The Cryptocurrency Bull Cycle: From 2023 to 2024, What Awaits Us?

A Year of Remarkable Recovery

The digital asset landscape underwent a significant transformation in 2023. Those investors who dared to enter during the turbulent second half of 2022 are now witnessing substantial returns. However, the key question everyone is asking is whether this positive momentum will persist into 2024. To answer this, it is essential to review recent developments and understand the mechanisms driving the cryptocurrency market.

Understanding the Architecture of the Digital Market

Before analyzing future prospects, it is necessary to understand how this ecosystem functions. The digital assets market comprises nine main actors whose interactions determine the dynamics between supply and demand:

Market Players:

Blockchain projects form the core of supply. Currently, approximately 8,882 cryptocurrencies are registered, each representing diverse technological ventures. According to specialized data, this number continues to grow, although not all achieve long-term sustainability.

Venture capital funds invest in the early stages of these projects, participating in funding rounds and ICOs. Their investment horizon tends to be long-term.

Whales (large token accumulators) have the capacity to significantly move markets. Their approach is predominantly speculative, with short to medium-term horizons.

Retail investors make up the broadest base of the market. While many adopt speculative approaches through frequent trading, those maintaining long-term positions tend to achieve the best returns.

Institutional funds manage substantial capital seeking maximum profitability. Their mass entry is still pending, but a long list of companies is already preparing derivative products on Bitcoin and Ethereum.

Centralized exchange platforms (CEX) facilitate 24/7 transactions with commissions, offering complementary custody services.

Decentralized platforms (DEX) enable peer-to-peer exchanges with lower operational costs, avoiding intermediaries.

Traditional brokerage intermediaries have expanded their offerings to include cryptocurrencies, both spot and derivatives (CFD), responding to growing demand.

National regulatory authorities establish the legal framework. Currently, the boundary between traditional securities and cryptocurrencies is being defined, which will significantly shape the sector’s future development.

Methodology for Evaluating Cryptocurrencies

To maximize the likelihood of successful investment, it is essential to analyze each project across four integrated dimensions: fundamental analysis, supply dynamics, demand pressure, and technical analysis.

This multidimensional assessment is critical. Imagine a project with excellent technological fundamentals but acquired at an excessively high price at the 2021 cycle peak. Or a project with no maximum supply limit, with billions of tokens still to be issued. For such a project to increase its market capitalization, a massive capital influx would be required.

Applying the DACS Methodology (Digital Asset Classification Standard) makes market segmentation into seven major sectors: Computing, Currencies, DeFi, Culture and Entertainment, Smart Contract Platforms, Digitization, and Stablecoins. This categorization allows for more strategic investment orientation, similar to how professional investors diversify in traditional stock markets.

Catalysts for Growth in 2023

Bitcoin Halving in Perspective

Bitcoin’s algorithm halves mining rewards every 210,000 blocks, a process that occurs approximately every four years. This mechanism ensures the supply of new tokens decreases progressively, increasing scarcity and theoretically, the asset’s value.

Looking at the history: during the first halving, Bitcoin traded at $12 y and increased 950% in six months. The second halving led to gains of 38% (6 months) and 286% (12 months). The third, in May 2020, produced increases of 83% (6 months) and 562% (12 months).

With the next halving scheduled for April 2024, perceptions of reduced availability tend to significantly influence the price in subsequent periods. Bitcoin also exerts a multiplier effect on the rest of the crypto ecosystem.

Institutional Expectations: Spot ETF

The lack of clear regulation has hindered the massive entry of “professional money” into the market. However, this situation could change dramatically. Major investment managers requested approval for a Bitcoin spot ETF in the United States in 2023.

Although a futures-based ETF currently exists, the new product would require actual purchases of underlying Bitcoin. Futures participants typically only speculate on the price without owning the asset. If the new ETFs are approved, institutions like BlackRock (the world’s largest asset manager, with $9.42 trillion in assets under management) should acquire spot Bitcoin, creating significant demand pressure.

