As the fervor around the approval and launch of 11 spot bitcoin ETFs subsides and the slew of lawsuits the SEC is involved in continues to drag on, analysts and investors have had plenty to digest from the start of 2024. In addition to market headlines, the impending US presidential election is also influencing market sentiment and appetite for cryptoassets. With former President (and current candidate) Donald Trump weighing in on his opposition to central bank digital currencies (CBDC) and other politicians also denouncing the development of such instruments, the topic of crypto is expected to play a role in upcoming campaigns. On the other hand, Congressional leaders continue to highlight the role crypto can play in financing terrorism and criminal activity, even as these totals remain dwarfed by the funding provided by the US dollar.
As important as these headlines are to the long-term sustainability of Bitcoin and the crypto-asset market as a whole, there are many other headlines and trends that investors should watch. An important trend to note is that, even with political uncertainty remaining the dominant policy in the United States, institutional buyers have acquired billions of bitcoins so far in 2024. To this end, politicians and sound bites may swell and ebb over time, but there are several larger issues that drive political and business conversations in tangible ways, rather than just fueling debates on social media.
Let’s take a look at a few of them.
FTX plans to make investors whole
In what many have called an unexpected twist in the continuing saga surrounding the collapse and bankruptcy of FTX, a recent plan was announced indicating that the entity plans to make investors as a whole. This is very good news and worth celebrating for several reasons. First, investors who, through no fault of their own, suffered losses due to Bankman-Fried’s criminal activities should be released. Second, it also indicates that the bankruptcy process and associated laws are capable of handling a complex, large, and multinational crypto repository like FTX. Ultimately, this should serve as another example to crypto investors that, despite the differences between cryptoassets and fiat assets, investors should treat crypto like the financial instruments that they are.
It is important to note that these reimbursements will be made at the market value of the cryptocurrencies at the time of FTX’s bankruptcy filing. As a reminder, the price of bitcoin at that time was around $20,000 per token, significantly below current market levels. Regardless of this disappointment for some investors, the fact that FTX will reimburse investors is news worth celebrating.
Crypto mining to be investigated
It should come as no surprise to experienced crypto investors and market participants that energy consumption and the associated environmental impact of crypto are once again under scrutiny. This time, the scrutiny went beyond sound bites and took the form of a government investigation. More precisely, the U.S. Energy Information Administration will begin closely tracking electricity consumed by cryptocurrency mining companies operating in the United States. To do this, the EIA will launch an investigation in February 2024 and focus on a select number of Bitcoin miners, who will have to respond with details on energy consumption, among other operational statistics.
This request and approval was granted as part of an emergency data collection requested and authorized by the Office of Management and Budget. This formal request and additional investigation comes after a tumultuous year for crypto miners, both from a profitability and regulatory perspective. Even as the second-largest cryptocurrency on the market, Ether, continues to reduce its energy consumption through a shift to a proof-of-stake consensus model, policymakers continue to focus on obtaining more information. This interest continues to be fueled by reports such as the one recently released by the Rocky Mountain Institute estimating that bitcoin is being consumed globally. 127 terawatt hours (TWh)more than was used by the entire country of Norway.
Tokenization is growing
The movement of TradFi institutions into the blockchain and cryptoasset space continues to accelerate as 2024 kicks off. Aside from the Bitcoin ETF headlines that have rightly dominated most of these conversations, the trend toward developing and investing in more tokenized products continues to grow. Specifically, the movement toward tokenization of real-world assets – not just financial instruments – appears set to accelerate in the future.
More specifically, the Boston Consulting Group estimates that the market for tokenized liquid assets will be 16 trillion dollars, but that’s only part of the story. A survey conducted by Celent and BNY Mellon found that 91% of institutional investors want to invest money in tokenized assets, and 97% of them agree that tokenization will fundamentally change the world of wealth management. The trend is clear; Tokenomics is coming to traditional financial services, and investors of all sizes would be wise to prepare for this paradigm shift.
Crypto and tokenized assets continue to emerge in financial markets, and investors should take note.