The first quarter of 2024 was a mixed bag of optimism, caution and resilience in the cryptocurrency market.
“For an industry that has been marked with significant dramatic occurrences in the past, this quarter has been relatively quiet with respect to surprises, comparatively," blockchain and smart contract technology specialist Adam Garetson, partner at Gowling WLG, told the Investing News Network (INN). “To me that signals greater normalization of the industry and asset class as a whole, which typically tends to have a net positive effect overall on market sentiment.”
All in all, the crypto sector saw notable growth and increased investor interest in Q1 against a backdrop of positive macroeconomic trends. Figures from PitchBook Data show that the crypto and blockchain markets secured US$2.52 billion in capital during the first quarter of this year, marking a 25 percent increase from Q4 2023.
This surge occurred as the S&P 500 (INDEXSP:.INX) gained 10.2 percent over Q1, the index’s largest first quarter increase since 2019, buoyed in part by expectations of potential interest rate cuts in 2024. Additionally, many major markets, including those in the US, Canada and Australia, posted strong Q1 performances, further supporting investor optimism.
With Bitcoin reaching new heights, the arrival of spot Bitcoin exchange-traded funds (ETFs) and a rebound in institutional investment, the crypto industry showcased its growth potential in Q1. However, concerns about volatility and security underscore the challenges that lie ahead, and questions surrounding long-term, sustainable growth linger.
January: Crypto market reacts to Bitcoin ETF approval
In January, the crypto market hit the ground running with a flurry of activity.
“Undoubtedly, the most significant development was the approval of Bitcoin spot ETFs,” Matteo Greco, research analyst at digital asset business Fineqia International (CSE:FNQ,OTC Pink:FNQQF), told INN. “The US Securities and Exchange Commission's (SEC) authorization for ETFs to launch in the US, backed by Bitcoin, facilitated greater engagement between traditional finance investors and the digital assets market.”
After they launched on January 10, investors put US$1.9 billion into spot Bitcoin ETFs during their first three days of trading. Meanwhile, institutional crypto trading reached an all-time high of US$17 billion that week.
Interestingly, Bitcoin’s price didn’t fare well in the weeks following the ETF launch; by January 23, it had fallen to US$39,504, more than 10 percent below its Q1 opening price of US$44,168.
Similarly, the entire crypto sector's market cap had fallen 16 percent from its January 12 peak by January 23. Analysts surprised by these drops after the ETF approval suggested that the milestone was a “sell the news” event for Bitcoin. FTX’s sale of approximately US$1 billion worth of Grayscale’s Bitcoin ETF, which briefly caused an 18 percent surge in the value of FTX tokens, also contributed to a large outflow of funds from the market.
Ethereum outperformed Bitcoin in the days following the ETF approval as interest in spot Ether ETFs gained traction. Between January 10 and January 15, Bitcoin’s valuation fluctuated 8.67 percent, while Ether only saw a price difference of 2.82 percent. On January 12, BlackRock (NYSE:BLK) CEO Larry Fink said in an interview with CNBC that he sees “value” in offering spot ETFs for Ethereum. “These are just stepping stones towards tokenization,” he added.
Simultaneously, liquid restaking emerged as a trend in the decentralized finance sector, with the combined value of three leading liquid restaking protocols reaching US$461 million as of January 16, indicating significant interest.
On the legal side, Coinbase Global (NASDAQ:COIN) tried to have a lawsuit filed against it by the SEC dismissed. In response to the SEC’s accusation that Coinbase sold unregistered securities, the platform argued that crypto tokens can't be considered securities as buyers don’t acquire the same rights as they do with stock and bond purchases; Coinbase also compared buying crypto to collecting Beanie Babies versus buying the company that makes them.
US District Court Judge Katherine Polk Failla ultimately denied the motion to dismiss all but one charge, and the two will face off in court on July 13.
February: Institutional adoption sets stage for price surge
February was an eventful month for the crypto market, with significant price moves and continued institutional and retail investment. Both Wells Fargo (NYSE:WFC) and Bank of America’s (NYSE:BAC) Merrill Lynch division began offering spot Bitcoin ETFs, indicating growing acceptance from traditional financial institutions.
Gareston sees this as an essential component of the crypto industry’s evolution, saying that it can advance toward widespread acceptance and stability by prioritizing partnerships with regulators and embracing risk mitigation.
“My view is the industry needs further integration with traditional financial markets. I often characterize the digital asset industry as growing both from ‘bottom-up’ and ‘top-down’ perspectives. The industry continues to seek to find a consolidated identity, often contrasting those who advocate for more regulation against others who believe decentralization should result in greater independence," he explained to INN.
“I think there are many incumbent market participants that continue to struggle to see the true merits of the broader digital asset ecosystem, and there are also many in the digital asset ecosystem that prioritize disruption, continuing to view digital assets as an alternative to existing financial structures. To me, the focus should be on the broader digital asset industry as a (complement) to and expansion of more traditional financial services.”
Meanwhile, the Bitcoin price began to recover, and reached two milestones not seen in more than two years — it passed US$50,000 on February 12, then surged 8 percent in 24 hours to hit US$64,000 on February 28.
Coinbase crashed during the latter price jump, and users reported that their accounts reflected a US$0 balance, prompting a panicked selloff that saw Bitcoin’s price fall 10 percent in just 15 minutes.
