KEY TAKEAWAYS

• January 10, 2024, marked a significant milestone for the digital assets market as the SEC granted approval for 11 Bitcoin spot Exchange Traded Funds (ETFs).
• This approval marks a major milestone in the digital asset market, potentially attracting a large new investor base and formalizing its status as an institutional asset class.
• The launch of Bitcoin ETFs on major US trading exchanges on January 11 shattered records, with $4.6 billion in trading volume on the first day and $13.9 billion within the first
• Q4 2023 presented an outstanding performance in the digital assets market, featuring a substantial 56.77% surge in Bitcoin prices, a remarkable 36.59% surge in Ethereum prices, and a noteworthy 58.12% expansion in the total market capitalization of
• The divergence between the digital assets market and the traditional stock markets has further increased in Q4 2023.
• The eagerly awaited Bitcoin Halving event is on the horizon, with expectations pointing to its occurrence on April 20, 2024.
• Despite a general decline in inflation rates during Q4, it is important to note that the December inflation rate surpassed both the December forecast and the actual November interest rate. Consequently, the likelihood of anticipated interest rate reductions being announced at the upcoming FED meeting on January 30 and 31 seems low.
• With the looming BTC halving, expected interest rate decreases, potential launches of new spot ETFs for prominent altcoins, and ongoing development and adoption of portfolio projects, we approach 2024 with confidence.

FED INTEREST RATE POLICY Q4 2023

At its December 2023 meeting, Federal Reserve (FED) officials maintained the current interest rates, concluding their last policy decision of the year. They also provided a forward-looking outlook, indicating intentions to reduce borrowing costs three times in the coming year, signalling a shift in their strategy to combat rising inflation.

Investors are keenly watching for hints about the exact timing of the FED’s interest rate cuts if the economy follows its anticipated trajectory. While the economic projections outline rate expectations for the end of 2024, they offer limited insights into the timing of policy adjustments.

Given the December 2023 inflation data, M21 assesses that it is unlikely the FED will already implement interest rate reductions during the upcoming meeting (January 30 and 31).

CATALYSTS

There are three major catalysts o watch that will have a major influence on a potential positive upside in the financial performance of the digital assets market in 2024:

1. the approval of a Bitcoin ETF.
2. the Bitcoin halving (April 2024).
3. Macro-economic developments: environment stress in the financial system from bank failures and inflation.

CATALYST 1: BITCOIN ETF APPROVAL

Approval of a Bitcoin ETF on January 10

As forecasted in our Q3 newsletter, the US Securities and Exchange Commission (SEC) approved eleven spot Bitcoin exchange-traded funds (ETFs) on January 10, 2024, just before the final deadline for the 21 Shares / ARK request. This approval marks a major milestone in the digital asset market, potentially attracting a large new investor base and formalizing its status as an institutional asset class.

What is a spot Bitcoin ETF?

A spot Bitcoin ETF directly mirrors the value of Bitcoin and trades on traditional market exchanges instead of cryptocurrency platforms. In this case, the ETF is backed by substantial Bitcoin holdings, securely managed by designated custodians like Coinbase. Investors can now access Bitcoin exposure directly through their brokerage accounts by purchasing shares of this fund, bypassing the existing technical complexities associated with ownership of digital assets.

Which ETFs obtained approval?

The following eleven Bitcoin spot ETFs secured approval:

1. The Grayscale Bitcoin Trust
2. The Bitwise Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares)
3. The Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E (Trust Units)
4. The iShares Bitcoin Trust
5. The Valkyrie Bitcoin Fund under Nasdaq Rule 5711(d) (Commodity-Based Trust Shares)
6. The ARK 21Shares Bitcoin ETF
7. The Invesco Galaxy Bitcoin ETF
8. The VanEck Bitcoin Trust
9. The WisdomTree Bitcoin Fund
10. The Fidelity Wise Origin Bitcoin Fund
11. The Franklin Bitcoin ETF13 under BZX Rule 14.11(e)(4) (Commodity-Based Trust Shares)

Trading volume week one

It has been a week since the confirmation of the spot BTC ETFs, here are some key figures of the first trading week:

