Key Crypto Trends to Watch in 2024

At the risk of joining the many, many prediction and recap threads which are floating around, I wanted to start the year off with some areas I’m paying close attention to this year. None of these should be considered predictions, much less price predictions, but instead the thoughts which have been kicking around my head while I spent the last week enjoying New Zealand’s beaches.

ETF: It would be disingenuous to start this list with anything except the impending BTC spot ETF. There are some excellent views out there and better tea-leaf reading, and I don’t want to add to that. Instead, it’s worth thinking about some of the knock-on effects of an ETF:

• Attention should very quickly shift to an ETH ETF (and in fact, it already has). ETH has struggled for a narrative in the past several months, viewed as being stuck between BTC as a store-of-value asset and SOL as a smart-contract platform. If ETH gets a spot ETF, the bug of being in the middle of the barbell will likely be seen as a feature, not a bug, and the narrative could shift quickly.

• What happens to Microstrategy’s BTC accrual strategy after an ETF? MSTR has closely tracked the price of BTC, and in fact has outperformed it due to the fact that many investors have access to equities but not spot. If there’s a spot ETF, there’s not nearly as much need for a business basically acting as a BTC holding company, and the market will be watching closely to see if and how this trade unwinds.

• What’s the next coin which will be eligible for an ETF? To be clear, we’re not likely to see an ETF for any other coin in 2024, but we could set the grounds for the next year. The obvious choice here is SOL; it’s likely that a CME future will be a prerequisite, so that will be something to watch for.

The Fed’s (wait for it) Pivot: It’s taken longer than anyone expected, but the Fed seems poised to start bringing in rates in 2024. Even if it’s done carefully and slowly, it represents turning 2023’s headwind into 2024’s tailwind. Combine that with crypto ETFs as well as a BTC halving, and most outlooks for risk assets in 2024 are bullish. For stablecoin nerds like myself, lower rates (even nominally lower rates) should allow stablecoin AUC growth to pick up where it left off at the beginning of 2024.

Money-Market Tokens: With that said, yields aren’t likely going back to zero, and so there will be demand for money-market tokens, which resemble yield-bearing stables. An excellent example is Hashnote’s USYC, which is a tokenized representation of a fund which holds cash and cash equivalents, and accrues the yield to the token holder. Our view is that this will become an incredibly important piece of market infrastructure, but we also think the market hasn’t quite figured out how MMTs will integrate with the market’s current structure. (Look out for a research piece from Cumberland on the topic in January!)

DeFi is Back: DeFi was a wasteland for most of 2023, but it has started to show signs of life since the JTO airdrop hit the Solana ecosystem. The most volume Solana DeFi saw in a day through the first ten months of the year was $300m, but in Dec it averaged over $1b of ADV and saw a high-water-mark of over $2.5b. Avalanche DEXes are seeing a similar increase in activity. Using DEX activity, or TVL, to assess price of L1 tokens is a challenging art, as the numbers can be very reflexive and causality is hard to pin down. The DeFi UX is much cleaner than when the world at large last paid attention to it. This growth in DeFi activity means the market is likely to see new tokens coming into the market, so the narrative could get fairly frothy.

Thinking about Meme Tokens: This is not a space where we normally focus a lot of energy, but it’s hard to avoid after the last few months. Meme tokens are trying to find a respectable role in the crypto-space, with BONK being viewed as a successful, community-owned example living on the Solana ecosystem. The challenge with Meme tokens is that when they work, they really work, but they usually don’t. Probably a key token to watch here is the granddaddy of the sector, DOGE. Despite the Meme token mania, DOGE has been relatively calm, still trading under $0.10. If SHIB, BONK, and COQ are going to take the world by storm, either DOGE needs to be successful or these new tokens need to do something new.

Gaming Tokens finally make an Impact: Gaming seems like one of the cleanest product-market fit, and yet gaming tokens have not become an important part of the market since AXS. The key hurdle here is that AAA quality games have long, multi-year development cycles, while the crypto market cycles much more quickly. 2024 is likely the year that we see some of the AAA games that began development in 2021 come to market. It will be worth watching if any crypto-native or crypto-integrated games break into the mainstream, and what role their native tokens will play.

I’d like to end this ramble by thanking Cumberland’s friends and counterparties who supported us through 2023. It was an exciting year and the market ended in a very different spot than it started. 2024 promises to be exciting as well, and we’re very proud to have our counterparties and partners take the journey with us. Thank you very much, and Happy Trading!