Original Authors: Matthew Sigel, Patrick Bush

Original Compilation: Luffy, Foresight News

1. The U.S. Economic Recession is Coming, and Spot Bitcoin ETF Makes Its Debut for the First Time

The U.S. economy is expected to finally enter a recession in the first half of 2024. Economic growth has been slowing for several months, and inflation has cooled, making the economy more vulnerable to shocks. After a continuous 19-month decline, leading indicators in the U.S. have now entered a recession phase, approaching historic lows. Stock prices are struggling, commodities are weak, employment is soft, and corporate bankruptcy filings have returned to early levels of the COVID-19 pandemic. The yield curve has inverted and recently steepened in the past few weeks—these are all signs of the late stage of the economic cycle. The media frequently mentions a "soft landing," which usually occurs before the formal announcement of an economic recession. Bitcoin has only experienced one official U.S. economic recession, from January to April 2020, during which the price of Bitcoin plummeted by 60% from its peak, then rebounded significantly after the Federal Reserve provided ample liquidity. Gold also tends to decline in the early stages of an economic recession: within two weeks in March 2020, it dropped by 12%. However, the recent breakthrough of gold confirms the inevitable strong demand for hard currency by U.S. authorities, a characteristic shared with Bitcoin. Due to concerns about debt levels at the national level being more worrisome than at the corporate or household level, we expect over $24 billion to flow into the newly approved U.S. spot Bitcoin ETF in the first quarter of 2024, driving up the price of Bitcoin. Despite the possibility of significant volatility, it is unlikely that the price of Bitcoin will fall below $30,000 in the first quarter of 2024.

We estimated the inflow of the Bitcoin ETF by referencing the SPDR Gold Shares (GLD) ETF. The GLD ETF was launched on November 18, 2004, and attracted approximately $1 billion in inflows in its initial days, reaching around $2.26 billion by the end of the first quarter of 2005. At that time, the total supply of physical gold was approximately 152,000 tons, with a value of around $15.6 million per ton, resulting in a total market value of $2.36 trillion. In the first few days after the launch of GLD, the inflow of U.S. dollars into GLD accounted for approximately 0.04% of the total market value of the gold market. About a quarter later, on March 31, 2005, the inflow into GLD reached $2.26 billion, considering supply growth and changes in gold prices, GLD accounted for approximately 0.1% of the global gold supply. If we apply this data to the Bitcoin spot market, we estimate that the initial inflow of the Bitcoin spot ETF will be around $310 million, with an inflow of approximately $750 million within a quarter.

However, that was a time of higher interest rates and much lower money supply. In 2023, we are no longer in the "Dead Ball" era of finance, but are entering the HGH/Steroid era. According to data from the Federal Reserve Bank of New York, the M2 money supply in November 2004 was $6.4 trillion, while in October 2023, it was $20.7 trillion. Therefore, we believe that it is reasonable to expand the inflow of funds into the Bitcoin spot ETF by 3.23 times. Thus, the initial inflow of funds into the spot Bitcoin ETF will be around $1 billion in the first few days, and the inflow of funds within a quarter will reach $2.4 billion. Extending our logic further, the more mature state of the Bitcoin ETF may account for approximately 1.7% of the total supply of the Bitcoin spot market (about $125 billion), which is roughly the proportion of the total supply of gold held by the gold ETF. We assume that Bitcoin is taking away significant market share from gold, and we expect that voters in 2024 will have a better understanding of the drawbacks of debt-driven money printing. Therefore, we apply a multiple of 3.23 times the M2 to estimate the mid-term inflow of the Bitcoin ETF in the first two years of trading to be $40.4 billion.

Finally, we note that Coinbase charges retail traders approximately 2.5% in fees. We believe that the trading spread of the spot Bitcoin ETF may be around 10 basis points, with zero commission for many brokerage firms. This means that the spot ETF can provide users with significant cost advantages.

2. The Calm Fourth Bitcoin Halving

The fourth Bitcoin halving will take place in April 2024 without any major forks. With the new coin issuance halved, unprofitable miners will exit, giving market share to those miners with low-cost electricity. Nevertheless, due to the significantly improved balance sheets of listed miners, the public market will not be greatly affected, as these miners currently control a record percentage of global hash rate (about 25%). After a brief consolidation (lasting from a few days to a few weeks) following the halving, the additional selling pressure from unprofitable miners will be absorbed by the market, and Bitcoin will rise to over $48,000, which is the neckline position of the head and shoulders pattern completed in April 2022. Overall, the performance of Bitcoin miners will be lower than before the halving, but low-cost miners CLSK and RIOT will stand out. After the halving, we expect that at least one publicly listed miner will achieve a tenfold growth by the end of 2024.

