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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

Developers working with the two largest cryptocurrencies capitalized on early bull market intrigue.

Recently, there has been a notable increase in funding interest towards bitcoin mining companies. However, this weeks most substantial investment influx was directed at projects developing practical applications for the cryptocurrency.

In a parallel trend, various projects focused on scaling Ethereum have also secured considerable support recently. This surge in investment comes as the network gears up for its anticipated Dencun upgrade, scheduled for next year.

Babylon raised $18 million in a Series A led by Polychain and Hack VC. The company focuses on a unique protocol that allows Bitcoin to be used for staking in proof-of-stake networks. It offers a secure way for bitcoin holders to earn yields without needing third-party trust or bridging to other chains.

Read more: Core devs rule out Dencun fork this year

Elsewhere, MAP Protocol, a layer-2 chain built on Bitcoin, announced a strategic investment from Waterdrip Capital. MAP is a Bitcoin layer-2 solution that seeks to enhance cross-chain interoperability. It enables seamless interaction between Bitcoin and other public blockchain networks, ensuring secure and efficient transactions across different platforms.

Bitcoin investment firm Swan Bitcoin said Thursday that it raised and spent $205 million in 2023 via its equity, credit and hedge funds. The company also said it plans to raise an additional $150 million as it builds out an institutional offering.

Read more: Institutional custody of bitcoin could kill it, cautions Hayes

On the Ethereum side, Paradigm led a $9 million seed round in on-chain data platform Shadow. The engineering company streamlines on-chain data access by enabling efficient retrieval from contracts and transactions, and optimizing indexing. Its approach of moving event logs to shadow forks reduces gas costs and contract sizes, offering a cost-effective solution for blockchain data management.

Ten announced a $7.5 million raise for its encryption-focused layer-2, while another startup named Versatus said it closed a $2.3 million seed round for its stateless Ethereum rollup.

Lending and borrowing app Curvance closed a $3.6 million seed round this week that was noticeably thin on venture capital investment. The protocol mostly raised funds from a group of DeFi and DAO actors, including Offchain Labs and Wormhole.

The platforms co-founder Chris Carapola said Curvance capped investment in the token sale at $250,000 per party and hopes to soon turn governance over to a DAO. By capping token sale investments, Carapola suggested Curvance was trying to prevent major voting inequality within the DAO.

Curvance drew interest from venture capital, Carapola said, but decided to primarily raise funds from actors in its ecosystem instead, taking over a year to do so.

I would say the consistent thing that we saw was, This sounds amazing. How much can we get, and can you increase the round, can we play with the [valuation], do you want to do a Series A, like the more conventional route. And as soon as that really became the topic, it was like, you know youre not aligned, right? Carapola said.

Curvance raised its seed round at a $56 million valuation and its private round at a $75 million valuation, Carapola said.

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Funding Wrap: Bitcoin, Ethereum-based projects see fresh capital - Blockworks

Bitcoins rapid-fire ascent to $44,000 comes on the back of roughly 25% gains in the last week. The grandfather of all cryptocurrencies has had an even more lucrative 2023, rising 158% from its year-ago levels, according to CoinMarketCap data.

Given how long the crypto world has been dealing with a downturn, whats driving Bitcoins price ascent and similar value gains among other tokens? And can the good vibes continue into the new year?

The main impetus for the bitcoin price rise seems to be the upcoming approval of the [spot] bitcoin ETF and the additional capital flows that will follow after the ETF is live, said Tegan Kline, CEO of Edge & Node, a company that is behind a protocol for organizing blockchain data.

Luke Nolan, a research associate at CoinShares, thinks the kick-off of this Bitcoin rally came on the back of the mid-October ruling from the D.C. Circuit Court of Appeals that closed the June 2022 suit between the SEC and digital asset manager Grayscale. The federal court issued a final ruling that ordered the SEC to rescind its rejection of the firms Bitcoin spot ETF application.

We have seen tremendous buying for two reasons as a result of this, Nolan said. People front-running what they believe will be significant flows stemming from the potential launches of the ETFs [and] if the SEC approves a spot bitcoin ETF, there is a stamp of approval for the asset class from the largest capital market regulator in the world. If that happens, bitcoin could see more capital inflows, potentially boosting its value.

