As we stand at the end of 2023, we reflect on the ups and downs of the past year, witnessing the scrutiny of figures like SBF, hearing Gary Gensler (SEC Chairman, wielding regulatory influence over cryptocurrencies) testify before Congress, and anxiously awaiting the Federal Reserve’s decision on interest rates. After a year of twists and turns, in the final days of 2023, we collectively witnessed the cryptocurrency market cap rebound from $0.8 trillion at the beginning of the year to $1.7 trillion. Bitcoin also regains its position above $40,000, and those of us standing firm here can sense the quiet approach of a bull market.

At such a turning point, the trend of macroeconomics becomes an important basis for us to judge the future. Understanding macro dynamics not only helps us gain insight into industry trends, but also provides solid support for our decision-making. Cointime’s content team carefully compiled the macro data in 2023 and conducted a predictive analysis of possible changes in the macro environment in 2024, aiming to provide an overall macro framework for readers and practitioners.

Part 1: Review of Macroeconomic Data

The Consumer Price Index (CPI) served as the catalyst for this round of U.S. interest rate hikes, originating from the massive liquidity injection during the COVID-19 period. When reviewing the macroeconomic data of 2023, we will focus on CPI as the main indicator, examining related data such as interest rates, U.S. Treasury bond yields, and the changes in the U.S. dollar index, which led to the reallocation of asset liquidity, benefiting the cryptocurrency market.

1. CPI: Decline
2. Interest Rates: The Federal Reserve halts interest rate hikes
3. 10-Year Treasury Bonds, U.S. Dollar Index: Market funds cease flowing back into the United States, halting the inflow into U.S. dollar-denominated bonds.

Part 2: Crypto Market Macro Data Review
Since November in the second half of 2023, as the market has reached a basic consensus on the US dollar macro environment, such as core CPI being basically under control and the Federal Reserve not raising interest rates further, market liquidity has begun to benefit the crypto market. In this part, we focus on the macro data of the encryption market and feel the macro changes in the market.

1. Fear Greed Index

2. Cryptocurrency market capitalization

3. Bitcoin price and transaction volume

4. Stablecoin supply

5. Money flowing into the crypto world

Part 3: Spot Bitcoin ETFs in the Crypto Market, and the Bitcoin Halving
In addition to the above macro data, we also look at the information aspect of spot Bitcoin ETFs and the impact of Bitcoin halving information on the sentiment of the entire crypto market.

Part 4: Review of global regulation and the policies and attitudes towards cryptocurrency in Asia and Hong Kong, China.

Part 5: Quoting market forecasts and looking forward to 2024.

Part 1: Review of US Dollar Macro Data

The crypto market in 2023 will benefit from the increase in global macroeconomic liquidity, especially the change in Federal Reserve policy, and then to the reallocation of market funds, which ultimately affects various financial fields including the crypto market. Since global liquidity is still dominated by the Federal Reserve and Wall Street, the macro data summarized in this article are mainly based on the macro data of the US dollar economy, which will be reviewed from the following aspects:

1.CPI Decline: After experiencing high inflation following the COVID-19 pandemic, the core Consumer Price Index (CPI) reached a staggering 11%. Subsequently, continuous interest rate hikes by the Federal Reserve helped bring it down to 3.99%, with the target of controlling inflation within 2% by 2024.

2.Halt in Interest Rate Hikes: In response to the slowdown in inflation, the Federal Reserve halted interest rate hikes since July to stabilize economic growth. The cessation of interest rate hikes reduced demand for fixed-income assets as interest rate expectations no longer rose, as evident from changes in U.S. bond yields and the U.S. dollar index.

1. Fund Transfer: With the pause in interest rate hikes, funds start to flow out of low-risk assets such as the U.S. dollar and Treasury bonds in search of higher-yielding investments, leading to a decline in the U.S. dollar index and a reduction in bond yields.

