Why did the crypto ecosystem take off in 2023 and what to expect in 2024?

The cryptocurrency sector experienced a remarkable recovery during 2023. Those who dared to enter in the second half of tumultuous 2022 are now enjoying substantial gains. But the inevitable question everyone is asking is: will this rally continue in 2024? To understand where we are headed, we first need to analyze what happened and who the key players behind each movement are.

The 9 Actors Moving the Crypto Market

Before diving into projections, it’s essential to understand the main players in the ecosystem. A retail investor is not the same as a whale accumulating tokens, nor does an innovative blockchain project carry the same weight as a regulatory agency redefining rules.

Key participants include: blockchain projects and developers, venture capitalists funding early rounds, whales (large market accumulators), retail investors, institutional investors, centralized platforms (CEX), decentralized exchanges (DEX), traditional brokers expanding their offerings, and national regulators defining the legal framework.

This interaction among different types of participants is what generates the supply-demand dynamics we observe in prices. Understanding this is key to anticipating future movements.

How a Cryptocurrency Is Truly Analyzed

If you really want to succeed in your crypto investments, you need to evaluate each project from 4 different perspectives: fundamental analysis (technology, team, value added), supply (tokens in circulation and distribution schedule), demand (adoption, utility), and technical analysis (price and volume patterns).

The mistake many investors make is ignoring one of these dimensions. For example, projects with excellent fundamentals but infinite token supply would require massive capital inflows just to keep prices stable.

A useful tool is the DACS Methodology (Digital Asset Classification Standard), which segments the crypto market into 7 major categories: computing, currencies, decentralized finance (DeFi), culture and entertainment, smart contract platforms, digitization, and stablecoins. Diversifying your investments across these sectors, as well as between large-cap coins and smaller projects, significantly reduces your risk.

The 2023 Rally: Five Decisive Factors

Anticipation of Bitcoin halving in April 2024

Bitcoin’s algorithm is programmed to cut mining rewards in half every 210,000 blocks, roughly every 4 years. This mechanism, called halving, ensures that the supply of new tokens becomes increasingly scarce, giving Bitcoin a scarcity feature similar to gold.

History suggests that halving generates bullish cycles. After the first halving, the price increased by $12 950% in 6 months and 8,342% in 12 months. The second and third halvings also showed similar appreciation patterns afterward. This perceived scarcity dynamic has led investors to position themselves ahead of the next halving, boosting demand.

The AI Revolution

ChatGPT, Nvidia, and the wave of innovation in AI did not leave the crypto ecosystem unaffected. Cryptocurrencies linked to artificial intelligence gained significant traction, offering utility tokens to access blockchain-based services and AI technologies. They are not just alternative currencies to fiat money but digital assets of projects building next-generation tools. This technological boom shifted bullish expectations toward the digital sector.

Expectations Regarding the Approval of the Spot Bitcoin ETF

Major asset managers like BlackRock— the world’s largest asset manager with $9.42 trillion under management— have applied for approval to launch spot Bitcoin ETFs. Although futures-based ETFs already exist, these new products would require actual purchase of the underlying Bitcoin. This would represent a massive influx of institutional capital, which, combined with the upcoming halving, could amplify buying pressure.

Massive Influx of Fresh Capital into the Ecosystem

The CoinDesk Market Index (CMI) grew 123% during 2023, reflecting that nearly $750 billion in new value entered the crypto market. Bitcoin (weighting of 62%) and Ethereum (20%) lead the index, followed by XRP, Solana, and Cardano.

The total market capitalization grew 99.2% in the year. The traded volume ($140 trillion in 6-month moving average) far exceeds the historical ($79 trillion), demonstrating that “there can be no significant price movement without a palpable increase in volume.”

Increase in Open Interest in Futures

Open interest in Bitcoin and Ethereum futures contracts increased notably since August 2023. There are 17,321 pending contracts for Bitcoin, and 6,114 for Ethereum. This simultaneous rise in prices and open interest confirms that new participants are entering the market and/or existing ones are expanding positions. Professional investors monitor these indicators because they anticipate future buying pressure in the spot market.

Three Macroeconomic Scenarios for 2024

Cryptocurrency performance in 2024 will critically depend on how inflation, interest rates, and global economic activity evolve.

Scenario 1: Disinflation + Economic Stability
If inflation continues to decline and the economy remains stable, the Federal Reserve and the ECB could pause or start cutting rates. Looser monetary conditions would mainly benefit high-growth tech stocks, leaving it uncertain whether cryptos would receive the same boost.

Scenario 2: Reflation + Economic Acceleration
An inflationary rebound would force new rate hikes. This would pressure stocks but make Bitcoin attractive as an inflation hedge, similar to gold. However, unlimited supply cryptos would suffer pressure from higher rates.

Scenario 3: Stagflation
Economic slowdown with persistent inflation would put central banks in a dilemma. Raising rates would trigger recession; lowering them would sustain inflation. Fixed-supply cryptos like Bitcoin could attract defensive flows, while the tech sector would suffer.

Is Investing in Cryptos in 2024 Worth It?

The numbers speak for themselves. In 2023:

• Bitcoin: return of 79.85% (6.3 times the S&P 500, 2.5 times the NASDAQ 100)
• Ethereum: return of 40.45% (3.2 times the S&P 500, 1.3 times the NASDAQ 100)

Smaller-cap projects showed triple-digit returns.

The answer is yes: investing in cryptocurrencies in 2024 offers potential, but requires strategy. The recommendation is dual: allocate a portion for long-term holding in Bitcoin and Ethereum, and another for projects with higher growth potential. Historically, the best returns come from long-term holding, not constant trading.

Remember that after the Bitcoin halving in April, along with possible ETF approvals, the following months could be critical. As with previous halvings, the bullish movement typically extends 6 to 12 months after the event.

The volatility of the crypto ecosystem will remain its defining characteristic, but for those who understand the actors, cycles, and macroeconomic factors at play, 2024 presents significant opportunities.