Cryptocurrency Market 2023 Growth Analysis: What Are the Investment Prospects for 2024

2023 has been a pleasant surprise for cryptocurrency asset holders. Investors who dared to position themselves deep in the 2022 bear market are now enjoying substantial returns. But the question facing everyone is: can this rally continue into 2024?

Let’s start with the performance over the past 12 months. According to CoinDesk’s Crypto Market Index (CMI) data, the entire market grew by 123% in 2023, with the index closing at 1,781.12 points. Because of their largest market cap share, Bitcoin and Ethereum contributed 62% and 20% respectively, with the remaining tokens scattered across the remaining 18%.

The Ecosystem of Market Participants Determines Price Trends

To understand why 2023 saw such a surge, it’s essential to know which roles make up the crypto market. In simple terms, there are nine main types of participants:

Blockchain project teams are the core of the supply side, with over 8,800 crypto projects worldwide. Venture capital firms deploy early-stage projects through ICOs and other methods. Whales, though few in number, hold large positions, and their buying and selling behaviors can significantly influence prices. Retail investors are the largest group of market participants, with long-term holders often achieving the best returns. Institutional investors, while not yet mainstream, are already waiting in line to enter.

On the trading front, centralized exchanges (CEX) provide 24/7 trading markets, while decentralized exchanges (DEX) facilitate peer-to-peer trading via smart contracts. Traditional brokerages are also expanding their crypto product lines. Lastly, regulatory agencies in various countries have policies that directly impact the market’s long-term outlook.

The interactions among these nine types of participants determine the supply and demand relationship, thereby influencing prices.

Five Major Factors Driving the 2023 Rally

1. Bitcoin Halving Expectations Heat Up

Bitcoin’s code incorporates a deflationary mechanism: every 210,000 blocks mined (about four years), the mining reward is halved. The next halving, scheduled for April 2024, is approaching, and this expectation has already created a strong psychological effect in the market.

Historical data is very convincing. Six months after the first halving, Bitcoin’s price increased by 950%; after 12 months, it rose by 8,342%. Following the second halving, prices increased by 38% in six months and 286% in 12 months. After the third halving (May 2020), there was an 83% increase in six months and a 562% increase in 12 months.

This pattern reflects a simple economic principle: reduced supply + stable or increasing demand = rising prices. Market participants are positioning themselves in advance based on this historical law. Since Bitcoin, as the largest market cap crypto asset, influences the entire ecosystem, this expectation has also driven other tokens higher.

2. Spot Bitcoin ETF Approval Expected

For years, a major bottleneck in the crypto market has been the lack of “institutional-grade access.” Traditional financial institutions have concerns about directly holding crypto assets, and regulatory environments are unclear.

In 2023, this situation began to change. Several top global asset management firms submitted applications to the U.S. Securities and Exchange Commission (SEC) for spot Bitcoin ETFs. Unlike existing futures ETFs, spot ETFs require funds to directly purchase and hold real Bitcoin, then issue fund shares to investors.

The difference may seem subtle but is crucial. Futures traders are merely betting on Bitcoin’s price without owning the actual asset. But if a spot ETF is approved, global asset giants (such as Blackstone, managing assets worth up to $9.42 trillion) will need to buy real Bitcoin to match the fund’s holdings. This means a large influx of new buying power into the market. Driven by this expectation, the market continued to rise in 2023.

3. AI Boom Sparks Crypto Sector

From ChatGPT’s explosive popularity to Nvidia’s stock soaring, 2023 is the year of AI. But this wave isn’t limited to traditional tech stocks.

Blockchain-based AI projects have also emerged. These projects are not just “packaging AI on blockchain,” but genuinely building decentralized AI services using smart contracts. Their tokens serve as usage rights and, to some extent, represent ownership of the project’s value—similar to equity in tech companies.

Investor enthusiasm for AI applications has directly increased demand for AI crypto projects, further fueling the overall market rally.

4. Market Cap Expands in Tandem

A common misconception is that “rising prices mean oversupply.” In reality, in trading markets, supply and demand are always balanced—each trade involves an equal number of buyers and sellers. What truly drives prices higher is buyers’ willingness to pay increasingly higher prices.

In 2023, the total market cap of the crypto market grew by 99.2%, meaning approximately $750 billion in new capital entered. Trading volume data confirms this: the six-month moving average of daily trading volume reached $140 trillion, far exceeding the average of $79 trillion.

Behind the rising volume and prices is a fundamental shift in market sentiment—investors generally believe that “crypto winter is over,” even experiencing anxiety about “missing the next bull run.” This psychological state has driven continuous buying.

5. Increased Open Interest in Futures

Open interest in Bitcoin and Ethereum futures provides insight into market trends. Open interest indicates the number of contracts that have not yet been closed. When open interest increases, it suggests new long or short positions are being added; when prices rise along with increasing open interest, it indicates new participants are entering or existing ones are adding to their positions.

Since August 2023, Bitcoin futures open interest has surged from relatively low levels to 17,321 contracts, and Ethereum futures have risen from lows to 6,114 contracts. The synchronized rise in prices and open interest clearly indicates new capital and participants are flowing into the crypto market.

Three Possible Scenarios for 2024

Whether the crypto market can sustain the 2023 rally depends on macroeconomic developments. The policy paths of the Federal Reserve and the European Central Bank are especially critical.

Scenario 1: Soft Landing

If inflation continues to decline and the economy maintains steady growth, central banks may pause rate hikes or even start cutting rates. Loose monetary policy will flow into high-growth assets—especially tech stocks. But whether the crypto market can rise in tandem under this environment remains uncertain, as high-growth tech stocks may become more attractive.

Scenario 2: Re-raising Rates

If inflation rebounds or the economy overheats, central banks may be forced to continue rate hikes. This would suppress the stock market but could push bond yields higher. In this dilemma, some investors might turn to Bitcoin—its fixed supply could hedge inflation in theory, similar to gold. Other tokens may be under pressure due to high interest rates (especially projects with unlimited supply).

Scenario 3: Stagflation Trap

A worst-case scenario is stagflation—economic stagnation combined with inflation. Central banks face a dilemma whether to raise or cut rates. Rate hikes could deepen recession risks, while rate cuts could fuel inflation. In this chaos, assets with fixed supplies like Bitcoin may become more attractive, but the outlook for risk assets overall remains bleak.

Is Investing in Crypto Worth It in 2024?

Data speaks volumes. In 2023, Bitcoin rose by 79.85%, outperforming the S&P 500 (which increased 6.3 times) and Nasdaq 100 (which increased 2.5 times). Ethereum gained 40.45%, also surpassing these indices by 3.2 and 1.3 times respectively.

Smaller market cap projects saw triple-digit gains.

The answer is: Yes, it’s worth it. But only if you have a reasonable investment strategy.

A recommended approach is diversification: allocate part of your assets to blue-chip crypto assets like Bitcoin and Ethereum for long-term holding (HODLing). Another part can go into emerging projects with solid fundamentals but smaller market caps—industry insiders call these “cryptogems”—which have the potential for 10x, 50x, or even 100x growth.

If you can tolerate volatility, long-term holding will always outperform frequent trading. This principle applies both in crypto markets and traditional stock markets. If you seek short-term gains, you can allocate a small portion of capital for trading, but this requires professional risk management—most retail investors are not proficient in this.

Finally, choose a secure and reliable trading platform to ensure your assets’ safety and a smooth trading experience. Platform risk often exceeds market risk, so prioritize security and usability.