Stars are aligned for bitcoin in 2024: A supply cut and potential ETF demand could lead to record highs

Published Wed, Dec 27 20239:42 AM ESTUpdated Wed, Dec 27 20231:42 PM EST

If you've been following bitcoin's developments over the past few months, it might seem like a given that the cryptocurrency is "set to moon" in 2024. First of all, it is widely believed that the U.S. Securities and Exchange Commission will let a spot bitcoin exchange-traded fund, or several, launch in the U.S. as soon as January . Then, the Bitcoin halving is expected to take place in the spring, and that event historically has marked the beginning of a bull run and new cycle in bitcoin. Plus, Fed officials are anticipating at least three interest rate cuts in 2024 after almost two years of hikes that have hurt the cryptocurrency. Indeed, most investors and analysts agree the setup for next year is very positive — perhaps overwhelmingly so with bitcoin on track to end 2023 up 150% — with some even anticipating an all-time high. "Bitcoin's prior all-time high was [about] $69,000. We don't think that bitcoin will just breach that and then settle down. We expect some price discovery following the breakthrough and think at least 15% higher is within reach" in 2024, Ryan Rasmussen, an analyst at Bitwise Asset Management, told CNBC. "There will be an influx of demand following the launch of a spot bitcoin ETF and new supply will begin to fall in April or May," he added. "Plus, if the Fed cuts interest rates at all, that's another significant tailwind that's just icing on the cake." On Tuesday, Ark Invest's Cathie Wood told CNBC's "Crypto World" she also thinks the "institutional push into bitcoin will be quite significant to the price" and that "in our price expectations going forward, the biggest contributor is institutions." It might not be as easy as that. Already, some on Wall Street are concerned those kinds of expectations for institutions are overinflated and that a bitcoin ETF alone may not convert "nocoiners " (crypto slang for a person who has never bought any crypto before) into buyers. Separately, even if the SEC does approve an ETF, the industry is unlikely to get true regulatory clarity in the form of legislation, which could pressure markets . Nevertheless, between the potential increase in demand and the decrease in new supply (the halving that takes place when the reward for mining bitcoin is cut in half, as designed in the Bitcoin code, to reduce the supply of the cryptocurrency), bitcoin is set up for its next bull run. "People are going to potentially be surprised at how quickly [bitcoin] can rise to the extent that things line up properly," said Chase White, senior research and policy analyst at Compass Point. Tightening supply Bitcoin doesn't have cash flow like stocks, but it has a maximum supply of 21 million — and that supply is already tight, with about 19.5 million now in circulation . "Supply is very tight. You've got a huge portion of long-term holders controlling bitcoin, over 40% of the coins on the network have not moved in over three years and over 75% at this point haven't moved in over a year, which is why you've seen such quick increases in price," White said. The supply cap was included in the Bitcoin code to create a scarcity effect on the coin's price. In the near-term, however, it could mean the halving that has historically kicked off a new bull run is less of a force on the market, Jurrien Timmer, Fidelity's director of global macro, said in an interview. "The more mature the asset becomes, the less impact the halvings will have because the number of coins that are being produced are so much less than they were, let's say, five years ago, and the number of coins that have already been mined are so much more," he explained. "The days of the halvings having this huge impact are behind us." Still, 2024 could be the year bitcoin's intended supply and demand dynamics take the stage. Even at the risk of a softer rally following the event, its supply curve is what makes it one of the most unique assets in history and invites comparisons to gold, according to Timmer. "The supply becomes more asymptotic as time goes on," he said, meaning it approaches its limit but never quite reaches it. "We're getting closer and closer to that 21 million coin mark. But it's going to take many years for that last few 100,000 coins to be minted." "When you combine [the] … asymptotic supply curve and the exponential demand curve, there really is no other asset on the planet that has those two features at the same time," he added. "It's been around since 2008, it has had everything you can think of thrown at it in terms of existential challenges and resistors, then three crypto winters … and it's still standing." — CNBC's Ganesh Rao contributed reporting.