Let’s first take a look at the Consumer Price Index (CPI), which is a key reference indicator directly leading to the Federal Reserve FOMC meeting’s decision to raise interest rates:

In 2023, the U.S. core CPI data gradually dropped from 5.7% at the beginning of the year to nearly 4% at the end of the year, reflecting a significant decline in the inflation rate. This change may be partly attributed to the Federal Reserve’s interest rate hikes, which raise interest rates to curb overheating economic activity in order to cool high inflation. At the latest FOMC post-meeting press conference, Fed Chairman Powell also expressed satisfaction with the results of the efforts.

1. Fed Chairman Powell: Inflation has eased, while unemployment has not increased significantly

2. U.S. President Biden: CPI data shows continued progress in fighting inflation

3. The U.S. non-seasonally adjusted CPI annual rate in November was 3.1%, in line with market expectations.

Indeed, since CPI has been effectively controlled, the Federal Reserve has stopped its crazy interest rate hikes:

1. In 2022, each time the interest rate is raised crazily by 50-75 basis points, the target interest rate will be directly raised from 0.25 to 4.75%.

2. From January to July 2023, it increases 25 basis points each time, rising from 4.75% to 5.50%.

3. From September to December 2023, the two interest rates remained unchanged, and Bitcoin rose from $27,219 to $34,924.

4. From January 2024, interest rates are expected to remain unchanged to ensure that core CPI drops to the target level of 2%.

Interest rates will be stopped in July 2023. After the FOMC meeting in November decided to keep interest rates unchanged again, the market also began to react optimistically in November, and funds began to shift out of high-yield US dollar government bonds, reducing the demand for the US dollar, which typically reflects lower yields on the 10-year U.S. Treasury note, and a decline in the U.S. dollar index.

In the first half of 2023, following the Federal Reserve’s continuous interest rate hikes with the target rate maintained at 5.5%, the yield on the 10-year U.S. Treasury bond rose steadily, reaching a low point of 3.3% on April 5th and surging beyond 5% in October, creating a historical record. This high yield attracted risk capital flowing back into the U.S. and U.S. Treasury bonds, draining a significant amount of liquidity from the market. However, starting from November 2023, after the Federal Reserve once again held interest rates unchanged, the yield on the 10-year Treasury bond began to decline, reaching 3.79% on December 28th as the market adjusted its risk preferences. Simultaneously, the U.S. dollar index also experienced a corresponding decline.

The trend of the U.S. dollar index is similar to that of U.S. Treasury bond yields. From a low of 99.48 on July 13, it climbed to a high of 107 points on October 3. Along with the macro environment, the Federal Reserve suspended interest rate increases, and U.S. bond yields fell. The demand for the U.S. dollar declined, as investors sought higher-risk assets to obtain higher returns, and the U.S. dollar index also began to fall from 107 to 100 in 2023Q4. Traditional markets such as U.S. stocks, gold, and crypto markets, which have higher risks but higher returns than U.S. bonds, are beginning to become lively.

Part 2: Crypto Market Macro Data Review

Part Two: Macro Data Review of the Cryptocurrency Market

Due to the macroeconomic support for the U.S. dollar mentioned above, the market has reached a consensus on the expectations for the macroeconomic environment of the U.S. This consensus suggests that with controlled CPI and the Federal Reserve’s reluctance to further raise interest rates, the core CPI index is expected to return to 2% by 2024, and the Federal Reserve will likely begin cutting interest rates. This consensus has benefited the cryptocurrency market, which has started to become lively. In the following section, let’s explore this shift through some macro data in the cryptocurrency market:

1. Fear Greed Index

2. Cryptocurrency market capitalization

3. Bitcoin price, transaction volume, and Bitcoin performance status

4. Stablecoin supply

5. Money flowing into the crypto world

Overall, the crypto market has gone from fear to greed.

Source: Alternative.me

In the year from December 26, 2022, to December 25, 2023, the Cryptocurrency Fear and Greed Index rose from 26 to 73. This significant rise reflects a shift in market sentiment from fear to greed. This shift in sentiment coincides with market participants holding more optimistic expectations for future price increases in cryptocurrencies. At the end of 2023, especially after the US dollar macroeconomic consensus was reached in October and November, the fear and greed index exceeded 50 and rose to 72 (indicating greed), which means that investors have become more confident and may be more confident in anticipating potential future gains. Invest aggressively. We are no longer afraid. (As of January 1, 2024, the fear and greed index dropped back to 65 before publishing this article, which still indicates greed.)