1. Approximately $4.6 billion in trading volume recorded on their first day of trading, which increased to over $7.6 billion after the second day.
2. Bitwise and Fidelity’s spot Bitcoin ETFs attracted higher day-one inflows compared to their competitors, with net inflows of $238 million and $227 million, respectively. BlackRock’s iShares Bitcoin Trust (IBIT) also saw $112 million net inflows, while Grayscale Investments’ Bitcoin Trust ETF (GBTC) experienced net outflows of approximately $95 million.
3. After one week, $13.9 billion has been traded across the newly approved ETFs, with a net inflow of $1.15 billion.
4. The iShares Bitcoin Trust (IBIT) ($1.2 billion) and the Fidelity Wise Origin Bitcoin Fund (FBTC) ($1 billion) experienced the largest inflows across all newly formed ETFs during the first week of trading. Blackrock and Fidelity have proved popular amongst investors, receiving a combined 68% of all week one inflow (BITI 37%, FBTC 31%).
5. The iShares Bitcoin Trust (IBIT) was the first of the group to amass more than $1 billion in assets, accumulating the largest inflows during the week, and boasting an Assets Under Management (AUM) of $1.17 billion on January 18th. The value of both ETFs combined inflows ($2.2 billion) was equal to the value of the outflows seen across the Grayscale Bitcoin Trust (GBTC) ($2.2 billion) during the period.
6. The Grayscale Bitcoin Trust (GBTC) experienced $2,216.3 billion of outflows during the week. This ETF was the only fund to experience daily outflows during its first week of trading.

M21 opinion

The approval of the Bitcoin ETFs marks a significant milestone and is expected to positively impact the digital assets market on longer term in two significant ways:

1. A spot Bitcoin ETF, backed by actual Bitcoins, simplifies and ensures compliant exposure to Bitcoin for investors, who can seamlessly trade shares of the fund on stock exchanges. This development is expected to expand Bitcoin’s investor base, potentially fostering increased adoption and price stability.
2. Bitcoin ETFs pave the way for requests for other ETFs in 2024. We anticipate requests for various major altcoins, including Ethereum, Solana, and Ripple. BlackRock had already submitted an Ethereum ETF application in November 2023, and we anticipate more requests from significant institutional investors in the near future.

CATALYST 2: BITCOIN HALVING

The upcoming Bitcoin halving, scheduled for the end of March 2024, represents a pivotal moment in the digital asset realm. Explore the significance of this event, its historical trends, and what to anticipate here, and stay informed by monitoring the real-time updates on the expected halving date here.

CATALYST 3: MACRO-ECONOMIC DEVELOPMENTS

INFLATION DATA Q4 2023

Inflation continued its gradual decline in Q4, dropping from 3.7% in September to 3.4% by December 2023. Nevertheless, it is noteworthy that by December 2023, inflation had edged higher when compared to both the preceding month of November and the projected forecast.

FED INTEREST RATE POLICY

At its December 2023 meeting, Federal Reserve (FED) officials maintained the current interest rates, concluding their last policy decision of the year. They also provided a forward-looking outlook, indicating intentions to reduce borrowing costs three times in the coming year, signalling a shift in their strategy to combat rising inflation.

Investors are keenly watching for hints about the exact timing of the FED’s interest rate cuts if the economy follows its anticipated trajectory. While the economic projections outline rate expectations for the end of 2024, they offer limited insights into the timing of policy adjustments.

Given the December 2023 inflation data, M21 assesses that it is unlikely the FED will already implement interest rate reductions during the upcoming meeting (January 30 and 31).

DIGITAL ASSETS: Q4 PERFORMANCE

Q4 2023 presented an outstanding performance in the digital assets market, featuring a substantial 56.77% surge in Bitcoin prices, a remarkable 36.59% surge in Ethereum prices, and a noteworthy 58.12% expansion in the total market capitalization of altcoins.

Correlation with traditional markets

In October 2023, the digital assets market demonstrated a positive performance, while traditional stock markets, such as the S&P 500 and Nasdaq, exhibited a negative trend. Furthermore, in November and December, the digital assets market outperformed traditional stock markets significantly. This Q4 performance underscores the growing divergence between the digital assets market and the traditional stock markets.

