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Bitcoin's recent rally may have taken it past the $42,000 market and helped put the crypto winter of 2022 far in the distance. However, it was also a year the largest cryptocurrency by market capitalization started on shaky grounds at a mere $16,500 level.

Here's what you need to know with the crypto markets looking ahead to the next year, standing at the cusp of important events such as the fate of the approval of a spot Bitcoin exchange-traded fund (ETF), Bitcoin halving, and developments in crypto regulation.

Ever since Blackrock (BLK) originally filed its spot Bitcoin ETF application with the U.S. Securities and Exchange Commission (SEC) in June, the impending approval of such a financial product has been the key area of focus for the crypto market.

So far, retail investors can only gain cryptocurrency exposure through ETFs that trade in cryptocurrency futures. A spot Bitcoin ETF would allow investors, especially retail investors, to gain access to Bitcoin without needing to hold their investment in a Bitcoin wallet.

Analysts expect big money to flow into Bitcoin spot ETFs if the SEC gives its approval, and that optimism has helped boost the price of Bitcoin, with the spot Bitcoin ETF market anticipated to grow to $100 billion over time, according to a report by Bloomberg. A report from Galaxy estimates inflows in spot Bitcoin ETF products could rise from $14 billion in the first year to $39 billion within three years.

That said, there remains uncertainty around the SEC's decision. The SEC has reportedly held multiple rounds of talks with prospective ETF issuers, with issuers amending applications to meet regulators' expectations.

"I'm optimistic, but I think it's quite likely we have another round of rejections before we get the positive news," BitGo CEO Mike Belshe recently told Bloomberg.

Blackrock and others have also filed for spot ether ETFs. However, the likelihood of approval for those products based around the alternative crypto asset is similarly unclear.

Bitcoin halvingor an event that roughly cuts in half rewards to Bitcoin miners for successfully mining the cryptocurrencyis expected to take place in 2024.

Why is it important? At 21 million, the supply of Bitcoin is finite making it harder to mine as more Bitcoins come into circulation. Bitcoin miners are rewarded for successfully mining a block. And the reward gets diminished with a halving, indirectly also impacting the number of Bitcoins in circulation. And price is inversely proportionate to supply.

The crypto market's boom and bust cycles have generally revolved around the Bitcoin halving event, which happens roughly every four years and involves a halving of the amount of new Bitcoin that is issued to miners on the network around every ten minutes.

According to a report from crypto asset manager Grayscale, there is reason to believe this halving event (and any positive tailwinds from a spot Bitcoin ETF approval) could be more impactful than it was in the past. This is due to the current distribution of the Bitcoin supply, which is largely held by entities that tend to hold for long periods of time.

"If these trends continue, the Grayscale Research team anticipates that the dynamics of Bitcoins ownership could increasingly amplify the impact of macro events, like evolving global policies and regulation (e.g., approval of US spot Bitcoin ETF), as well as crypto market developments, like the 2024 Bitcoin halving," said Grayscale Analyst Will Ogden Moore in the report.

Despite the Bitcoin-denominated cut for miners related to the halving event, Sabre56 CEO Phil Harvey says the mining industry will be fine, even in a scenario where a spot Bitcoin ETF is not approved. "In the absence of an ETF launch, the mining sector is likely to maintain its current state of health," Harvey told Investopedia. "Present revenue metrics for miners with direct access to power and equipped with state-of-the-art power generation reveal a robust economic landscape. The current economics are expected to endure, ensuring sustained and healthy profit margins post-halving."

2023 has been a massive year for crypto enforcement actions, with many of the biggest names in the industry, from Binance to Coinbase, facing lawsuits from the SEC or even the Department of Justice. Former FTX CEO Sam Bankman-Fried was found guilty of fraud and former Binance CEO Changpeng Zhao is facing charges of violating the Bank Secrecy Act.

After these recent events, it's becoming clear that the Wild West years of the crypto industry may be coming to an end. U.S. Senator Cynthia Lummis (R-WY) recently shared her optimism that regulatory clarity may finally arrive in early 2024 due to the move of traditional financial titans into the crypto market.

Additionally, U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam has pointed to Congress's increased concerns regarding crypto's potential use in illicit finance as a reason behind the legislative body's renewed interest in the subject.

In terms of other areas of regulation and policy that could affect the crypto market in 2024, TradeStation Head of Brokerage Solutions Anthony Rousseau pointed to the Financial Account Standards Board's (FASB) rule change for valuing crypto assets and a potential end to the Federal Reserve and other central banks' policies of monetary tightening.

The FASB rule change "opens the door for corporates now to have a path to add Bitcoin to the balance sheet as a reserve asset, as MicroStrategy has adopted," Rousseau told Investopedia. "Its plausible to believe we have reached the heights of this [central bank] tightening cycle. For risk assets to get a sustained bid we will need to see a path forward with lower rates and an end to Quantitative Tightening."

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What To Expect From Bitcoin and Crypto Markets In 2024 - Investopedia