3. Bitcoin to Hit Historic High in the Fourth Quarter

In the second half of 2024, Bitcoin will break through the wall of worries. By 2024, the proportion of the global population voting in legislative and presidential elections will reach a historic high of over 45%. Such a high level of important elections indicates high volatility and significant changes in prospects. More specifically, increasing evidence suggests that voters and courts are rejecting the anti-growth agenda of green lobbying groups. Therefore, after Donald Trump wins 290 electoral votes and is re-elected as president, people will be optimistic about the abolition of the SEC's hostile regulatory approach. We believe that the price of Bitcoin will reach a historic high on November 9, three years after the last historic high. (Recall that Bitcoin's breakthrough in November 2020 also occurred exactly three years after the peak in November 2017). If Bitcoin reaches $100,000 by December, we predict that Satoshi Nakamoto will be named "Person of the Year" by Time magazine.

4. Ethereum Will Not Surpass Bitcoin

Ethereum will not be able to surpass Bitcoin in 2024, but it will outperform all major tech stocks. Bitcoin's more obvious regulatory status and energy intensity will attract interest from entities in Latin America, the Middle East, and Asia. Argentina will join the ranks of El Salvador, the United Arab Emirates, Oman, and Bhutan as the fifth country to sponsor Bitcoin mining, as the Argentine state-owned energy giant YPF may express interest in utilizing surplus methane and natural gas to mine digital assets. As in past cycles, Bitcoin will lead the market, and value will flow into smaller-cap tokens after the halving. Ethereum's performance will begin to exceed that of Bitcoin and may overall perform better than Bitcoin in 2024, but it will not surpass it. Although Ethereum will perform strongly in 2024, its market share will still be taken over by other smart contract platforms with more stable scalability roadmaps (such as Solana).

5. After EIP-4844, L2 Will Dominate the Ethereum Ecosystem

Ethereum will implement EIP-4844 (proto-danksharding), which will reduce transaction fees and improve the scalability of L2 solutions such as Polygon, Arbitrum, and Optimism. Within a year of the EIP-4844 upgrade, Ethereum L2 will produce 2-3 leaders based on value and usage, as liquidity fragmentation will accelerate the dominance of top L2 solutions. This has already occurred in DEX, where Uniswap, Pancake Swap, and Curve accounted for 78% of DEX trading volume in 2023. Similar market consolidation is expected in the L2 space, with Arbitrum and Optimism likely to emerge as major competitors.

L2 will achieve higher monthly DEX trading volume and TVL than Ethereum for the first time. This is because L2 transaction fees are lower, resulting in smaller bid/ask spreads. The smaller the bid/ask spread, the more arbitrage opportunities, leading to higher trading volume. Additionally, faster block times (as low as 0.25 seconds on chains like Arbitrum) can achieve higher transaction throughput and provide more arbitrage opportunities between CEX and DEX. Therefore, due to the trading opportunities provided by DEX and L2, they are likely to attract more trading volume. Overall, by the fourth quarter of 2024, the DEX trading volume on these chains could reach double that of Ethereum (currently at 0.8 times), and the number of transactions could increase tenfold.

6. NFT Activity Will Rebound to Historic Highs

With speculators returning to cryptocurrencies and flocking to top NFT collections on Ethereum, improved crypto games, and new products in the Bitcoin ecosystem, monthly NFT trading volume will reach historic highs. Although the ratio of Ethereum to Bitcoin in major NFT sales has been close to 50:1 since its inception, the Ordinals protocol for Bitcoin and emerging L2 solutions on Bitcoin will drive sustained growth in network fees. The primary NFT issuance ratio of Ethereum to Bitcoin will approach 3:1 in 2024. Stacks (STX), a Bitcoin-based smart contract platform, will become a top 30 token by market capitalization (currently ranked 54th).

7. Binance Will Lose Its Position as the Top Spot Trading Exchange

After reaching a settlement of over $40 billion with U.S. regulatory agencies, Binance will lose its position as the top centralized exchange by trading volume. OKX, Bybit, Coinbase, and Bitget will become well-funded competitors, potentially taking the top spot. The inclusion of cryptocurrency exchange quotes in regulated indices (such as those managed by VanEck subsidiary MarketVectors) will be a key variable in determining whether centralized exchanges are eligible to provide liquidity for ETF authorized participants and sponsors. With Binance now under a three-year DOJ supervision, Coinbase will capture a share of the international futures market, with daily trading volumes exceeding $1 billion, higher than the approximately $200 million in November 2023.

