2024 Crypto Market Outlook by Truvius

Originally published in CoinDesk.

Overview

Investors should prepare for a potential transformative leap forward for the crypto asset class in 2024. Major advances in market structure in 2023 and deep industry innovation in the new year indicate that rapid institutional adoption, meaningfully improved investment accessibility, and bullish catalysts for asset prices (not just Bitcoin) may lie ahead. Below we provide a 2024 crypto outlook for investors seeking to diversify their overall asset mix and enact a thoughtful digital assets allocation plan.

When it comes to digital assets, investors should ask themselves the following two questions: 1) Why crypto? 2) Why now? Lengthier answers exist for both, but the simple ones are, respectively:

1. Not many of us have been around for the inception of a new asset class, particularly one uniquely powered by modern technology and in certain cases specifically programmed to combat the glut and frictions of traditional financial markets. Obtaining exposure to an alternative set of assets rooted in legitimate value—measurable by blockchain metrics—is a diversifying and generational opportunity.

2. The market is transitioning from early adoption to mass adoption. A sea change in industry leadership, product development, and fiduciary commitment swept crypto in 2023, enabling a new suite of increasingly institutional-grade on-ramps into the asset class.

Apart from general industry trends, conspicuous catalysts in 2024 may also trigger rapid investor adoption of digital assets. These events include the potential (and seemingly likely) regulatory approval of Bitcoin and Ethereum spot ETFs, the Bitcoin halving scheduled for April 2024 (a once-every-four-years event that reduces the supply of new Bitcoin), and a dovish macroeconomic backdrop and slowing inflationary environment—each on their own a meaningful bullish nod for crypto, but together a potentially rare opportunity for portfolio positioning.

Crypto ≠ Bitcoin

With context in place for crypto as part of an overall asset allocation mix, we turn to considerations within the asset class.

From a traditional allocator’s standpoint, crypto has a lopsidedness problem. Two megacap assets—Bitcoin and Ethereum—dominate 70% of the market capitalization for digital assets. Well-supported investment theses exist for both assets, but it is critical not to overlook the fundamental value of blockchain-powered technologies that are driving new business sectors like Decentralized Financial Services and Smart Contract Platforms.

As investors progress on their crypto learning journey and position themselves for 2024, remaining open to the investment cases for other sectors is key. Just like crypto can be diversifying to stocks and bonds, different crypto sectors can be diversifying to each other (see Figure 1). Diversifying one’s crypto exposure to encompass a broad range of investable assets reduces single-token concentration and grows investor expertise in the asset class and its value.

Figure 1: Quilt Chart of Sector Rankings by Monthly Performance (YTD as of Dec. 13, 2023)

Crypto sectors have varyingly outperformed and underperformed each other at different times.

Improved Market Structure

Moving from analysis to implementation, advisors should also consider the various methods of allocating to digital assets in the new year.

2023 marked a turning point for institutional readiness. Advances in qualified custody and new, thoughtful linkages between custodians and trading exchanges provide a more solid ground for advisors to plan their digital asset exposure. Reporting, tax statements, and ease-of-use are coming into view, with U.S. crypto custodians honing compliant RIA platforms to meet the needs of advisors. The next wave of market innovation will likely come from asset managers competing on intelligent exposure to crypto markets as the product adoption cycle moves from basic passive exposure to sophisticated active exposure.

Perspective for Investors in 2024

While multiple events point to potentially favorable conditions for crypto in the upcoming year, it is also critical to understand how crypto’s brief and volatile history has led to better, more durable options for investors.

Repeated industry failures in 2022 stigmatized the asset class, and mixed regulatory responses have blocked timely solutions by major traditional asset managers to help destigmatize it, all of which drew focus away from the fundamental value of blockchain innovation and left investors scarred by fiduciary ignorance.

These events, however, have driven efforts by trained financial engineers, CFAs, and traditional asset managers to migrate legitimate investment solutions over from the traditional asset class world, with prominent “TradFi” figures now helming key crypto leadership positions at digital and traditional asset management companies. These efforts crystallized more strongly in 2023 and appear to be trending faster in this direction.

Supported by sturdier industry infrastructure informed by lessons learned, investors now have a better—but still nascent—array of investment education, product options, and platforms to not only help avoid the pitfalls of early-adopter risk, but to also exploit early-adopter premia in 2024.