 10 minutes. Bitcoin continues to leap ahead as the most secure and reliable digital system in the world. Network uptime was 100% for the 14th straight year. 2023 also saw much more widespread recognition that Bitcoin's relationship to energy

and the environment is overwhelmingly positive, contributing to electric grid stabilization, and creating economic incentives to mitigate carbon emissions. Looking forward to 2024, one thing that's certain to happen is the next halving, when the new issuance of Bitcoin will be cut in half at Block 840,000, which is expected to be mined in late April. Despite growing demand for Bitcoin, the supply added per block will nevertheless be reduced by 50%. This will be the fourth halving in Bitcoin's history. Historically, a bull market has followed halvings. Whether causation or anomaly, it's true until it's not, and we plan Swan strategy incorporating a high probability of a bull market in 2024 and 2025.

In addition, it is almost certain that we will see the approval of one or more spot Bitcoin ETFs. This would open up the floodgates of capital currently in traditional investment channels. The consensus is that this is most likely to happen in January. Bitcoin's technology trends in 2023 include the continued impact of the taproot upgrade, enhancing transaction efficiency, and privacy. The Lightning Network's maturation underscored Bitcoin's ability to scale, by adding layers on top of the Bitcoin protocol to facilitate faster, more economical transactions. Lightning infrastructure has come a long way, with scores of lightning-enabled wallets on-demand lightning nodes and facilitating an estimated 200,000 transactions per day.

It will be interesting to watch what this more mature Lightning Network will do in the sustained high-fee environment of another bull market. In 2024, amid global financial uncertainty, Bitcoin's stability could attract attention from individuals, institutions, and governments seeking to reduce chaos. Bitcoin is reaching record values against weak currencies, gaining support from global politicians, and being used more by people and businesses worldwide. Bitcoin's growth is natural, without central control, and driven by millions of people worldwide who recognize its benefits. Bitcoin safeguards global monetary integrity and sound money

is a fundamental human right. Now, obviously, a lot of you will have been cheering along with Corey's note there. But one thing that I want to point out that I think is very important, we have for much of the last few months been laser focused on this Bitcoin spot ETF as a key catalytic moment for the industry. That's not to say that everyone believes that there'll be some huge price appreciation because of it or that a whole new wave of institutions will instantly come flooding in, although that's certainly a possibility. But there's no denying that it has been the great attractor,

the narrative beacon for this industry as it sluffs off the wreckage of 2022. What's important about that last paragraph especially of Corrie's is a reminder that even when the ETF is here, the pop has happened, perhaps even the sell-the-news wave after has happened, it's important to remember that Bitcoin is not reducible to whatever the next big institutional event or narrative is. The reason that Bitcoin is here four years on again, poised for another having seemingly stronger than ever, is because it's an asset whose purpose is very, very clear to an ever-growing number of people around the world. The lesson from this bear market is not that we need institutional narratives to save us.

It's that Bitcoin survives and Bitcoin thrives because of the people who actually use it, have conviction in it, and refuse to let it do anything other than be exactly what it was meant to be. Thanks for a great year at the breakdown, everyone. I hope you have a wonderful Christmas if you celebrate and a wonderful New Year's no matter what. And until next time, be safe and take care of each other. Peace.