The AI Revolution

The boom of ChatGPT and generative AI tools has boosted technological giants like Nvidia. Cryptocurrencies oriented towards artificial intelligence represent projects building these tools leveraging blockchain technology. Unlike simple means of exchange, these tokens function as utility and participation instruments in AI projects, similar to digital stocks.

Market Capitalization Expansion

There is a misconception about prices: “they rise when supply exceeds demand.” In reality, prices increase when buyers are willing to pay progressively more, convinced of an upward trend.

The total market capitalization of cryptocurrencies grew 99.2% during 2023, representing approximately $750 billion in new value. The traded volume (140 trillion dollars) now far exceeds its semiannual average (79 trillion). Technical indicators confirm that there are no significant price shifts without palpable volume increases.

The CoinDesk Market Index (CMI), which weightedly combines major cryptocurrencies, grew 123% in 2023, reaching 1,781.12 points. Bitcoin and Ethereum account for 62% and 20% of the index respectively, followed by XRP, Solana, and Cardano.

Open Interest in Derivatives: Signal of Confidence

Open interest in Bitcoin and Ethereum futures saw notable increases since August. For Bitcoin futures, it reached 17,321 pending contracts, while Ethereum hit 6,114. When open interest rises along with prices, it indicates new participants entering or existing ones significantly increasing their positions.

This phenomenon is critical: professional investors constantly monitor these indicators. If the market anticipates future increases, spot prices are likely to eventually follow that expectation.

The Three Macroeconomic Scenarios for 2024

The continuation of the rally mainly depends on the balance between fighting inflation and economic performance. Three plausible scenarios are:

Descending Inflation and Stability Scenario

If inflation continues to decline and economic activity remains stable or improves, both the European Central Bank and the Federal Reserve could pause rate hikes, eventually starting cuts. More flexible monetary conditions would favor high-growth tech stocks. However, returns on cryptocurrencies would remain uncertain, as growth stocks might become relatively more attractive.

Rising Inflation and Economic Acceleration Scenario

If inflation resurges and the economy accelerates, it is likely that monetary authorities will resume rate hikes, causing corrections in stock markets and increasing Bitcoin’s appeal as an inflation hedge, given its fixed supply and gold-like nature.

Stagflation Scenario

If activity slows persistently while inflation persists, central banks would face a dilemma: raise rates (damaging the economy) or cut them (allowing inflation). Persistent inflation could drive investors toward Bitcoin, boosting the entire crypto market, although higher rates would negatively impact the tech sector overall.

Relative Returns in Perspective

During 2023, Bitcoin generated a return of 79.85%, i.e., 6.3 times higher than the S&P 500 and 2.5 times the NASDAQ 100. Ethereum provided 40.45%, still 3.2 times higher than the S&P 500 and 1.3 times the NASDAQ 100.

Lower-cap projects often offer triple-digit returns, though with proportionally higher risk.

Recommendations for Investors in 2024

Yes, investing in cryptocurrencies in 2024 is worthwhile, but with a rigorous methodology. Diversifying capital among high-cap assets (Bitcoin, Ethereum) and smaller projects with greater growth potential is strategically advisable. The so-called “crypto gems” can multiply capital by 10X, 50X, 100X, or more.

Holding vs. Trading

Historically, the best returns come from long-term investing or holding cryptocurrencies, applying the same principle as in stock investing. However, trading can accelerate capital growth, albeit with higher risk. The optimal strategy could combine both approaches: a portion for long-term holding and another for active trading, always managing risk professionally and possessing sufficient experience.

Conclusion: Prepare for Multiple Paths

The cryptocurrency market faces 2024 with solid fundamentals: scheduled halvings, potential approval of institutional products, technological revolution in AI, and confidence signals from derivatives indicators. However, the global macroeconomy remains a critical variable.

Geopolitical factors (conflicts in Ukraine and the Middle East) and electoral cycles (especially in the United States) add complexity. Investors who develop solid analysis methodologies and apply disciplined risk management will be better positioned to capitalize on the opportunities that 2024 presents, regardless of which scenario materializes.