2023: Cryptocurrency Market Rebound and Three Major Predictions for 2024

2023 has been a pivotal year for the cryptocurrency market. Investors who bottomed out in late 2022 have already reaped substantial returns. The biggest question now is: can this rally continue into 2024?

To find the answer, we need to review historical context and understand the logic behind market movements. This article will reveal the five main drivers behind the 2023 crypto rally and the three macroeconomic scenarios that will determine the trend in 2024.

Who is Driving the Cryptocurrency Market?

To predict future trends, first understand the market participants. At least nine key roles interact within the crypto ecosystem:

Project Teams and Foundations — All innovative projects based on blockchain technology form the core of the supply side. According to professional data, there are currently over 8,800 crypto projects.

Venture Capital Firms — Entering during early funding stages, they typically adopt long-term holding strategies.

Whales (Large Holders) — Investors holding large amounts of tokens, capable of influencing prices through market operations, mostly short-term speculators.

Retail Investors — Individual investors with relatively small capital, more focused on short-term trading profits, but long-term holders often achieve the highest returns.

Institutional Investors — Professional asset management firms managing client funds to maximize returns. Although these funds haven’t yet entered the market at scale, several institutions have applied to launch related products.

Centralized Platforms — Platforms providing 24/7 trading markets where users can buy and sell various assets.

Decentralized Platforms — DeFi-based trading methods allowing peer-to-peer transactions with lower fees.

Traditional Brokers — Conventional brokers expanding into crypto and derivatives trading. They offer spot and margin trading products.

Regulatory Agencies — Financial regulators worldwide, whose policies profoundly influence the market’s long-term development. Currently, global efforts are underway to define the boundaries between “traditional securities” and “crypto assets,” which will shape the market landscape in the coming years.

How to Assess the True Value of Crypto Assets?

Investors should analyze each project across four dimensions: fundamentals, supply side, demand side, and technical aspects.

Choosing projects that perform well in all four is crucial. For example, a project with excellent technology and strong backing but poor timing might face a price crash — such as during the market boom at the end of 2021.

Similarly, if a project has a large supply and an incomplete circulation plan, it requires significant capital inflow to increase its market cap. Such projects carry high risk.

For a more systematic analysis framework, refer to the DACS classification standard (introduced by CoinDesk in 2021), dividing the crypto market into seven sectors:

• Infrastructure
• Payments/Value Transfer
• Decentralized Finance (DeFi)
• Culture and Entertainment
• Smart Contract Platforms
• Asset Digitization
• Stablecoins

This classification helps investors diversify risk more effectively, similar to traditional stock market diversification strategies.

According to CoinDesk’s market index, the entire crypto market grew by 123% in 2023, reaching an index level of 1781.12. Bitcoin accounts for 62% of the weight, Ethereum 20%, and the remaining small coins make up 18%.

The Five Main Drivers of the 2023 Crypto Rally

1. Early Positioning for Bitcoin Halving Cycle

Bitcoin’s algorithm reduces miners’ rewards by half approximately every four years (about 210,000 blocks), a process known as halving. This design ensures a gradual decrease in new supply, making Bitcoin increasingly scarce and its value rise accordingly.

Historical data is compelling:

After the first halving, Bitcoin surged 950% within six months and 8,342% within 12 months.

Following the second halving, gains were 38% in June and 286% in December.

After the third halving (May 2020), June saw an 83% increase, and December a 562% increase.

The scarcity created by reduced miner rewards often significantly impacts prices in the subsequent months. Since Bitcoin leads the entire market, this effect propagates to other crypto assets. Many analysts believe that the overall rally in 2023 largely stems from investors positioning themselves ahead of the next halving in April 2024.

2. Anticipation of Spot Bitcoin ETF Approval

For a long time, regulatory uncertainty hindered traditional financial institutions from entering crypto markets. But the situation is changing — in 2023, several large asset managers applied to the U.S. SEC to launch spot Bitcoin ETFs.

This is fundamentally different from existing futures ETFs. Futures traders only bet on price directions without owning the actual asset. But if a spot ETF is approved, these institutions will need to buy large amounts of real Bitcoin as the fund’s underlying asset.

The potential surge in demand, combined with the 2024 halving expectations, could further push Bitcoin prices higher.