March: Bitcoin hits all-time high, then pulls back
March was a bustling time for the crypto market, with spot Bitcoin ETF trading volumes surging to US$111 million during the period, a nearly threefold increase compared to February’s US$42.2 billion total.
The Bitcoin price came into March with upward momentum and broke through US$68,000 on March 4, bringing its total market cap to US$1.3 trillion, close to silver’s US$1.38 trillion. After a brief dip, Bitcoin reached a new all-time high of US$73,865 on March 13. It remained volatile throughout the month, falling in the days after that high as well as on March 19, but largely fluctuating within a broad range of US$60,000 to US$70,000.
Analysts had mixed opinions on the activity, with JPMorgan (NYSE:JPM) cautioning that Bitcoin could drop below US$42,000, and Bitwise Chief Investment Officer Matt Hougan expressing optimism about its trajectory.
BlackRock opened a new filing with the SEC to purchase more Bitcoin ETFs for its Strategic Income Opportunities Fund (MUTF:BSIIX) on March 4 as total daily sales of Bitcoin ETFs reached US$5.4 billion.
Focused on attracting investors, VanEck announced it was waiving fees for its spot Bitcoin ETF until March 31, 2025, while Grayscale filed for a spinoff of its successful Grayscale Bitcoin Trust (ARCA:GBTC) in order to offer lower fees. Grayscale also introduced a crypto staking fund, the Grayscale Dynamic Income Fund, comprising a digital asset collection.
MicroStrategy (NASDAQ:MSTR), whose co-founder Michael Saylor is a strong Bitcoin advocate, expanded its holdings of the crypto coin significantly during the month when it acquired 12,000 Bitcoin for US$822 million on March 10 and 9,245 Bitcoin for US$623 million on March 19, bringing its total holdings to 214,246 Bitcoin — over 1 percent of the maximum supply of 21 million. The company paid for the purchases with multiple convertible debt offerings.
Meanwhile, Ethereum rolled out the Dencun upgrade, which led to an uptick in Layer 2 adoption and substantially reduced transaction fees for Layer 2 network users. Ether’s price climbed in the weeks leading up to the upgrade and hit a two year high of US$4,064 on March 13 before pulling back to the US$3,500 range for the remainder of the quarter.
On March 20, BlackRock launched the world’s first tokenized fund, BUIDL, on the Ethereum blockchain; it attracted over US$240 million in inflows within a week. However, it wasn’t all good news for Ethereum. Regulatory hurdles persisted as the SEC delayed a decision on spot Ethereum ETFs for the second time at the beginning of the month.
March also saw heightened interest in meme coins like Solana’s native token SOL, which surpassed US$160 in valuation on March 13, its highest price point since January 2022.
“Initially, I held a strong skepticism towards meme coins, questioning why individuals would invest in projects lacking real-world utility and use cases,” Greco said. “However, as I delved deeper into the space and observed the market cycles, I came to recognize meme coins as a significant representation of the digital assets' internet community. I believe meme coins will continue to be an integral part of this sector for the foreseeable future.”
What factors will move the crypto market in 2024?
As volatility in the crypto sector continues into the second quarter of the year, the experts INN spoke to weighed in on several trends they expect to affect the sector in the next quarter and beyond.
Greco pointed to increasing regulatory oversight. “The SEC has intensified its scrutiny of digital assets service providers in recent years, culminating in the recent approval of BTC spot ETFs. Additionally, in Europe, the Markets in Crypto-Assets Regulation will soon come into effect, while jurisdictions across Asia and other continents are also working to establish clearer and more precise regulatory frameworks for both service providers and investors," he said.
In his view, this shift will transform the structure of the market, leading to more transparency. "Naturally, this will also lead to changes in the composition of investor cohorts compared to those seen in the past," noted Greco.
To that point, in the US, the SEC, the Commodity Futures Trading Commission and the Department of the Treasury have requested that Congress provide funding in the 2025 fiscal year to hire 33 more people to oversee “new and emerging issues,” many of which center on the cryptocurrency sector.
The Bitcoin halving, which is anticipated to take place on April 19, will undoubtedly affect market dynamics. Historical trends indicate that the nine to 12 months following halving events are bullish for the price. However, even during uptrends, Bitcoin has experienced dips of 25 to 30 percent, making it challenging to predict short-term price action.
The approval or rejection of spot Ethereum ETFs will also be a catalyst moving forward.
“I think market reaction would be overall net positive if a spot Ether ETF were to be approved in the US,” Gareston speculated to INN. “The ETF vehicle itself supports the asset, and there appears to be enough investor demand to continue to drive the initiative from a commercial perspective. Canada, for example, has had spot Ether ETFs for the past three years or so, where custodied Ether can now be ‘staked’ to generate an additional, novel revenue stream for fund investors in accordance with applicable Canadian securities laws. I personally am bullish on the likelihood of SEC approval of spot Ether ETFs, but I think the timeline will be beyond 2024.”
Greco’s comments to INN reflect the same viewpoint — he pointed out that the approval process for spot Bitcoin ETFs came after years of legal disputes between financial institutions and the SEC.
“Regarding market reaction, we may witness a similar trend to BTC, albeit with potentially lesser impact,” he hypothesized. “Initially, there could be outflows from the Grayscale Ethereum Trust, offsetting inflows into other newly launched ETFs. However, once the outflow subsides, net inflows are expected to strengthen. Ethereum continues to attract significant interest, and financial products with ETH as the underlying asset could attract substantial investments.”
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.