Why Might Cryptocurrencies Continue to Rise in 2024? An In-Depth Analysis of Market Drivers

2023 is a year of strong recovery in the crypto market. Many investors who bottomed out at the end of 2022 have already seen considerable returns. Now everyone is asking the same question: Will this upward trend continue into 2024?

Understanding the Operational Logic of the Cryptocurrency Market

The crypto market consists of 9 main participants, whose interactions shape the supply and demand dynamics of the entire ecosystem:

Core participants include:

• Blockchain project teams (the heart of the supply side)
• Venture capital firms and high-net-worth investors
• Whales (large token holders)
• Retail investors
• Institutional investors
• Centralized exchanges (CEX)
• Decentralized exchanges (DEX)
• Traditional brokers
• Regulatory agencies

In this complex ecosystem, each participant plays different roles. If you want to succeed in the crypto market, you must deeply understand how these participants influence each other and jointly determine price movements.

2023 Analysis Framework from Four Dimensions

To improve investment accuracy, it’s essential to analyze each project from four different perspectives: fundamentals, supply, demand, and technicals. Only projects that perform well across all dimensions are worth focusing on.

Based on CoinDesk’s DACS standard launched in 2021, the crypto market is divided into 7 main sectors: Computer Science, Digital Currency, Decentralized Finance, Culture & Entertainment, Smart Contract Platforms, Digital Assets, and Stablecoins. This classification helps investors allocate assets more efficiently.

The Five Core Drivers Behind the 2023 Crypto Surge

Factor 1: Early Positioning for Bitcoin Halving

Bitcoin’s algorithm automatically halves the block reward every 210,000 blocks, which occurs roughly every 4 years. The next halving is expected around April 2024.

Historical data shows a clear trend: after each halving, Bitcoin’s scarcity drives prices higher.

• First halving: 950% increase in 6 months; 8,342% gain in 12 months
• Second halving: 38% in 6 months; 286% in 12 months
• Third halving (May 2020): 83% in 6 months; 562% in 12 months

The scarcity created by supply contraction tends to influence prices months before the halving. Given Bitcoin’s leadership in the entire crypto market, its rise tends to pull other tokens along. This is one of the main reasons behind the new wave of crypto rally in 2023.

Factor 2: Institutional Capital Is About to Open the Gates

For a long time, the lack of clear regulatory frameworks blocked “smart money” from entering the crypto space. But this is changing.

In 2023, several major asset management firms in the U.S. submitted applications to the SEC for approval of spot Bitcoin ETFs. This is completely different from existing futures ETFs—the latter only require traders to bet on the price direction without actually holding Bitcoin.

If spot ETFs are approved, these giants will be forced to purchase real Bitcoin to back their funds. For example, BlackRock, the world’s largest asset manager managing $9.42 trillion, would see enormous demand if they entered the market.

Factor 3: Spillover Effects of the AI Boom

Since September 2023, tech stocks have surged along with the AI wave. Cryptocurrencies are not immune—especially emerging blockchain projects dedicated to developing AI tools. Unlike traditional cryptocurrencies, these new tokens have utility and, to some extent, represent digital equity in AI-based projects.

This “AI effect” has also stimulated overall demand in the crypto market.

Factor 4: Evidence from Market Capital Inflows

A common misconception is “price rises because supply exceeds demand.” In reality, it’s not that simple—price increases occur because buyers are willing to pay higher and higher prices, believing the asset will continue to rise.

In 2023, total crypto market capitalization grew by 99.2%, meaning nearly $750 billion of new funds flowed into the market.

Analyzing trading volume data provides further insight: the current average daily trading volume is about $140 billion, far above the six-month average of $79 billion. The synchronization of volume with price increases confirms a fundamental trading rule: sustained price rises require significant trading volume support.

This reflects a consensus among market participants: the crypto winter is over, and a new bull market is on the horizon.

Factor 5: Surge in Open Interest of Bitcoin and Ethereum Futures

Since August 2023, the open interest in Bitcoin futures has risen sharply from lows, now reaching 17,321 contracts. Ethereum futures show a similar strong trend, with open interest reaching 6,114 contracts.

When rising prices are accompanied by increasing open interest, it indicates new participants entering or existing participants adding to their positions. This often signals that the spot market will also follow upward—especially as professional investors closely monitor futures holdings.

Overall Performance of the Cryptocurrency Market

According to CoinDesk’s Crypto Market Index (CMI), 2023 has increased by 123%, reaching 1,781.12 points.

In this rally:

• Bitcoin gained 79.85%, 6.3 times the S&P 500’s increase
• Ethereum rose 40.45%, still 3.2 times the S&P 500

These results far outperform major global stock indices.

What About 2024? Three Possible Macroeconomic Scenarios

The outlook for cryptocurrencies is highly dependent on the global macroeconomic environment. Federal Reserve and ECB policies on inflation control, economic growth rates, and interest rate decisions will directly influence investor risk appetite.

Scenario 1: Continued decline in inflation, stable economy Central banks may pause rate hikes or even start cutting rates. Loose monetary conditions will support the stock market, especially tech stocks. But for crypto, high-growth stocks may become more attractive, diverting some funds.

Scenario 2: Inflation rebounds, economic acceleration Central banks are forced to resume rate hikes. This will dampen stocks but boost bond attractiveness. Meanwhile, investors might turn to assets like Bitcoin, with fixed supply, to hedge inflation—similar to gold. This could be bullish for crypto.

Scenario 3: Stagflation (slowing growth with sticky inflation) This is the most challenging scenario. Central banks face a dilemma: raising rates risks recession, lowering rates worsens inflation. Rising interest rates hurt tech and crypto sectors. But persistent inflation may push investors toward Bitcoin, lifting the entire crypto market.

Should You Invest in Cryptocurrencies in 2024?

Based on 2023’s performance, the answer is yes. But it requires a disciplined investment approach.

Recommended strategies:

1. Allocate a portion of funds for long-term holding (major coins like Bitcoin, Ethereum)
2. Keep some capital to seek emerging cryptocurrencies with small market caps but huge growth potential—possibly 10x, 50x, or higher returns

Data shows that long-term holders typically achieve the best returns. Instead of frequent trading, focusing on quality projects for long-term holding is more effective. Of course, if you have risk management skills and sufficient trading experience, you can also do moderate short-term trading on top of your long positions, but always stay aware of risks.

Final Reflections

The future of the crypto market depends on multiple interacting factors—Bitcoin halving supply shocks, potential institutional inflows, spillover effects from tech and AI waves, and global macroeconomic developments.

2024 still holds significant upside potential, but investors must be well-prepared and well-informed. Choosing projects with strong fundamentals, healthy supply mechanisms, and broad demand outlooks is far more valuable than blindly chasing rallies. The crypto market is at a critical turning point—whether for risk-tolerant investors or those interested in diversified assets, it’s worth serious consideration.