Cryptocurrency 2023 Review: Will It Rise Again in 2024? A Complete Analysis of Market Key Factors

Where Did Last Year’s Crazy Rally Come From?

2023 was a pivotal year for the cryptocurrency market. Investors who climbed out of the relentless downturn in 2022 finally saw the light. Those who held their positions through the darkest times are now enjoying substantial returns.

According to CoinDesk Market Index (CMI) data, the entire cryptocurrency market achieved an astonishing 123% increase in 2023, with the index closing at 1781.12. What exactly happened behind the scenes? We need to understand the market’s operating logic to predict the trends for 2024.

Who Is Driving the Cryptocurrency Market?

To understand why prices rise and fall, we must first recognize the participants in this market. In simple terms, there are nine key roles:

Supply Side: Project teams build various applications using blockchain technology. Currently, over 8,800 different crypto projects are operational worldwide.

Funding Side: Includes venture capital firms, high-net-worth individuals (commonly called “whales”), retail investors, and institutional funds. Each has different goals—some pursue long-term value, others short-term speculation.

Trading Side: Comprises centralized exchanges (offering 24/7 trading and asset custody) and decentralized exchanges (direct peer-to-peer trading with lower fees). Traditional brokers have also entered the fray, offering spot and derivatives trading.

Regulatory Side: Securities regulators, central banks, and fiscal authorities in various countries are setting the rules of the game, directly influencing the future shape of the market.

The Five Major Drivers of the 2023 Cryptocurrency Rally

1. Bitcoin Halving Expectations (April 2024)

Bitcoin’s code dictates that approximately every four years, a “halving event” occurs—miners’ rewards are cut by 50%. This significantly reduces the new supply of Bitcoin.

History shows how important this event is:

• After the first halving, Bitcoin surged 950% within 6 months and 8,342% after 12 months
• After the second halving, it rose 38% in 6 months and 286% in 12 months
• After the third halving (May 2020), it increased 83% in 6 months and 562% after 12 months

Throughout most of 2023, investors were positioning themselves in advance, expecting the halving to push prices higher again. This is known as “scarcity premium”—when supply decreases and demand remains, prices naturally rise. More importantly, Bitcoin often leads the entire market, creating a “halo effect.”

2. Approval of Spot Bitcoin ETF Is Imminent

This might sound like a technical detail, but it’s actually a watershed moment for the crypto market.

Currently, Bitcoin futures ETFs are available, but in 2023, a new development emerged—several top global asset management firms applied to the U.S. Securities and Exchange Commission for spot Bitcoin ETFs. Giants like Blackstone, managing assets worth $9.42 trillion, are in line to apply.

What’s the difference? Futures ETFs only require investors to bet on the price, without actually purchasing Bitcoin. Spot ETFs, on the other hand, require fund companies to buy actual Bitcoin to back the ETF.

What does this mean? Once approved, hundreds of billions of dollars in institutional capital could flow directly into the Bitcoin market. Coupled with the supply pressure from the halving, this dual effect could push prices higher.

3. The Ripple Effect of the AI Boom

The explosive popularity of ChatGPT in 2023 boosted the entire tech sector. AI-related stocks (especially chip manufacturers) hit new highs. Projects in the crypto space related to AI also benefited.

These are not traditional payment tokens but projects that build AI tools using blockchain technology—their tokens represent actual usage rights to services, somewhat like digital shares of a company. As the tech boom soared, these projects attracted substantial funding.

4. Record Expansion of Total Market Cap

This is the most straightforward indicator: the total market cap of cryptocurrencies grew by 99.2% in 2023, with nearly $75 billion in new capital flowing into the market.

This isn’t out of thin air—it’s driven by real purchasing power. Trading volume data is even more intuitive: the average daily trading volume over six months reached $140 trillion, far above the previous average of $79 trillion.

What does this indicate? New participants are entering the market, or existing investors are increasing their positions. Moreover, market sentiment shifted from fear to greed, with a slight “FOMO” (fear of missing out) driven by the feeling of being left behind.