The most notable applicant is one of the world’s largest asset managers, managing assets worth $9.42 trillion (as of mid-2023). If regulators approve these products, it will send a strong bullish signal across the entire crypto market.

3. The Ripple Effect of the AI Wave

The explosive popularity of ChatGPT and the sharp rise of traditional tech stocks (especially AI chip companies) have ignited widespread enthusiasm for artificial intelligence.

The crypto market is also benefiting from this wave. Blockchain-based AI projects are emerging, with their tokens serving not only as trading media but also representing ownership and usage rights of AI applications. This is different from pure crypto concepts — they resemble “digital stocks” of AI applications.

Therefore, the upward cycle in tech stocks starting from September 2023 has also provided positive momentum for the crypto market.

4. Doubling of the Total Market Cap

Many mistakenly believe that price increases only require “supply less than demand.” But market equilibrium requires trading volume to be balanced, with buyers willing to pay higher prices.

The essence of rising prices is market participants’ belief that assets will continue to appreciate.

In 2023, the total crypto market cap grew by 99.2%, adding approximately $75 billion. Analyzing trading volume data shows that the current six-month moving average trading volume (around $140 trillion) far exceeds the historical average ($79 trillion).

Professional traders often say: “Price movement without volume is illusory.” The 2023 data proves that significant price increases are accompanied by real trading volume growth. This indicates that optimism truly dominated the market.

5. Increase in Open Interest in Futures Markets

Another indicator reflecting market sentiment is the open interest of futures contracts — the number of contracts that remain unsettled.

Open interest can rise (new long or short positions), stay unchanged (one side closes, the other opens equal positions), or decline (both sides close positions).

Since August 2023, Bitcoin futures open interest has risen sharply, reaching 17,321 contracts. Ethereum futures show a similar trend, with open interest at 6,114 contracts.

This suggests new participants are entering the market or existing ones are increasing their positions. And positive outlooks in futures markets often drive spot prices higher.

Three Possible Trends for 2024

Whether the market can sustain its upward momentum largely depends on inflation and economic growth trajectories in the US and Europe. These will influence central bank interest rate decisions, which in turn affect stocks, bonds, and crypto markets.

The key point: if macroeconomic conditions allow for higher risk tolerance, the crypto rally is likely to continue.

Scenario 1: Mild Recovery

If inflation continues to decline and the economy remains stable or improves, the Fed and ECB may halt rate hikes and start cutting rates gradually. Loose monetary policy generally benefits tech assets, but cryptocurrencies may not necessarily benefit, as high-growth stocks become relatively more attractive.

Scenario 2: Inflation Rebound

If inflation re-accelerates and the economy speeds up, central banks may be forced to continue rate hikes. Stock markets could decline, bonds become more attractive, but assets like Bitcoin with fixed supply may appreciate due to their anti-inflation properties. However, for projects with unlimited supply, high interest rates could pressure valuations.

Scenario 3: Stagflation Dilemma

Economic stagnation combined with stubborn inflation puts central banks in a dilemma. Raising rates worsens economic burdens, while cutting rates risks fueling inflation. In this scenario, both tech and crypto assets face pressure, but persistent inflation might drive investors toward Bitcoin for protection, thereby boosting the entire market.

Risks to watch include escalating geopolitical conflicts and uncertainties around the US election cycle.

Is 2024 Still Worth Investing?

The answer is yes. The strong performance in 2023 proves it:

• Bitcoin’s return of 79.85%, 6.3 times the S&P 500, and 2.5 times the Nasdaq 100
• Ethereum’s return of 40.45%, outperforming the S&P 500 and Nasdaq by 3.2x and 1.3x respectively
• Smaller projects even achieved triple-digit returns

But this depends on establishing a scientific investment methodology. The optimal strategy is to allocate most funds to blue-chip coins like Bitcoin and Ethereum, while using a smaller portion to explore high-growth small caps, which could yield 10x, 50x, or even 100x returns.

Long-term Holding or Active Trading?

Bitcoin and Ethereum’s performance over recent years shows that long-term holding generally yields the highest returns. This follows the same logic as stock investing.

But trading also has its benefits — it can accelerate capital appreciation at the cost of higher risk. The ideal approach is to split funds into two parts: one for long-term holding, and one for short-term trading, provided you have professional risk management skills.

The crypto market in 2024 is full of opportunities but also requires strategy and discipline.