Next, let’s take a look at the changes in the overall market capitalization of the encryption market in 2023:

From January 1, 2023, to January 1, 2024, the total market capitalization of the cryptocurrency market increased from approximately $0.83 trillion to about $1.73 trillion, adding approximately $0.9 trillion. This represents a growth of around 108%, more than doubling the market capitalization. The cryptocurrency market garnered strong interest from investors in 2023. To put it in perspective, the overall market cap was only around $0.3 trillion before the DeFi summer in 2020, but during the DeFi summer bull market, the total market cap reached over $2.9 trillion. Now, the cryptocurrency market cap is not far from the total market cap of the previous bull market.

The more intuitive performance is the price and transaction volume trend of Bitcoin:

At the beginning of the year, the price of Bitcoin was $16,540, and by December 31, 2023, it had risen to $42,220. Bitcoin experienced a significant increase in price, with a growth of approximately 155%.

Despite ChatGPT’s remarkable performance, NVIDIA emerged as the shining star in the entire market in 2023. However, Bitcoin still held the second position, surpassing Tesla, Apple, Berkshire Hathaway, as well as NASDAQ and gold.

As of December, Bitcoin managed to break into the top 15 currencies in the world, becoming the only cryptocurrency in the top 20, according to analysis by Bitcoin credit card company Bold.

Next, let’s look at the stablecoin supply, trading volume, and the inflow of funds as reported by CoinShare, showing that the cryptocurrency market is steadily growing based on the results in the middle of 2023.

In 2023, although the total supply of the top five stablecoins has decreased from US$133 billion in January to US$123 billion in December, the overall supply has returned to the previous level. This is due to the withdrawal of certain stablecoins, such as BUSD, from the market, and the reduction in supply of USDC due to tightened compliance requirements. However, USDT has shown strong growth, rising from $66 billion at the beginning of the year to $88 billion, a growth rate of 33.33%.

How about the trading volume?

In the first half of 2023, while the macro market was still in the midst of interest rate hike expectations, the 7-day average spot trading volume in the cryptocurrency market hovered around $10 billion. It started at $11 billion on January 1st and hit a low of $9.73 billion on September 27th. Subsequently, following the continuous pause in interest rate hikes at the FOMC meetings and optimistic expectations for the SEC’s approval of spot Bitcoin, the 7-day trading volume for cryptocurrencies soared to $36.97 billion at the end of the year.

The optimistic sentiment is also evident in the data on funds flowing into the cryptocurrency market, as reported by CoinShare.

In 2023, net inflows into cryptocurrency funds reached $1.14 billion, marking the third-highest annual inflow on record. Particularly noteworthy is the nearly $900 million in net inflows during the last three weeks, reflecting the market’s optimistic sentiment, especially regarding the hopeful anticipation of future approval by the U.S. regulators for a spot Bitcoin ETF. Why is the market so sensitive to the SEC approving a spot Bitcoin ETF? Because a spot Bitcoin ETF would indeed bring additional liquidity to the cryptocurrency market.

Part 3: Spot Bitcoin ETFs in the Crypto Market, and the Bitcoin Halving

Let’s take a look at the market’s sensitive reactions to the progress updates on the Bitcoin spot ETF in 2023:

1. August 29, 2023: Grayscale Lawsuit Victory

On August 29, 2023, the appellate court ruled that the SEC’s rejection of Grayscale’s ETF application was erroneous, resulting in a victory for Grayscale.

Bitcoin Price: $26,109

1. “SEC approves Bitcoin spot ETF” and spot Bitcoin ETF appear on DTCC website Cointelegraph published a false tweet “SEC approves Bitcoin spot ETF” and BlackRock’s spot Bitcoin ETF appeared on DTCC website. Triggering market surge. Bitcoin: $34,669

The crypto market is so sensitive to Bitcoin spot ETFs, and the reason is understandable, because it will bring liquidity to the crypto market and further push up crypto asset prices. There are still a few days left, and it is expected to be available on January 7, 2024. Approval, let’s take a look at each company’s forecast first.