5. Futures Open Interest Reaches New Highs

Bitcoin futures open interest has accelerated since August, now reaching 17,321 contracts; Ethereum futures have also surged since August, with 6,114 open contracts.

What does this number signify? When prices rise and open interest also increases, it indicates new capital is flowing in or old players are adding to their positions. Conversely, if prices fall but open interest continues to grow, it suggests some are bottom-fishing. The current signals are clear: the market is bullish, and large players are increasing their holdings.

Institutional investors pay close attention to this indicator—it reflects the true expectations of market participants.

Three Possibilities for 2024

The future of the crypto market depends on a key question: how will the global macroeconomy develop?

Scenario A: Soft Landing

Suppose inflation continues to decline, and the economy remains stable or grows slightly. The Federal Reserve and European Central Bank might pause rate hikes or even start cutting rates.

Consequences: Liquidity loosens, investors shift toward riskier, higher-return assets. The stock market rebounds, especially tech stocks. But the appeal of cryptocurrencies might actually decrease—since high-growth stocks become relatively cheaper.

This scenario’s impact on crypto is uncertain.

Scenario B: Rebound

Suppose inflation rebounds, and economic activity accelerates. Central banks have no choice but to continue raising rates.

Consequences: Stock markets could see significant corrections, and bonds may regain attractiveness. But another logic exists—Bitcoin and certain limited-supply coins might be viewed as “digital gold” to hedge against inflation.

In this scenario, cryptocurrencies could become a new safe-haven asset, though risks remain high.

Scenario C: Stagflation Monster Returns

Economic growth slows down, but inflation stubbornly persists. Central banks face a dilemma: raising rates could trigger recession, cutting rates could worsen inflation.

Consequences: Rate hikes are deadly for tech stocks, including most crypto projects. But persistent inflation might push some investors to seek hedging tools, and Bitcoin could gain favor.

The outcome depends on the final decision of central banks—it’s an unpredictable black box.

Is Cryptocurrency Really Worth Investing In?

Just look at the data from 2023:

• Bitcoin: 79.85% return, 6.3 times higher than the S&P 500, 2.5 times higher than the Nasdaq 100
• Ethereum: 40.45% return, 3.2 times higher than the S&P 500, 1.3 times higher than the Nasdaq 100

Smaller-cap projects even delivered triple-digit returns.

So, the answer is yes—it’s worth investing. But only if you have a clear investment methodology.

How to Invest in Cryptocurrency?

Long-term Holding vs Short-term Trading

Data and history point to the same conclusion: holding large-cap coins like Bitcoin and Ethereum long-term yields the highest profits.

This aligns perfectly with stock investing logic—time is your friend. Volatility will smooth out, and trends will establish.

But if you want to accelerate returns, short-term trading is another route. The cost is risk multiplied. What’s truly needed is disciplined risk management—strictly controlling individual losses and adjusting positions proportionally.

Asset Allocation Recommendations

Don’t put all your eggs in one basket:

1. Core Holdings (70%): Large-cap coins like Bitcoin and Ethereum, with relatively manageable risk
2. Aggressive Holdings (30%): Smaller projects with potential—these so-called “hidden gems” could deliver 10x, 50x, or even 100x returns

The key is to find projects that have:

• Solid technical fundamentals
• Genuine use cases
• Strong development teams
• Backed by reputable investors

Conclusion: Keywords for the 2024 Crypto Market

To summarize the core drivers of the 2023 crypto market and the lessons for 2024:

1. Supply Constraints: Halving events will further reduce new supply
2. Demand Expansion: Institutional capital (like spot ETFs) may enter on a large scale
3. Technological Enablement: The AI boom continues to attract risk-tolerant investors
4. Macro Environment: Ultimately depends on decisions by global central banks

The performance of cryptocurrencies in 2023 has already proven their value as an alternative asset class. Whether this momentum continues into 2024 largely depends on whether the global economy keeps “greenlighting” high-risk assets.

Smart investors should not chase blindly but instead build an investment framework suited to their risk tolerance. Like any other market, opportunities and traps are often just one decision apart.