Could crypto continue to climb?| Fidelity (2024)

2024 started off with a bang for crypto. Despite recent volatility, bitcoin has made new all-time highs and many altcoins have been surging. In general, the current sentiment among crypto investors has been positive.

But are there any indications prices will continue going up? And what else is on the horizon? Here are 5 things to watch for.

1. Will prices keep climbing?

The big question right now is whether crypto prices can continue to rally. The huge increase in prices over the past 15 months has some investors wondering if the rally has gone too far, too fast. Others think there may be reasons investors can remain optimistic—specifically through the lens of bitcoin, currently the largest cryptocurrency by market cap. Historically, bitcoin’s performance has helped shape crypto price trends.

“Starting in the latter part of 2023, Fidelity Digital Assets℠ noted there were 3 factors that could contribute to a tight supply environment for bitcoin in early 2024: the increasing percentage of illiquid coins (over 70% haven't moved from a crypto wallet in more than a year according to coinmetrics.io, the highest percentage ever), the continuation of coins being withdrawn from exchanges, and finally, the 2024 Bitcoin halving.” says Fidelity Digital Assets℠ Research Director Chris Kuiper.

“These tight supply conditions have been met with an increase in demand, particularly from strong fund flows into bitcoin ETPs,” says Kuiper. “Fidelity Digital Assets thinks this could continue into the year, and although the past is not necessarily indicative of the future, on-chain metrics (data that can be seen by reading blockchain records) suggest the bull market is not showing signs of exhaustion yet.”

Constricting supply and increasing demand may make it more likely for the price of any asset to go up. Nevertheless, this is not a guarantee. Investors should remember that even bullish short-term forecasts include the possibility of significant drawdowns, and long-term investors should be prepared to ride out major red days.

2. How might the 2024 Bitcoin halving impact prices?

In the past, bitcoin’s price has made new all-time highs following each halving. This year, however, bitcoin made a new all-time high before the halving.

“Two things stand out to me as different this time,” says Kuiper. “On the positive side, we have a new source of demand going into the halving with the approval of the spot bitcoin ETPs. Another factor, though, is we have never seen the price of bitcoin rise this much before the halvings, which may indicate more people are ‘pricing it in.' Or conversely, others may see it as a sign of even more bullishness going into the halving.”

Halvings reduce the rate at which new bitcoin is created, which effectively reduces available supply. Crypto bulls believe this helps drive prices higher, assuming demand continues to grow as well. However, note that this thesis is only backed by data from 4 halvings (the 2024 halving is just the fifth in bitcoin’s history), and past performance is no guarantee of future results.

3. Will a spot ethereum ETP be approved?

Those following crypto cite the approval of the spot bitcoin ETP as a key driver of the recent crypto market surge. One of its functions is that it enables those who aren’t familiar with the nuances of buying spot crypto to gain portfolio exposure to bitcoin. This has helped usher a wave of new money into the market.

Several institutions have now filed for a spot ethereum ETP, which would operate much like the bitcoin ETPs, but with ethereum as the underlying asset.

As of late March, the SEC is scheduled to make a decision on spot ethereum ETPs by May 23.

4. How will the Dencun Upgrade affect Ethereum?

The Dencun (short for “Deneb-Cancun”) Upgrade—the latest of a series of updates kickstarted by the Ethereum Merge in 2022—aims to make the Ethereum network cheaper to use for itsLayer 2 protocols with the help of pieces of data called blobs.

“The big open question is, now that Layer 2 platforms will be using significantly less blockspace, will we see other transactions fill that gap such that Ethereum revenue stays relatively the same and remains net deflationary?” says Fidelity Digital Assets Analyst Max Wadington.

In other words, will the Ethereum network be able to make up the revenue it may lose by reducing transaction fees?

Two other things to watch for regarding the Dencun Upgrade: “How much will blobs actually reduce fees on Layer 2s?” says Wadington. “And will we see blobs used for other things besides Layer 2 transaction data, like ordinals and inscriptions?”

5. Which crypto market sectors should investors keep an eye on?

So far in 2024, 2 segments of the crypto market that have posted strong performances are artificial intelligence-related cryptocurrencies and meme coins (cryptocurrencies that were originally created as a joke).

Another segment that is worth watching is Layer 2 cryptocurrencies built on Ethereum. “Fidelity Digital Assets is most interested to see how far fees go down, and then subsequently what kind of transactions and potentially new applications get built as a result,” says Kuiper. Supporters hope the Dencun Upgrade’s lowered fees will kick off a wave of innovation and usage among Layer 2 blockchains.

Finally, don’t forget the coin that started it all. “We have also seen a "renaissance"—if you will—with Bitcoin, with many more things being built on top of and for Bitcoin,” says Kuiper.

As always, keep in mind that in general, bitcoin and other cryptocurrencies are highly volatile, and may be more susceptible to market manipulation than securities. Moreover, crypto holders do not benefit from the same regulatory protections applicable to registered securities, and the future regulatory environment for crypto is currently uncertain. Crypto is not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, meaning you should only buy crypto with an amount you're willing to lose.