Will Bitcoin reach $60,000? Will Ethereum hit $5,000?
Warren Buffett once said, “The only value of stock forecasters is to make fortune tellers look good.” And if you look back at crypto forecasts from the “experts,” you’ll see he’s right.
In this article, we won’t try to forecast cryptocurrency prices. Instead, we will look at the technical and regulatory events shaping the market. And then, we’ll explore how you can prepare for these events and avoid potential losses.
The European Union’s Markets in Crypto Assets (MiCA) regulations will take effect in 2024, providing a comprehensive set of rules for the sector. Unfortunately, the U.S. remains behind the curve with crypto regulations, leaving most big decisions to the courts.
Securities vs. Commodities
The SEC considers all cryptocurrencies – except bitcoin – securities. However, a federal judge ruled in its case against Ripple that XRP is not a “contract transaction or scheme” that meets the Honey test of an investment contract. As a result, the current consensus is that some cryptocurrencies are securities – not all.
In 2024, the crypto industry could finally get more clarity on these matters. Lawmakers are actively working on crypto-specific legislation that could answer these questions by providing conditions to determine when a cryptocurrency is a commodity or security. Then, the SEC will regulate securities, and the (more lenient) CFTC will regulate commodities.
Stablecoins and privacy coins have been another point of contention between crypto developers and government regulators. In both cases, you can expect to see more regulatory oversight over the coming year as regulators look to close loopholes.
Federal judges in New York began taking an interest in Tether – the world’s most popular stablecoin – after it allegedly commingled funds. Moreover, while stablecoins are a small portion of today’s market, they could introduce systemic risk to the financial system and threaten the effectiveness of monetary policy. And that could lead to tighter regulations in 2024.
Meanwhile, privacy coins have caught the attention of regulators seeking to curb illicit finance. There’s little doubt that these coins, mixers, and other technologies have helped support money laundering and tax evasion. As a result, you can expect regulators to introduce more regulations to restrict the use of these technologies over the coming year.
The IRS broadly defines cryptocurrencies as “property” subject to income and capital gains taxes – but there are plenty of outstanding questions. For instance, if you use a cross-chain bridge, is locking one cryptocurrency and receiving another taxable? In 2024, you can expect the IRS to continue issuing piecemeal guidance on these questions.
While there has been a lot of talk about new reporting requirements for crypto brokers, exchanges, and protocols (requiring them to furnish 1099s to users and the IRS), these new requirements are unlikely to go into effect for 2024 transactions. But these big changes may come into play in the 2025/2026 tax year, so it’s a development worth watching.
Predicting specific cryptocurrency prices may be a fool’s errand, but looking at more significant trends is essential to understanding market dynamics. For instance, launching a spot bitcoin ETF could result in a meaningful increase in bitcoin demand.
Spot Crypto ETFs
Several large financial institutions have been trying to launch a spot crypto ETF for years. While today’s crypto ETFs use futures to provide exposure, physical cryptocurrency in cold storage back spot ETFs. So, unlike futures-driven funds, these ETFs could directly and meaningfully impact crypto prices since they increase actual demand.
The SEC is likely to approve the first spot Bitcoin ETF in 2024 (despite its best efforts). After a federal judge ruled the SEC was wrong to reject Grayscale’s proposed bitcoin ETF, the largest bitcoin “trust” could finally become a spot ETF. As a result, investors could have easier access to investing in bitcoin, and bitcoin could see a boost in demand from conventional investors.
Interest rates could also have a significant impact on the crypto markets. When rates were low, investors didn’t mind that crypto assets didn’t offer yield. Several investors actually flocked into riskier assets to increase their returns. But, of course, these trends went into reverse when the Federal Reserve began hiking interest rates in March 2022.
With inflation abating, the Federal Reserve could start cutting back on its interest rate hikes or even take action to lower interest rates in mid-to-late 2024. According to FedWatch, interest rates could fall from a 525 to 550 basis point range to a 400 to 425 basis point range by the end of next year – and some believe it could drop more aggressively.
DeFi Market Matures
The decentralized finance, or DeFi, will likely continue recovering from its Terra-driven sell-off last year. Under the hood, the industry continues to mature, with Tether shifting its reserves into Treasuries and other stablecoins embracing more conventional financial assets. Meanwhile, new technologies like proof-of-reserves could further boost transparency.
Outside of stablecoins, investors are increasingly looking toward “real yield,” and platforms are adopting more sustainable tokenomics. These projects focus on paying out less than they take into the treasury, making the yields more sustainable over time. These models could attract more prominent investors, increase liquidity, and enhance the underlying financial services.
Altcoins Gain Traction
Altcoins continue to challenge Ethereum’s dominance, and these trends could accelerate in 2024. While Ethereum has the largest community and most mature ecosystem, Solana and other solutions offer higher speeds and better scalability. As a result, many projects have started to jump into these altcoins as viable alternatives.
That said, some of the growth of these altcoins will continue to depend on memecoins and other unsustainable projects. So, investors should exercise caution and diversify their exposure.
Ethereum is likely to undergo several foundational changes over the coming year. After working on “The Surge” (introducing “sharding” to the blockchain), “The Verge” will introduce a new cryptographic technology called “verkle trees” to help with data storage and increase the number of network validators. And these improvements could level up performance.
Bitcoin will also undergo another “halving” event in April 2024, where they cut the mining rewards in half. Historically, the every-four-year event has boosted bitcoin prices as mining activity (and, therefore, supply) drops. And generally, altcoin prices rise in response to the increase in bitcoin’s price. But past performance doesn’t guarantee future results.
The Bottom Line
The crypto industry will mature in 2024 thanks to greater regulatory clarity and industry-driven reserve and infrastructure improvements. While many of these events could boost prices, such as a spot ETF or the bitcoin halving, others could result in lower prices, such as regulatory changes or increased taxes.
If you trade crypto assets, ZenLedger can help you aggregate transactions across wallets and exchanges, compute your capital gains and losses, and generate the forms you need to file. In addition, you can use our tax-loss harvesting tool to identify opportunities to save throughout the year while accessing grand unified accounting to defend yourself in an audit.
The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.