Crypto investors will be deciding how to place their bets in 2019 by keeping an eye on central bank interest rates and a U.S. regulatory decision regarding new bitcoin goods, following a successful end to 2023.

After a disastrous 2022 in which the industry’s credibility was damaged by a market crisis and a number of scandals, including the demise of FTX and fraud charges against its CEO, Sam Bankman-Fried, cryptocurrencies made a comeback this year.

The largest cryptocurrency and primary indicator of the market, bitcoin, has seen a price increase of almost 200% this year, with a 20-month high of $42,000 per token in November. In terms of percentage increases, 2023 was the finest year thus far since 2020 as of Friday.

Expectations that declining inflation will enable central banks around the world to start relaxing next year instead of raising interest rates further have boosted the market and made riskier assets more appealing. Another encouraging development is the U.S. Securities and Exchange Commission’s (SEC) much-awaited approval of a spot bitcoin exchange-traded fund (ETF).

Analysts predicted that these themes and bitcoin’s anticipated “halving” in April, which lowers the amount of tokens in circulation, would be beneficial for the market in 2019. However, some issued a warning, stating that it is unlikely for the market to reach its record highs from 2021.

“There’s quite a few different factors that are likely to fall in line for 2024,” said James Butterfill, head of research at asset management firm CoinShares, particularly the end of the rate cycle.

“What popped the bitcoin bubble was rising interest rates, and what will probably help spur the next rally … will be interest rates being cut,” he said.

At the conclusion of its policy meeting from October 31 to November 1, the U.S. Federal Reserve maintained its benchmark overnight interest rate in the range of 5.25% to 5.50%, and most analysts anticipate the similar result this week.

Due to historically low interest rates and retail investors with plenty of spare cash in the early stages of the COVID-19 epidemic, bitcoin reached a record high of $69,000 in 2021.

Although the cessation of rate hikes is good news for riskier assets, co-head of research at Mediobanca in Italy, Andrea Filtri, pointed out that the state of the cryptocurrency market is still far different from what it was in 2021.

Fed officials have indicated that rates will not be falling anytime soon, and the market’s expectations of a rate cut early in the new year appeared to be based on solid job figures on Friday.

“It was easy at the time to have proliferation with easy money,” said Filtri. “I am not so sure that, as interest rates go down, you will have the mirror trajectory.”

This year, the cryptocurrency sector saw more serious controversies. Notably, Binance and its CEO, Changpeng Zhao, entered guilty pleas to violating American regulations pertaining to money laundering.

However, some argue that the introduction of a bitcoin ETF might help legitimise the sector.

The SEC has received proposals from a number of prominent financial institutions, including BlackRock, to introduce a spot bitcoin exchange-traded fund (ETF). Should these applications be granted, the cryptocurrency may attract institutional investment worth billions of dollars.

This week, there were tidings that industry negotiations with the SEC had progressed, ahead of a crucial deadline in January when the agency is anticipated to approve some products. Despite the possibility of a sell-off following the news, this has kept traders optimistic.

“The price could go through a correction immediately after their approvals since the market has been pricing in the event, but in the long run spot bitcoin ETFs could rake in several hundred billion dollars a year to the bitcoin market,” said Yuya Hasegawa, a crypto market analyst at bitbank, a Japanese-based crypto exchange.

The upcoming bitcoin “halving,” which is anticipated in April, is another topic of interest for many cryptocurrency observers. This procedure is intended to gradually release bitcoin, the quantity of which is limited to 21 million tokens, 19 million of which have already been produced.

The three previous halvings of bitcoin, the most recent of which occurred in 2020, saw a spike in value. However, it’s questionable if it will spark a rise once more this time around given the altered market circumstances, according to CoinShares’ Butterfill.

“If we combine it with the high demand from an ETF in the United States and reducing new supply coming in, it could have an impact, but I’m not holding my breath.”

(Adapted from Business-Standard.com)