Duncan Trenholme and Simon Forster, global co-heads of digital assets, TP ICAP
We expect 2024 to see the wholesale cryptoasset market professionalise and become increasingly serviced by traditional brands and providers. Spot exchange operating models will continue to unbundle, with the separation of execution and custody becoming the default for institutional market participants; this unbundling will protect investors. We expect a continued shift of trading activity to more traditional, regulated exchanges and venues.
In November, CME overtook Binance as the leading exchange from an open interest perspective on the bitcoin futures contract. We believe that will be seen as watershed moment for the broader crypto derivatives market. Overall spot volumes, once dominated by offshore exchanges, will begin to migrate toward more regulated providers. Tokenisation has been a key narrative over the last 12 months, and we expect more of the same from banks in 2024. On chain cash, specifically stablecoins will be increasingly recognised as one of the most important use cases for crypto. Despite the performance of bellwether asset bitcoin, crypto as an asset class has remained muted throughout 2023. With the ongoing professionalisation of the industry, alongside the likely approval of spot-based Bitcoin and Ether ETFs in the US, we believe 2024 could be defined by a significant shift in overall sentiment.
James Butterfill, head of research, CoinShares
Next year is shaping up to be a pivotal one for digital assets, with several key developments on the horizon. A major highlight is the anticipated launch of spot-based Bitcoin ETFs in the US, a process that has been in the making for nearly a decade since the first application was submitted to the SEC. This launch, coupled with the SEC’s explicit approval, is set to unlock market access for numerous investors, marking a significant milestone in the acceptance of digital assets. While it’s challenging to predict the exact scale of investment inflow post-launch, even a conservative estimate of 10% of the current assets under management (around US$3 billion) could potentially elevate Bitcoin prices to around US$60,000.
Additionally, 2024 will witness a halving in Bitcoin’s supply, reducing the daily production from 900 to 450 bitcoins. This supply cut has historically supported price increases. Monetary policy remains a crucial factor influencing Bitcoin’s valuation. The bursting of the digital asset bubble can be attributed in part to shifting investor preferences towards more attractive stores of value like treasuries, as interest rates rise. While we anticipate interest rate cuts in both the US and Europe in 2024, it’s important to note that prolonged higher rates could temper potential price gains in Bitcoin.
Lastly, the increasing correlation between bonds and equities, now at a record high of 42% excluding the Covid period, is prompting a search for effective diversification among investors. In this context, Bitcoin has proven to offer significantly greater diversification compared to other asset classes. The growing recognition of this fact among investors could further influence Bitcoin’s adoption and valuation in the coming year.
Rob Wing, head of digital assets, 4OTC
The adoption of digital assets trading by institutions will continue in 2024. Institutional investors are increasingly diversifying their portfolios with a range of crypto assets, including Bitcoin, Ethereum, and other more established cryptocurrencies. In addition, the SEC is expected to approve a batch of Bitcoin ETFs in January, which will make it significantly easier for large pools of institutional capital to be deployed, pushing Bitcoin prices higher (with some predicting a new all-time high).
The market will continue to be highly fragmented, which drives the need for institutional-grade infrastructure in the form of robust and low latency connectivity. In addition, crypto exchanges will embrace the separation of custody and execution, with pre-trade inventory and credit checks becoming standard amongst institutional players.
In FX, the velocity of trading is likely to increase, driven by quantum computing applications which will enable more algorithmic trading, supporting complex calculations at unprecedented speeds. Reduced market data price feed intervals on firm venues will reduce hold times further for FX liquidity providers, leading to a rise in firm pricing, which will overtake last look liquidity provision by volume within 18 months. In addition, with an increased focus on post trade due to T+1 FX settlement, clients will look to diversify risk, increasing the number of their prime broker relationships.