What to Expect From Bitcoin in 2024

Expectations that U.S. regulators will approve spot bitcoin ETFs next year are driving prices higher. History suggests we might see a slowdown as we approach the halving in April 2024, says Path Crypto’s David Liang.

Hopes for the approval of a spot bitcoin ETF application sparked a nearly 49% increase in the Bitcoin price since October. For administrative and uniformity purposes, the Securities and Exchange Commission most commonly approves or rejects several petitions at once. (Unless otherwise stated, figures mentioned are as of December 18.)
The exchanges that see the most spot BTC trading activity include Coinbase, Binance, Bybit, and OKX. About 65% of spot BTC trading is comprised of these. 35.5% is accounted for by Binance, with the remaining 11.3%, 9.2%, and 8.9% coming from Bybit, OKX, and Coinbase.

Since early 2021, the average Bitcoin order size has been declining, and it currently stands at $1,652. Although retail consumers tend to place smaller orders, most institutions split trading orders into smaller ones in order to reduce slippage. Order size research alone would not be a reasonable way to infer that recent BTC trading patterns were predominantly the result of retail clients.

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According to Coinbase’s third-quarter 2023 trade report, three of the previous four quarter-over-quarter metrics show decreasing volume. Retail and institutional customers traded roughly $4.2 billion and $24.7 billion in the third quarter, respectively, reflecting a comparable decline in volume over the course of the previous year.

Bitcoin futures markets

About 25% of all Bitcoin open interest was made up of CME Group’s $4.55 billion worth of Bitcoin futures. A level last observed in the second quarter of 2022 was attained by current open interest.

Asset managers and leveraged funds own the bulk of positions in CME BTC futures; the former have a long bias while the latter have a short bias. Given that asset managers typically take a longer view on investments than other buy-side clients, this makes sense. On the other hand, basis trading and hedging are common practices of hedge funds and commodity trading advisers, or CTAs, who trade with a shorter time horizon.

The number of institutional investors in the cryptocurrency market is rising. The CME Group reports that “average large Bitcoin open-interest holders, with at least 25 contracts, hit an all-time high the week of November 7, 2023.”
The perpetual futures price and the spot price are in line thanks to the financing rate. Long contract holders pay the funding fee to the holders of short contracts when the funding rate is positive, and vice versa. The funding rate has increased in tandem with the spot price of bitcoin, indicating a bullish bias and mood.

Bitcoin outlook

Recently, there has been a decoupling of the historical relationship between Bitcoin prices and consumer interest. If the antecedent—that retail customers are the only ones that drive consumer interest—is accurate, then it seems that either:

  1. Retail customers are trading without conducting research, or
  2. Institutional investors are having an outsized influence on prices.

It seems that institutional investors have a positive attitude. The futures curve’s parallel higher moves in each of the four months of 2023’s fourth quarter point to optimistic activity and an institutional investor long bias.
The approval of the ETF is sufficiently ingrained in the price of bitcoin that traders taking profits off the table could counteract any positive momentum from the news. This implies that in the days following the announcement, there may be a regression to the mean. After that, it’s likely that the market will refocus on the April halving.



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