2024 Predictions for Defi and Crypto
1. Bitcoin hits a new all-time high in Q1
The launch of a number of Bitcoin ETFs will lead to Bitcoin hitting a new all-time high as new fund holdings will scramble to acquire the Bitcoins investors will be looking to hold. As the ETFs are launched, we will see a global move from mainstream portfolios to include crypto as part of their portfolios. We would expect to see a Q1 surge followed by a less buoyant market as the excitement passes and investors taper their enthusiasm.
As Bitcoin moves from a crypto focused space to a more mainstream investment product, price movement will be guided more by traditional investment flows than purely crypto players. On top of the expected listing of a number of Bitcoin ETFs which will require the purchase of Bitcoin to fund these new ETFs, there are also some more technology driven factors. In the case of Bitcoin, something called ‘halving’ occurs after every 210,000 blocks are mined which means that we expect the next halving to take place around April 2024. Although this is generally bullish for the price of Bitcoin, we think this will be priced in as more and more Wall Street firms start to issue research reports and main street adds bitcoin exposure in anticipation of this. The old Wall Street adage of ‘buy the rumor, sell the fact’ will come into play as more investors will look to position in front of events like halving. We think the rally in Q1 will be strong but will lead to price consolidation for the remainder of the year.
2. Tokenization will take center stage
Real-world assets like securities, ETFs, art, and even intellectual property will be increasingly tokenized, increasing fractional ownership and liquidity. This will democratize access to investments and unlock novel financial instruments. Expect platforms specializing in asset tokenization and fractional ownership to flourish.
We have seen regulated asset managers rolling out tokenized funds for retail investors and we expect to see that continue and as we expect to see more and more regulated offerings. Assuming investors are happy with the process and the investor experience, we expect this space to continue to grow exponentially. We have invested in some tokenized ETFs and have been impressed with the ease of buying the assets, receiving dividends and generally the overall experience. When the assets sit in your wallet with 24/7 liquidity, it makes holding the asset very different.
3. DeFi DEXs will continue to take market share from centralized platforms
Since the collapse of FTX, we have seen flows gravitate to on-chain DEXs like Uniswap. As the user experience for on-chain trading continues to improve, we will see more flows transition to on-chain, non-custodial applications. Many have learned the hard way that when a centralized exchange collapses, investors can lose some or all of their assets whereas on-chain investors retain custody of their assets. The trend we saw in 2023 of trading moving back on-chain we expect to continue.
Another area that is supporting this trend is the use of trading bots to trade on DEXs which can offer traders a better user experience and, in many cases, faster execution. Many institutional traders will continue to use centralized exchanges but over time, we expect more and more to also use DEXs.
4. Stablecoin issuance and transaction volumes will grow significantly in 2024
We have seen the stablecoin flourish as an application of crypto with USDT issuance ending 2023 at $91 Billion, up 27% on the year. In 2024, we would expect to see stablecoin issuance and transaction numbers continue to rise. As total stablecoin issuance hits new highs, we expect to see more awareness of the importance of this asset class for global regulators.
Stable coins are increasingly becoming the gateway to crypto markets where investors can hold a stable asset but on crypto rails. We have seen both turnover and overall stable assets grow significantly in the past three years and we would expect to see that to continue. The US has been hesitant to allow stablecoins into the US banking system, but over time, we expect to see more and more integration. Already stablecoins are a significant buyer of US treasuries for reserves and we expect their influence to grow in 2024.
5. Crypto applications for emerging markets will explode.
Use of stablecoins to send remittances and international payments will take off as emerging economies begin to welcome crypto payments. On-ramps for making payments are already working smoothly, but the off-ramps to convert USDT/USDC into local currency is where there will need to be more development. We expect to see the efficiency of crypto payments for remittances continue to grow as users begin to see the efficiency and lower costs.
We are seeing startups in emerging markets springing up that support the exchange of stable coins for local currencies such as LocalBitcoins and Paxful. Many emerging markets have yet to embrace crypto for fear of losing tax revenues but over time, we believe the convenience factor and lower fees will drive more flows through stable coins.
6. More flows move to Layer-2 Chains
With chains like Arbitrum offering similar offerings and security to Ethereum but with a fraction of the gas prices, we expect to see more flows to migrate to layer two chains, and Ethereum to see a fall in overall TVL. We see this as a positive theme for crypto as lower fees will increase the overall efficiency of defi.
Chains like Arbitrum were initially greeted with skepticism but as users grow comfortable with the lower fees combined with the security of these chains, we expect to see more applications move to L2 chains and in 2024, we would expect to see TVL gradually move to these chains at the expense of Ethereum.
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As you can see, we are bullish on the direction of crypto and blockchain technology in 2024 and excited about the opportunities that lie ahead. There will certainly be some surprises as traditional finance looks to maintain their position, as regulators look to make their case known, and as new applications roll out that offer more utility for Defi players. To get in contact with us with questions, click here.