Bitcoins price surge into year-end has been exceptionally encouraging, as it has been accompanied by the highest trading volume it has seen since November 2022, said Joel Kruger, LMAX Group currency strategist.

Of course, one of the main fundamental catalysts is coming from anticipation of mass institutional and mainstream adoption in 2024 as channels are opened up that will allow for easier access to bitcoin exposure, Kruger said.

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As Bitcoin reaches the $44,000 threshold, why the surge and whats next? - TechCrunch

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The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.

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Jack Dorsey's Block Bitkey Bitcoin Wallet Comes to Market in More Than 95 Countries - CoinDesk

Considering the apparent lack of a fundamental value (Papsdorf et al. 2022), the exponential growth in the volume of transactions involving Bitcoin and in its price is certainly surprising. After an initial popularity among a small community of experts, the usage of Bitcoin has been subsequently driven by the black market of illegal goods and services and by gambling (Foley et al. 2019, Marmora 2021). More recently, however, the soaring popularity of cryptocurrency exchange markets and Bitcoin might have also been driven by speculative motives (Baur et al. 2018) or, possibly, by its potential use for cross-border transactions and transfers (Graf von Luckner et al. 2023, Makarov and Schoar 2021), although the high volatility of its price makes Bitcoin impractical as a medium of exchange (Baur and Dimpfl 2021). The popularity of Bitcoin and other cryptocurrencies has not been confined to few economies, but it has morphed into a global phenomenon, with emerging markets and developing economies (EMDEs) at the forefront of crypto adoption (Chainanalysis 2022).

To what extent is Bitcoin usage a global phenomenon driven by speculative demand? To what extent can country-specific factors explain the use of Bitcoin? These are important questions for policymakers, both to assess the potential risks from cryptoassets and to decide how to regulate the crypto ecosystem, that so far have received only partial answers (Makarov and Schoar, 2021, Kawashima et al. 2022), largely due to the difficulty to trace who owns and trades cryptocurrencies.

To answer these questions, in a recent study (Di Casola et al. 2023), we overcome the obstacle of limited country-by-country information on cryptocurrency analysing trading volumes of Bitcoin against the fiat currencies of 14 advanced economies (AEs) and the currencies of 30 EMDEs in the largest peer-to-peer (P2P) exchanges (LocalBitcoins and Paxful), over the period January 2018 to April 2022.

Peer-to-peer exchanges perform transactions outside the blockchain network (i.e. they are off-chain) in a decentralised manner, target mainly small retail users, and are usually not affected by the problem of market manipulation, such as wash trading, typical of centralised exchanges (Cong et al. 2023), thus making the transactions we analyse more reliable. Peer-to-peer exchanges have gained popularity in particular in emerging markets and developing economies, being more suitable for their currencies that do not have a large trading pool to be easily used in centralised crypto exchanges (Aramonte et al. 2022).

In our empirical analysis, we find that momentum and volatility in the crypto-asset market as well as global financial market volatility and liquidity do matter for Bitcoin trading against different fiat currencies, including those of advanced economies. However, our crypto-assets and global drivers fail to capture the full extent of co-movement in Bitcoin trading across currencies and over time. Indeed, our analysis identifies a single global factor that on average explains up to around 40% of the variance of Bitcoin trading across different currencies in the Covid-19 period. There is therefore suggestive evidence of a global crypto cycle in Bitcoin transactions, echoing the findings of the global financial cycle literature for traditional asset markets (Miranda-Agrippino and Rey 2022). This global factor, in turn, is correlated with the Bitcoin price, as shown in Figure 1. Trading across currencies and users around the world moves in tandem with fluctuations in the Bitcoin price, suggesting that Bitcoin is largely used as a speculative investment asset across advanced, emerging, and developing economies.