BITCOIN AND ETHEREUM: TECHNICAL ANALYSIS

Bitcoin

In Q2 of 2023, Bitcoin achieved a significant milestone by surging above the weekly Exponential Moving Average (EMA) ribbon and the 100-weekly Moving Average (100MA), marking the first time since May 2022. Over the preceding six months, Bitcoin had been oscillating within the EMA ribbon, the 100MA, and the 200-week Moving Average (200MA). Upon reflection of Q2 and Q3 of 2023, it becomes apparent that these quarters can be characterized as an accumulation phase, featuring a trading range between $25,000 to $32,000.

The initial two weeks of Q4 saw Bitcoin remaining within the range of $26,500 to $28,500. However, on October 16, Bitcoin initiated a remarkable rally, experiencing a one-day surge from $27,000 to $30,000. By October 23, it had breached a robust resistance level at $32,000, continuing its ascent to reach $35,000 by the end of October. The significance of surpassing the $32,000 level cannot be overstated, as it had served as a crucial support level during the July 2021 bull market. Additionally, Bitcoin had not traded above $33,000 since May 2022. This breakthrough also marked a decisive breach of the EMA ribbon, 100MA, and 200MA.

Without encountering any substantial corrections, Bitcoin’s upward trajectory continued into November, propelling it past the $40,000 mark. Along the way, it managed to fill a CME futures gap that had originated in May 2022 at a Bitcoin price level of $35,000. After almost four months of remarkably low volatility on the weekly timeframe, November saw a significant uptick in volatility, reflected in elevated levels of both the weekly Relative Strength Index (RSI) and Stochastic RSI, signalling robust upward momentum.

In December, the bullish momentum persisted, driven by positive news related to interest rate pauses, declining inflation, and the potential approval of various Bitcoin spot ETFs in January 2024. Bitcoin’s price fluctuated within the range of $40,000 to $45,000 throughout the final month of the year.

After months of sustained upward movement another crucial signal, the 50-day moving average, crossed the 200-day moving average to the upside once again. This event is referred to as a ‘golden cross’ from a technical analysis perspective and is considered a bullish indicator for the medium to long term.

In just three months without significant corrections, Bitcoin surged by over 50%, culminating in a closing price of $42,265 at the end of December.

Zooming out to a monthly timeframe, Bitcoin’s upward trend remained intact. Over the past 12 months, a ‘cup-and-handle’ pattern had developed, with a neckline situated around $31,000. This well-known bullish pattern carried a high likelihood of breaking to the upside, and the actual breakout occurred in October. In Q4, we witnessed the successful breakout of this pattern, with Bitcoin steadily approaching its technical target of $49,000.

Ethereum

On a weekly timeframe, Ethereum initially slipped below both the 100- and 200-day Moving Averages. However, a turning point came during the third week of October when ETH successfully reclaimed the weekly 200 Moving Average, positioned at $1,700, setting the stage for a rally that eventually reached $2,281 by December.

Volatility

Both Bitcoin and Ethereum underwent an extended period of remarkably low volatility, accompanied by reduced trading volume. Such prolonged periods of low volatility and diminished trading activity often serve as indicators of an impending significant market shift. This anticipation materialized in Q4 2023, as volatility and trading volume surged alongside the increase in prices.

When we juxtapose this data with the noteworthy positive performance of the digital asset market in Q4 2023, primarily fueled by speculation surrounding the approval of a BTC ETF, we can envision a potential scenario: a minor market correction in Q1, followed by a significant upswing in Q2 2024 leading up to the Bitcoin halving, followed by a consolidation in Q3, and culminating in a highly significant positive performance in Q4 2024.

The impending approval of a Bitcoin spot ETF is poised to inject a fresh influx of capital and heightened volatility, ushering in a new era of market dynamics. Consequently, making short-term predictions becomes a formidable challenge.

As we peer into the 2024 landscape with the looming BTC halving, expected interest rate decreases, potential launches of new spot ETFs for prominent altcoins, and ongoing development and adoption of portfolio projects, we approach the year with confidence, anticipating a year characterized by positive performance.