Various predictions:

1.Bitcoin Spot ETF First-Year Inflows Expected to Reach $14 Billion

Galaxy Research released a report estimating the growth rate of various channels entering the Bitcoin spot ETF industry. The conclusion drawn is that the first-year inflows into the Bitcoin spot ETF are expected to reach $14 billion. In the second year, it is projected to increase to $27 billion, and in the third year after launch, it is expected to reach $39 billion.

2.Bringing in Up to $100 Billion in Inflows in the Next Five Years

Analyst Ryan Rasmussen from asset management company Bitwise stated in an interview that a Bitcoin spot ETF could bring in as much as $50 billion to $100 billion in inflows in the next five years, and it “may have a significant impact on the price of Bitcoin.” He also mentioned an expectation that the SEC could approve the ETF applications as early as the December holidays this year, with Bitwise being one of the many applicants.

Another more certain optimistic expectation is about the Bitcoin halving, which will occur around April 2024.

Let’s start by summarizing data from the previous several Bitcoin halvings to get a sense of the market dynamics surrounding Bitcoin halving events.

1. Halving in 2012, an increase of 8,096%. After the halving of Bitcoin in 2012, the price experienced significant growth, with an increase of 8,096% within one year, reflecting the market’s positive response to the halving.

2. Halving in 2016, up 284%. After the halving of Bitcoin rewards in 2016, its value witnessed a significant increase, with an increase of 284% in one year, highlighting the strong driving effect of reduced supply on market demand.

3. Halving in 2020, an increase of 599%. The value of Bitcoin, which experienced a halving in 2020, has risen rapidly, achieving an astonishing increase of 599% within one year, once again proving the huge promotion effect of halving on prices.

Current market predictions regarding the next Bitcoin halving are as follows:

1. Adam Back: Bitcoin may reach $100,000 before the next halving.

2. Matrixport: Bitcoin is expected to reach $63,140 by April next year, initiating a sustained bull market for three years.

How will the market perform during the 2024 halving? We will witness it in the midst of escalating sentiments.

Part 4: Global Regulation and Policies and Attitudes towards Cryptocurrency in Asia and Hong Kong, China

Regarding supervision, PwC has summarized it in the report:

The number of countries implementing crypto market regulation increased by 25% in 2023. Of the 43 countries analyzed, 25 have adopted stablecoin market management regulations in 2023. Draft legislation in another 10 regions is being formulated or under review. However, there are also some regional governments that have not initiated the process of formulating a regulatory framework for the stablecoin market. According to the report, there are eight such countries and regions, including Brazil, India, Cayman Islands, Qatar, Turkey, Taiwan, China and Qatar. In addition to regulating stablecoins, the 2024 Global Cryptocurrency Regulation Report also reveals the dynamics of the global digital asset regulatory framework. In 2023, 31 of the 43 countries analyzed have implemented legislative regulation of cryptocurrencies, and, in 36 regions, virtual asset service providers (VASPs) must obtain an operating license and comply with anti-money laundering (AML) and travel rules. It is worth noting that the level of global stablecoin regulation has increased significantly over the past year. For example, only six countries have established regulations for the stablecoin market in 2022. This year, the number of countries implementing cryptocurrency market regulation increased by 25%. The main catalyst for the growth in the number of countries interested in the legal use of cryptocurrencies and stablecoins is the passage of the MiCA bill, which will officially enter into force in the 27 countries of the European Union in early 2024.

Additionally, Hong Kong’s support for the crypto market has had an extremely positive impact on the Asian market.

1. In November 2022, Hong Kong issued the “Policy Statement on the Development of Virtual Assets in Hong Kong.” The statement outlines the vision and policies for the development of the virtual asset industry, related innovative technologies and applications, as well as the ecosystem. This declaration has gained widespread recognition and support from the virtual asset industry, receiving many positive responses. Numerous related enterprises are actively considering expanding their operations in Hong Kong or relocating their businesses to further develop in the region.

2. In April 2023, Hong Kong established a Web3 Development Working Group. The Hong Kong government established a Web3 Development Working Group to promote the growth of Web3.

