Bitcoin is surging—what’s the prediction for crypto in 2024?

How high is bitcoin’s price?

In 2022, bitcoin struggled against macroeconomic headwinds, including aggressive Federal Reserve rate hikes in the U.S. and the collapse of crypto exchange FTX. Rising interest rates tend to lower investors’ tolerance for risk, which in turn can dampen bitcoin’s appeal. Also, the primary purpose of rate hikes is to tame inflation, which can reduce the attractiveness of bitcoin as a hedge against inflation.

In the second half of 2023, however, the king of crypto saw a sharp resurgence in value and investor appetite. Growing demand for the asset, along with bitcoin-denominated exchange-traded funds (ETFs), sent bitcoin’s price skyrocketing from $16,625 at the start of the year to a whopping $41,452 as of Dec. 18, 2023 (all figures in U.S. dollars), per CoinMarketCap. The coin has risen 149% for the year to date. (For comparison: The S&P 500 has gained nearly 23%, and the S&P/TSX Composite Index has gained over 7%, as of Dec. 18, 2023.)

The recent surge in bitcoin’s value also catapulted the combined market capitalization of cryptocurrencies beyond $1.5 trillion for the first time since May 2022, signalling a long-awaited thaw in the crypto winter.

Crypto analysts are forecasting this upward march to continue in the new year. Let’s look at the key factors that underpin bitcoin’s rebound.

Red-hot inflation and banking brouhaha

Some Canadian and U.S. investors have turned to crypto as an alternative to stocks and bonds. Beginning in early 2022, central banks—including the Bank of Canada (BoC) and the U.S. Federal Reserve—enacted multiple interest rate hikes in an attempt to tame stubborn inflation. These aggressive rate moves have rattled equity markets.

Then, in early 2023, the collapse of Silicon Valley Bank and Signature Bank—the largest American bank failures since the 1930s—triggered a shockwave in the U.S. banking sector, leading many investors to offload bank stocks and scramble to diversify their assets. In the quest for alternatives, some turned to bitcoin. This renewed interest helped drive up the coin’s price.

Anticipation of spot bitcoin ETFs

One of the biggest factors in bitcoin’s rally this year has been the growing expectation that the U.S. Securities and Exchange Commission (SEC) could approve spot bitcoin ETFs as early as January 2024. (Update: The SEC approved several spot bitcoin ETFs on Jan. 10.)

A spot bitcoin ETF is a pooled investment security that can be traded on major exchanges, similar to stocks. It is designed to closely track the price of bitcoin—unlike bitcoin futures ETFs, which are based on price predictions. Since a spot bitcoin ETF’s value is directly linked to the market price of bitcoin, investors can benefit from the underlying asset’s price fluctuations using their regular brokerage accounts.

In Canada, spot bitcoin ETFs were approved in 2021. (The first North American bitcoin ETF, the Purpose Bitcoin ETF, launched in February 2021.) However, approval of these funds in the U.S. holds greater significance due to the larger market size and broader investor accessibility. It would also signal crypto’s continued progress towards mainstream acceptance.

Growing institutional interest in crypto

Bitcoin is gaining mainstream acceptance, as institutional investors continue to warm up to cryptocurrencies, particularly BTC and ethereum (ETH). Bitcoin’s limited supply, its upcoming halving event (expected in April 2024), and the possibility of a spot bitcoin ETF have further added to the digital currency’s allure for institutional investors, which have poured more than $1 billion into BTC this year.

Scarcity-seeking institutional investors are particularly enthused by the prospect of bitcoin halving, a process that halves the reward for mining, or validating, new blocks on bitcoin’s blockchain, thereby reducing the supply of the coin. A halving event happens once every four years and effectively makes the asset more attractive to investors.

Falling bond yields

Bitcoin’s fortunes are closely tied to U.S. bond yields. Bitcoin and bonds move in opposite directions due to their sensitivity to market sentiment regarding economic stability and inflation.

The inverse relationship means that at a time when bond yields are trending lower, bitcoin prices are ticking higher. However, when yields are rising, as they did in the first half of the year, investors have less incentive to chase returns from other assets, including cryptocurrencies and equities.

What to expect for bitcoin in 2024

Looking forward, the consensus among analysts is overwhelmingly positive for bitcoin. However, their degrees of optimism and price forecasts vary widely. Some crypto watchers are expecting the digital currency to return to its 2021 all-time-high price of more than $69,000. Considerably wilder predictions for 2024 call for bitcoin to hit $120,000 and even $250,000.

However, the usual warnings apply. Investors should proceed with cautious optimism. Any unforeseen geopolitical, financial or regulatory events could derail investor sentiment yet again and send bitcoin’s price tumbling, bringing with it the value of the broader crypto market. Crypto analysts remind investors that cryptocurrencies remain a risky bet.

If the short history of bitcoin has proved anything, it is that the digital coin’s value tends to be highly volatile, and its fluctuations can wipe out millions of dollars in minutes. As a digital asset, bitcoin also continues to exhibit sharp sensitivity to a host of factors including, but not limited to, geopolitical events, regulatory oversight, high-profile lawsuits, crypto scams and cybercrime. Investors seeking to gain bitcoin exposure should invest only what they can afford to lose. To borrow from a universally acknowledged gambling caveat: know your limit, play within it.

Read more about crypto:

• Who’s buying crypto in Canada, and why?
• The top crypto platforms and apps in Canada 2023
• What the ETH? MoneySense’s guide to ethereum and other altcoins
• Should you mine cryptocurrency?
• What’s the best type of crypto wallet?