Important points
- The approval of a Spot Bitcoin ETF has become a key focus for crypto investors as it has the potential to widen access to Bitcoin.
- Optimism surrounding the possibility of a Spot Bitcoin ETF being approved contributed to the rise in Bitcoin prices.
- 2023 will be a pivotal year in terms of cryptocurrency enforcement actions, and we expect further regulatory clarity in 2024.
- The end of monetary tightening-focused policies by central banks around the world could have a positive outcome for risk assets such as cryptocurrencies.
Bitcoin’s recent rally may have helped it break through the $42,000 market and push the crypto winter of 2022 far away. However, the year also started on a precarious note with the largest cryptocurrency by market capitalization at just $16,500.
Here's what you need to know about the cryptocurrency market as we look ahead to next year, which is on the cusp of important events, including the fate of Spot Bitcoin exchange-traded fund (ETF) approval, Bitcoin halving, and developments in cryptocurrencies. It is as follows. Regulation.
Spot Bitcoin ETF could be a game changer
Ever since BlackRock (BLK) filed a Spot Bitcoin ETF application with the U.S. Securities and Exchange Commission (SEC) in June, the impending approval of such financial products has been a major focus of the crypto market. There is.
So far, retail investors can only gain crypto exposure through ETFs that trade crypto futures. Spot Bitcoin ETF allows investors, especially retail investors, to access Bitcoin without having to hold their investment in a Bitcoin wallet.
According to a report from Bloomberg, analysts expect huge inflows into Bitcoin spot ETFs if approved by the SEC, and that optimism will lead to a push up in Bitcoin prices, leading to an increase in the spot Bitcoin ETF market. is expected to grow to $100 billion in the long term. Galaxy's report estimates that inflows into spot Bitcoin ETF products could grow from $14 billion in the first year to $39 billion within three years.
However, uncertainty remains regarding the SEC's decision. The SEC reportedly held multiple rounds of discussions with prospective ETF issuers, and the issuers revised their filings to meet regulators' expectations.
“I'm optimistic, but I think it's very likely that we'll get another rejection before we get any positive news,” BitGo CEO Mike Belshe recently told Bloomberg. .
BlackRock and others have also applied for Spot Ether ETFs. However, the likelihood of approval of these products based on alternative crypto assets is equally uncertain.
Why is the upcoming Bitcoin halving important?
Bitcoin halving, an event in which the reward for Bitcoin miners who successfully mine the cryptocurrency will be roughly halved, is scheduled to take place in 2024.
Why is it important? The supply of Bitcoin is limited at 21 million coins, and as more Bitcoins enter circulation, mining becomes more difficult. Bitcoin miners receive a reward when they successfully mine a block. The reward will decrease when it is halved, which will indirectly affect the number of Bitcoins in circulation. And price is inversely proportional to quantity supplied.
The boom and bust cycle of the crypto market generally revolves around the Bitcoin halving event, which occurs approximately every four years and generates new coins issued to miners on the network approximately every 10 minutes. The amount of Bitcoin will be halved.
According to a report from crypto asset management firm Grayscale, there is reason to think this halving event (and the positive tailwind from the spot approval of Bitcoin ETFs) could have a bigger impact than in the past. This is due to the current distribution of Bitcoin's supply, where a large portion of Bitcoin's supply is held by entities that tend to hold it for long periods of time.
“If these trends continue, Bitcoin ownership dynamics will increasingly be influenced by macro events such as global policy and regulatory developments (such as the approval of a US spot Bitcoin ETF) and crypto market trends. “The Grayscale research team predicts that there is a possibility, similar to the Bitcoin halving in 2024,” Grayscale analyst Will Ogden Moore said in a report.
Despite the reduction in Bitcoin denominated amounts to miners related to the halving event, Saber56 CEO Phil Harvey said that even in a scenario where a Spot Bitcoin ETF is not approved, the mining industry said it was okay. “Without the ETF launch, the mining sector is likely to maintain its current health,” Harvey told Investopedia. “Current profit indicators for miners with direct access to electricity and state-of-the-art generation equipment reveal a solid economic situation.The current economic situation will persist, with sustained and healthy profits post-halving It is expected that the rate will be secured.”
Clarity of cryptocurrency regulation in cards?
2023 will be a big year for cryptocurrency law enforcement, with many of the industry's biggest players, from Binance to Coinbase, facing lawsuits from the SEC and even the Department of Justice. Former FTX CEO Sam Bankman Fried was found guilty of fraud, and former Binance CEO Chao Changpeng was charged with violating the Bank Secrecy Act.
Following these recent events, it is becoming clear that the crypto industry's pioneering days may be coming to an end. U.S. Sen. Cynthia Lummis (R-Wyo.) recently expressed optimism that the entry of traditional financial giants into the crypto market could finally lead to regulatory clarity in early 2024. We shared our views.
Additionally, US Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam cited growing concerns in Congress about the potential use of cryptocurrencies in illicit finance as a reason for renewed legislative interest in this issue. It pointed out.
Regarding other areas of regulation and policy that could impact the crypto market in 2024, Anthony Rousseau, Head of Securities Solutions at TradeStation, said financial account standards for the valuation of crypto assets Board (FASB) rule changes and the possible demise of the Federal Reserve Board and the Federal Reserve Board. Tight monetary policies of other central banks.
The FASB rule change “paved the way for companies to add Bitcoin as a reserve asset to their balance sheets, as MicroStrategy has done,” Rousseau told Investopedia. “There is reason to believe that we have reached this height.” [central bank] tightening cycle. In order for risk assets to be auctioned sustainably, it will be necessary to assess the future path with lower interest rates and an end to quantitative tightening. ”