3. In June 2023, the Virtual Asset Licensing Regime was implemented. In June 2023, the Hong Kong government implemented the Virtual Asset Service Provider Licensing Regime, providing a certain level of market recognition for virtual asset exchanges to ensure a robust and orderly development of the market, safeguarding investors.

4. In June 2023, individual retail investors were officially allowed to trade cryptocurrencies. In June 2023, the Hong Kong government officially permitted retail investors to trade cryptocurrencies and Cryptocurrency Exchange Traded Funds (ETFs), offering a broader range of participation opportunities in the virtual asset market.

5. December 22, Hong Kong: Ready to Accept Applications for Spot Cryptocurrency ETFs. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority announced that the two institutions had reviewed existing policies for intermediaries wishing to engage in virtual asset-related activities. In addition to existing cryptocurrency futures ETFs, the SFC stated that it is “prepared to accept authorization applications for other funds involved in virtual assets, including Virtual Asset Spot Exchange Traded Funds (VA Spot ETFs).” In another notice released today, the SFC outlined the requirements for funds “directly investing in the same spot VA tokens that the Hong Kong public can trade on a SFC-licensed virtual asset trading platform (VATP).”

6. On December 26, the Hong Kong Monetary Authority (HKMA) initiated a public consultation on the legislative proposal for implementing a regulatory regime for stablecoin issuers and announced the introduction of a “sandbox” arrangement. The Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region and the Hong Kong Monetary Authority jointly released a public consultation document to gather feedback on the legislative proposal regarding the regulation of stablecoin issuers. The proposal involves introducing new legislation to implement a licensing regime, requiring all eligible fiat stablecoin issuers to obtain a license issued by the Commissioner of Financial Services. It specifies that only designated licensed entities can provide services for purchasing fiat stablecoins, and only fiat stablecoins issued by licensed issuers can be sold to retail investors. The proposal also includes restrictions on promotions, among other measures. Additionally, a “sandbox” arrangement will be introduced to convey regulatory expectations and provide compliance guidance to stablecoin issuers interested in and already planning to issue fiat stablecoins in Hong Kong. The aim is to collect their opinions on the proposed regulatory requirements, facilitate the implementation of subsequent regulatory systems, and ensure that the regulations align with regulatory objectives.

Part 5: Quoting market forecasts and looking forward to 2024.

Those of us who can stand at the end of 2023, whether it is macroeconomics or market policies, seem to be able to breathe a sigh of relief. Those who can stand now believe that a new round of bull market in the crypto market is just around the corner, and 2024 will usher in a number of major benefits: the SEC will approve a Bitcoin ETF in January, Bitcoin will usher in another halving in April, and Ethereum will begin a major upgrade. The Federal Reserve is expected to start cutting interest rates in the second half of the year. What level will the price of Bitcoin reach? Will it reach ATH? The relevant predictions are as follows:

1. Analysis firm CryptoQuant: Prediction that Bitcoin could reach $160,000 in 2024

2. Bitwise releases 10 predictions for the crypto market in 2024, and forecasts that Bitcoin price will exceed $80,000

3. Former Goldman Sachs executive and founder of macro research institution Real Vision: Bitcoin has a 60% chance of reaching US$100,000 to US$200,000 in 2024.

4. Blockstream CEO Adam Back: Bitcoin could hit $100,000 before next halving.

5. Standard Chartered reiterates prediction that Bitcoin will reach $100,000 by the end of 2024

Words at the end

Examining the macro trends of the crypto market in 2023, we witnessed a strong desire for rate hikes, a Bitcoin spot ETF, as well as a longing for compliance and institutional participation. Now, we are beginning to sense the potential bullish momentum that 2024 might bring. However, amid this fervor, the market seems to have overlooked the iterations and innovations in crypto technology. The involvement of major institutions undoubtedly injects capital and trust into the market, but we should not forget that the charm and value of the crypto market stem from the innovative spirit that breaks centralized constraints and empowers individuals. As we celebrate the achievements of the market, let us also remain steadfast in our original intentions and engage in reflection.

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