If you think Wall Street had a phenomenal year, take a closer look at how the cryptocurrency space fared in 2023. As of the early morning hours on Dec. 28, the aggregate value of all listed cryptocurrencies on CoinMarketCap.com had increased by a cool 115% year to date.
Though there are thousands upon thousands of digital currencies to choose from, it's Bitcoin (BTC -2.19%) and Ethereum that have done most of the heavy lifting. When 2022 came to a close, Bitcoin and Ethereum collectively accounted for 58% of the $795 billion crypto market cap. As of Dec. 28, these two juggernauts are responsible for 67% of the aforementioned $1.71 trillion value of the crypto market.
But it's not about where digital currencies have been so much as where they're headed next. Following an exceptionally positive year, here are four cryptocurrency predictions for 2024.
Image source: Getty Images.
1. "Buy the rumor, sell the news" will be Bitcoin's theme in 2024
There are a number of reasons Bitcoin surged by more than 160% in 2023. This includes positive sentiment throughout key U.S. financial markets, the belief that a spot Bitcoin exchange-traded fund (ETF) will be approved by the Securities and Exchange Commission (SEC) in January, and the expectation of Bitcoin's "halving" event, which is expected to occur in April 2024.
The latter two catalysts have been particularly important. Financial institutions have, for years, attempted to garner approval to list a Bitcoin ETF, only to be spurned by regulators who have claimed that the crypto space was rife with manipulation. A handful of approved Bitcoin ETFs would allow greater access to the top crypto token through more standard channels (i.e., without having to buy Bitcoin on a crypto exchange).
Likewise, Bitcoin's halving event will reduce the block reward given to cryptocurrency miners by 50%. Bitcoin has a history of rallying into halving events as it results in fewer tokens being minted on a daily basis.
However, Bitcoin has already surged over 160% on the rumor of these events occurring in 2024. This has all the hallmarks of a "buy the rumor, sell the news" year for the largest cryptocurrency by market cap.
To add, Bitcoin continues to fail in the relevancy department. El Salvador's experiment with Bitcoin as a viable currency simply hasn't resonated with its residents. Based on more than $7 billion in remittances transferred into El Salvador from abroad in 2022, a mere $126 million was sent to cryptocurrency wallets.
As I've long stated, Bitcoin's competitive advantages have waned, with other projects leaving its network and utility in the dust.
2. The ultra-popular "dog" coins will continue to underperform
My second prediction is that the ultra-popular "dog" coins -- I'm talking Dogecoin (DOGE -3.88%) and Shiba Inu (SHIB -5.50%) -- will continue to underperform the aggregate crypto market. In 2023, Dogecoin and Shiba Inu tokens gained 35% and 36%, respectively. While this represents a better year-to-date return than the benchmark S&P 500, it's well below the noted 160%-plus gain for Bitcoin.
The core problem with Dogecoin and Shiba Inu is that they're nothing more than payment coins. There are thousands of digital currencies that could, in theory, be used to pay for goods and services. The two dog-inspired coins simply offer nothing in the way of differentiation from countless other projects.
Usage data also backs up that Dogecoin and Shiba Inu lack real-world utility. Online business directory Cryptwerk notes that around 2,500 companies accept DOGE tokens, and roughly 900 companies accept SHIB coins for payment. Meanwhile, there are an estimated 333 million companies worldwide. The wild volatility often associated with meme coins has coerced all but an infinitesimally small percentage of businesses to shy away from Dogecoin and Shiba Inu.
Investors should also be aware of the checkered history of payment coins following mammoth increases in value. With few exceptions (e.g., Bitcoin), payment coins that rally by 10,000% or more typically lose 90% or more of their value in the years that follow. Though DOGE and SHIB tokens have both met this 90% retracement threshold, there's simply no reason for their valuations to remain where they are now.
With nothing more than enthusiastic social media banter holding up the valuations of DOGE and SHIB, I'd expect another underperforming year for both "dog" coins.
3. The cryptocurrency market, once again, fails to decouple from Wall Street
For years, the cryptocurrency space has been lauded as a game changer for investors. The expectation of higher digital payment adoption, coupled with the growing usage of smart contracts -- protocols that facilitate, verify, and enforce the negotiation of a contract -- appeared to offer a way for investors to take advantage of cutting-edge innovations that aren't tethered to the performance of the U.S./global economy or the stock market.
My third prediction for 2024 is that digital currencies will, again, fail to decouple from the stock market. In other words, the performance of the benchmark indexes, such as the S&P 500, will ultimately determine how well or poorly the crypto market performs.
As much as investors would like to believe that the cryptocurrency market is a completely different entity from Wall Street, many of the same factors that guide the well-being of Wall Street matter for digital currencies.
For instance, access to capital is paramount. Most asset classes soared in 2021 because interest rates were near historic lows, and the federal government was handing out fiscal stimulus to qualifying individuals and families.
However, history suggests that access to capital could be more challenging in the new year. Banks have been purposefully tightening their lending standards, and the U.S. money supply is meaningfully contracting for the first time since the Great Depression. A couple of key indicators with strong track records of predicting moves lower in the U.S. economy and stock market portend that 2024 could yield another bear market.
Without exceptionally strong positive investor sentiment, it's going to be incredibly difficult, if not impossible, for digital currencies to decouple from the performance of Wall Street in 2024.
Image source: Getty Images.
4. The crypto space will experience another major failure
The fourth and final cryptocurrency prediction for 2024 is that we'll witness another game-changing failure.
In 2022, Terra Classic (LUNC -2.53%) (previously known as "Terra") and TerraClassicUSD (USTC -2.54%) were the disasters of the crypto space. In May 2022, TerraClassicUSD was the fourth-largest stablecoin by market cap, with Terra Classic being the fourth-biggest digital currency by market cap. However, things unraveled quickly.
Unlike most stablecoins, which use fiat currencies to maintain their peg to the U.S. dollar, TerraClassicUSD relied on an algorithm. A large group of sellers in USTC decoupled this peg, which created an arbitrage opportunity that ultimately led to a cascade effect in Terra's stablecoin and Terra itself.
Not long after this epic collapse, we bore witness to the fraud that occurred at crypto exchange platform FTX. Less than a year after FTX filed for bankruptcy protection, its former CEO, Sam Bankman-Fried, was found guilty on seven counts of fraud and conspiracy brought against him. The former CEO of FTX is facing up to 110 years in prison, with a sentencing date looming in late March.
The crypto market lacks adequate oversight and has historically been a stomping ground for manipulation, which is precisely why the SEC has been gun-shy about approving a Bitcoin ETF.
For example, the SEC charged Coinbase Global (COIN 5.68%) and Kraken for operating as unregistered securities exchanges in 2023. These suits threaten the core operations of both businesses, which could result in hefty fines and threaten the future growth or viability of both companies.
There's also been speculation that the largest stablecoin by market cap, Tether (USDT -0.01%), could eventually de-peg from the dollar and fail. Tether has repeatedly failed to open its books and disclose precisely what assets are backing its $91 billion stablecoin. After watching a handful of other stablecoins fail to hold their peg to the U.S. dollar, the downfall of Tether could be crypto's black swan event of 2024.
