Key Takeaways:
- Interest rate cuts in Q2 2024 might propel the crypto market and relieve the liquidity crunch.
- The amount of Bitcoin and Ethereum stored on exchanges continues to decline.
- Bitcoin halving event in April 2024 might initiate a fresh rally.
YEREVAN (CoinChapter.com) — The crypto market gave a choppy performance year-to-date but managed a 50% increase in its overall market capitalization, reaching $1.13 trillion on Aug 14.
While the risk of recession and the Fed’s hawkish policies risk paring the crypto sector’s gains in H2 2023, the prospects for 2024 remain bullish. Here are the main reasons behind the outlook.
#1 Interest rate cuts coming – bullish push for crypto market?
As previously reported, the Federal Reserve has battled ballooning inflation throughout 2022 and 2023, raising interest rates in 11 separate revisions. Typically, hiked interest rates slow the economy, cool the employment market and bring down inflation, albeit jeopardizing the stability of risk-on assets, such as equities.
Once inflation drops to the Fed’s desired level of 2%, it offsets the risks by implementing a series of interest rate cuts to avoid recession and ensure gross domestic product (GDP) growth.
Economists of US financial giant Goldman Sachs Group&Co., including Jan Hatzius and David Mericle, anticipate a series of interest rate cuts as soon as Q2 2024, with a gradual, quarterly pace of reductions from that point.
“The cuts in our forecast are driven by this desire to normalize the funds’ rate from a restrictive level once inflation is closer to target,” confirmed the experts. Also, they expect the Federal Open Market Committee (FOMC) to skip the planned hike in Sep 2023.
Normalization is not a particularly urgent motivation for cutting, and for that reason, we also see a significant risk that the FOMC will instead hold steady. We are penciling in 25 basis points of cuts per quarter but are uncertain about the pace.
read the newsletter.
Despite the low correlation with equities, Bitcoin and the crypto sector overall might respond negatively to the liquidity crunch in 2023. And, vice versa, the interest rate cuts and more liquidity on the market might contribute to a bullish 2024 in the crypto sector.
#2 Amount of BTC and ETH on exchanges continues to fall
Bitcoin and Ethereum are the main drivers of the crypto sector, being the two largest coins by market cap. According to on-chain data tracker CryptoQuant, BTC and ETH exchange reserves have been declining since 2020.
Draining reserves on exchanges is generally a bullish sign for the underlying asset, as investors preferring self-custody are more likely to hold their coins instead of swapping for other crypto and fiat. Additionally, the mistrust in centralized exchanges grew in Nov 2022 after the FTX collapse.
As seen on the chart above, the BTC reserves on all exchanges went from roughly 3 million coins in Feb 2020 to 2 million in Aug 2023. ETH exchange reserve chart painted a similar picture, losing 20 million coins in the same period and returning to 2018 lows.
Another data tracker Glassnode confirmed the findings, noting that the number of HODLed or lost coins reached a 5-year high.
#3 Bitcoin halving event in Q2 2024
Based on current estimates, the next Bitcoin halving will take place on April 26, 2024, at 18:30 UTC on block 840,000. It will reduce the block reward to 3.125 BTC.
In detail, a Bitcoin halving is when the payout for mining a new block is halved, which happens after every 210,000 blocks (approximately four years). The first halving occurred in March 2012, then in July 2016 and May 2020.
Notably, each of the three previous halvings brought on a bullish wave, albeit not immediately. However, experts anticipate a powerful bullish move by the end of 2024. Furthermore, Peter Brandt, the CEO of the trading firm Factor, noted that a Bitcoin price boost typically took 33 months “before the next stage.”
In May 2024, around the time of the fourth halving, another 10X leg up is possible, said the veteran investor. However, Brandt added that he did not believe BTC would manage such a massive uptrend.
Moreover, according to a pseudonymous crypto analyst @CryptoTea_, halving is one of the main reasons behind BlackRock’s decision to file for a Bitcoin Spot ETF.
BlackRock understands the Bitcoin halving is less than a year away. New supply will decrease while demand continues to increase from worldwide hyperinflation. They are asset managers and need to capture bitcoin’s performance before their competitors do. You are watching game theory at work.
they tweeted.