Figure 1 A global factor in Bitcoin trading volumes against fiat currencies is correlated with the Bitcoin price

Bitcoin seems to offer also some transactional benefits, in particular in emerging markets and developing economies. The depreciation of the domestic currency of EMDEs notably not of the currencies of advanced economies induces more Bitcoin trading, in particular since the onset of the Covid-19 pandemic. This indeed suggests that Bitcoin, despite its wide price fluctuations, might have been appreciated also as a store of value or medium of exchange in countries which experienced a loss in the purchasing power of their domestic currency. In turn, this implies that macroeconomic instability may potentially spur greater cryptoasset usage. This result is important for the asset pricing theory of cryptoassets (Biais et al. 2023), suggesting that the fundamental value of Bitcoin may be substantially different between advanced economies and emerging and developing economies, since its transactional services are probably more elevated in the latter group of countries. Moreover, we find that proxies of banking depth and digitalisation are negatively correlated with the extent to which each currency loads on the global common factor in Bitcoin trading volumes, indicating that crypto-assets may offer a speculative alternative to traditional finance when this is not available, in particular in emerging and developing economies where the share of younger risk-prone population is higher.

Our findings clearly point to potential financial stability risks in emerging and developing economies with low levels of financial development and unstable fiat currencies. The intrinsic price volatility of Bitcoin may discourage its use as a store of value or means of payment. However, in the future, other crypto-assets, such as stablecoins that pledge to ensure a parity to the US dollar or other reserve currencies, might become more widely used by individuals and firms in order to compensate for the lack of financial alternatives, raising the risk of cryptoisation, i.e. the substitution of the domestic currency with a cryptocurrency representing a threat to the implementation of capital flow management policies in these countries (He et al. 2022).

Authors note: The views expressed in this column belong to the authors and do not necessarily reflect those of the European Central Bank.

Aramonte, S, H Wenqian and A Schrimpf (2022), Tracing the Footprint of Cryptoization in Emerging Market Economies, BIS Quarterly Review, March.

Auer, R and D Tercero-Lucas (2021), Distrust versus speculation? The drivers of cryptocurrency investments, VoxEU.org, 6 October.

Baur, D G and T Dimpfl (2021), The Volatility of Bitcoin and its Role as a Medium of Exchange and a Store of Value, Empirical Economics 61(5): 26632683.

Baur, D G, K H Hong and A-D Lee (2018), Bitcoin: Medium of Exchange or Speculative Assets?, Journal of International Financial Markets, Institutions and Money 54: 177189.

Biais, B, C Bisiere, M Bouvard, C Casamatta and A J Menkveld (2023), Equilibrium bitcoin pricing, The Journal of Finance 78(2): 9671014.

Chainanalysis (2022), The 2022 Geography of Cryptocurrency Report.

Cong, L W, X Li, K Tang and Y Yang (2023), Wash trading in centralised crypto exchanges: The need for transparency and accountability, VoxEU.org, 17 April.

Di Casola, P, M M Habib and D Tercero-Lucas (2023), Global and local drivers of Bitcoin trading vis--vis fiat currencies, ECB Working Paper 2868.

Foley, S, J R Karlsen and T J Putnin (2019), Sex, Drugs, and Bitcoin: How Much Illegal Activity is Financed Through Cryptocurrencies?, The Review of Financial Studies 32(5): 17981853.

Graf von Luckner, C, C M Reinhart and K S Rogoff (2023), Decrypting New Age International Capital Flows, Journal of Monetary Economics 138: 104-122.

He, D, A Kokenyne, X Lavayssire, I Lukonga, N Schwarz, N Sugimoto and J Verrier (2022), Capital Flow Management Measures in the Digital Age: Challenges of Crypto Assets, IMF Fintech Notes 5.

Kawashima, Y, R Mittal and E Feyen (2022), The ascent of crypto assets: Evolution and macro-financial drivers, VoxEU.org 19 March.

Makarov, I and A Schoar (2021), Blockchain Analysis of the Bitcoin Market, NBER Working Paper 29396.

Marmora, P (2021), Currency Substitution in the Shadow Economy: International Panel Evidence using Local Bitcoin Trade Volume, Economics Letters 205, 109926.

Miranda-Agrippino, S and H Rey (2022), The Global Financial Cycle, in G Gopinath, E Helpman and K Rogoff (eds.), Handbook of International Economics: International Macroeconomics 6, Elsevier, pp. 143.

Papsdorf, P, J Schaaf and U Bindseil (2022), The Bitcoin challenge: How to tame a digital predator, VoxEU.org 7 January.

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Global and local drivers of Bitcoin vis--vis fiat currencies - CEPR