Crypto Market Outlook 2024
At Imperii Partners, we provide our perspective on the key themes and developments shaping crypto markets in 2024.
We draw upon our expertise in crypto markets as well as proprietary data and indicators to inform our views. While 2023 saw significant volatility, we believe foundations are being built for the next cycle of growth and maturation in the crypto space.
Bitcoin Outlook
For Bitcoin, we foresee several catalysts driving price appreciation in 2024. The block reward halving in April 2024 will reduce BTC issuance from 6.25 to 3.125 per block, highlighting Bitcoin’s disinflationary monetary policy. Historically, halvings have drawn greater attention to Bitcoin’s fixed supply cap of 21 million BTC. The previous halving in May 2020 contributed to renewed interest during pandemic stimulus efforts.
Institutional adoption is also poised to accelerate with the prospect of spot Bitcoin ETF approvals in the US. Major asset managers like BlackRock and Invesco filed applications, which would provide compliant vehicles for mainstream investors. Greater access could drive prices higher. Our team estimates over $6.6 billion of digital assets remain to be liquidated from FTX, which could cause interim selling pressure. However, weekly sale limits may temper impacts.
While layer-2 scaling solutions like the Lightning Network have seen steady development, they are unlikely to meaningfully supplement miner revenue in the near term. Bitcoin’s base protocol remains stable, with Taproot being the only major upgrade in the past 5 years. Innovation may need to come from layer-2 solutions or integration of smart contract functionality.
Ethereum Outlook
For Ethereum, rollup adoption is likely to continue increasing, although their growth has mainly displaced activity on alternative layer-1s rather than Ethereum’s mainnet. ETH staking also continues to grow steadily, recently crossing 24% of the circulating supply. Upgrades like Proto-Danksharding in Q1 2024 as part of the Cancun fork may lower rollup transaction costs by 2-10x.
We think “restaking” services like EigenLayer are worth monitoring as they could provide new revenue streams for ETH validators by allowing them to secure other protocols and features like data availability layers, bridges, oracles etc. However, concerns around overloading Ethereum consensus need to be addressed.
Maximal extractible value (MEV) also poses risks around searchers and block builders extracting value from users. Upgrades to MEV dynamics are being researched but may not go live in 2024. Overall, we don’t expect Cancun to dramatically impact Ethereum’s tokenomics, with the next major milestone being stateless clients like Verkle Trees further out.
Regulatory Landscape
Crypto regulation remains fragmented globally. While the EU’s MiCA regulations take effect starting in mid-2024, the regulatory trajectory in the US is less defined. The SEC continues an enforcement-led approach, filing several lawsuits against crypto companies in 2023. Implications from the Ripple and Grayscale legal judgments are still unclear.
Some see bills like the Financial Innovation and Technology (FIT) Act and the Clarity for Payment Stablecoins Act as potential milestones for clearer crypto oversight if passed. However, divisions in Congress and the upcoming 2024 elections introduce uncertainty on the legislative timeline. Individual US states are also pursuing their own crypto bills.
Absent US federal action, development talent and trading activity may continue migrating offshore. Regulatory arbitrage could intensify. However, it’s encouraging to see growing bipartisan acknowledgment of the need for balanced crypto regulation. How this translates into law remains to be seen.
The L1/L2 Landscape
The layer-1 blockchain ecosystem continues to evolve. Ethereum maintains dominance for developer activity, even as alternative L1s like Solana make technical strides. Rollups have gained adoption but mainly displaced activity from alt L1s rather than Ethereum mainnet. Customized L1s for DeFi or NFTs are emerging.
Modular blockchains are also garnering interest, with data availability and execution layers splitting out. Chains integrating a modular design like Celestia and future Ethereum client upgrades may continue this trend. However, monolithic designs retain advantages like simplicity. The L1 landscape is likely to remain varied.
Among rollups, dominance remains concentrated in a handful like Arbitrum and Optimism. Opportunity exists for differentiation, but most growth is accruing to established chains. Emerging innovations like Eclipse demonstrate the potential for custom rollup architectures utilizing varied components. Cross-rollup interoperability and data sharing also need development.
Real World Asset Tokenization
Tokenizing real world assets on public blockchains picked up steam in 2023 amid higher interest rates. Growth has focused on relatively simple instruments like US Treasuries, but may expand to equities, funds, and carbon credits in 2024.
Most institutional activity uses private chains, which poses risks of fragmented liquidity and limited interoperability. Public chain efforts incorporate compliance like KYC. Hybrid models bridging public and private markets appear most conducive for institutions.
Full adoption faces regulatory and integration hurdles. Clearer regulatory frameworks are emerging in select jurisdictions like the EU, UK, and Singapore. However, this will remain an ongoing process through 2024. Onboarding and redemption mechanisms also need streamlining before institutional scale is reached.
Crypto Gaming and Metaverse
Crypto gaming needs to still find the right model to capture mainstream gamer interest that has shunned early “play-to-earn” approaches. Further incorporation of NFT ownership and creative “play and earn” methods are being explored to sustainably balance recreation and incentives.
Upcoming game launches in 2024 can provide valuable data points, but it may take years to uncover the designs that best resonate with users at scale. Progress will depend on both game quality and effectively conveying Web3 benefits to a skeptical audience. User experience hurdles around key management persist.
The Metaverse opportunity also remains early stage given the hardware and infrastructure requirements involved. While Media exposure has cooled recently, metaverse development continues across AR/VR, 3D engines, and persistent virtual worlds. The space warrants monitoring.
DeFi Developments
DeFi activity declined in 2023 from its peak but regained momentum in late 2022. We think lower interest rates in 2024 could catalyze another growth cycle, as lending and DEX volumes have picked up. Stablecoin borrowing and lending rates have rebounded to over 5% from 1-2% lows.
New bank reserve requirements may drive traditional institutions towards DeFi yield opportunities. However, reputational risks and technical barriers like address whitelisting need resolution. DeFi also needs easy fiat on-ramps and simplified user experiences to really reach mainstream audiences.
A major challenge is limiting the community impacts of maximal extractible value (MEV) so returns flow to users rather than intermediaries. Progress is being made on decentralized MEV infrastructure like Flashbots’ SUAVE. Regulation remains an uncertainty, though DeFi aims for censorship-resistance.
Conclusion
In summary, 2023 laid important foundations across scaling, infrastructure, and compliance to support the next wave of innovation. But risks remain from regulations, technical stability, opaque projects, and adoption barriers. Crypto’s promise has endured, but realizing it requires perseverance. We remain dedicated to driving crypto progress, and we’re hopeful about what’s to come in this industry.
If you want a more detailed overview of the crypto market or strategic financial advice, reach out to the team at Imperii Partners. As a crypto investment bank, we specialize in strategic capital raising, M&A, and blockchain expertise. Feel free to contact us info@imperii8.com to discuss partnering – we’re eager to help innovative web3 companies.