8. USDC Market Share Rebounds, Stablecoin Market Cap Reaches Historic Highs

The total value of stablecoins will reach over $200 billion (currently at $128 billion), reaching historic highs. With the implementation of MiCA, regulated stablecoins in Europe will lead to a surge in interest-bearing stablecoins and a sustained rebound in trading volume. Controversially, USDC will replace USDT, as institutions prefer USDC, a trend already evident on new L2 chains. Following the U.S. Department of Justice's (DOJ) enforcement actions against Justin Sun and his companies, Tether's market share losses may become a reality.

9. DEX Spot Market Share Will Reach Historic Highs

With high-throughput blockchains like Solana improving users' on-chain trading experience, decentralized exchanges (DEX) will reach historic highs in spot trading market share. Simultaneously, wallets that combine "account abstraction" will enable key features for automatic payments, driving more user on-chain activity and self-management of assets. As the market dominance of Bitcoin and Ethereum may decline after the Bitcoin halving, long-tail assets may grow more prominently, and DEXs that actively list new tokens will have an advantage.

10. Remittance and Smart Contract Platforms Will Drive New Bitcoin Revenue Opportunities

Remittances will become a killer app for blockchain, as the ease of withdrawal and spending of stablecoins makes it more appealing to emerging markets. With the use of Bitcoin and the Lightning Network (LN) in some remittance channels, "Bitcoin staking" becomes possible. By 2024, this will become a mainstream narrative. As Bitcoin blockchain transaction costs rise, Bitcoin maximalists will begin to spread the message: you can stake on the Bitcoin network and earn rewards. Cases of staking to Lightning nodes have already occurred, but with low returns and risks, as your Bitcoin is used for payment settlements on the Lightning Network. With the development of protocols abstracting the management details of Lightning nodes like Amboss, and the proliferation of joint self-custody solutions like Fedi, users will be able to participate in the remittance market through cold wallets and earn some returns. Additionally, as a security provider for proof-of-stake blockchains, Bitcoin holders will find new business opportunities in 2024. Projects like Babylon based on Cosmos will enable Bitcoin holders to earn rewards through non-custodial staking.

11. Breakthrough Blockchain Games Appear

At least one blockchain game will have over 1 million daily active users, demonstrating the long-awaited potential. Among the candidates to achieve this milestone, IMX is most likely to become a top 25 token by market capitalization (currently ranked 42nd) in 2024, due to the release of Illuvium, Guild of Guardians, and other high-budget games, along with carefully designed tokens. According to a recent report from DappRadar, the WAX blockchain currently leads in the gaming sector, with approximately 406,000 independent active wallets daily, with around 100,000 playing Alien Worlds. Alien Worlds is a community-built metaverse that simulates economic competition and cooperation among players. By incentivizing players to compete for Trilium (TLM), users can control autonomous organizations (Planet DAO) and gain access to more essential gameplay. In the universe of Alien Worlds, players can obtain NFTs (digital game items) to mine TLM, engage in battles, and complete in-game tasks. According to their strategy, players can purchase and assemble NFTs that best suit their gameplay. Additionally, players can participate in management by electing six Planet DAO delegates to influence the direction of the game. Learn more. Alien Worlds is a metaverse that includes various simple games and rewards players with Trillium tokens. However, due to the simplicity of the games, many of these players may be gold-farming bots. On the other hand, Immutable has built multiple AAA games on its platform, which implement token models that cannot rely on gold-farming bots and are genuinely engaging games. These games have been in development for years and have received over $100 million in funding, set to be released in 2024. They can attract players like traditional AAA games such as "Starfield," which attracted 10 million players within two weeks of its release earlier this year.

In addition, Immutable has been committed to solving many technical challenges that have hindered the success of Web3 games, such as wallet management. Immutable's "passport" allows users to log in to games and manage blockchain-based game items through a familiar single sign-on process, while abstracting blockchain interactions. Immutable provides simplicity for gamers and, in combination with major distribution partners such as Epic Games Store and GameStop, could ultimately make blockchain-based games mainstream.

12. DeFi TVL Returns, Solana to Outperform Ethereum

Solana is set to become a top three blockchain in terms of market capitalization, total value locked (TVL), and active users. With this upward momentum, Solana is expected to join the spot ETF battle as a result of numerous asset management companies filing. With the continued growth of Solana's market share, we believe it is possible for the Solana-based price oracle Pyth to surpass Chainlink in Total Value Secured (TVS). For reference, Chainlink's current TVS is approximately $15 billion, while Pyth's TVS is less than $2 billion, primarily driven by blue-chip DeFi protocols on the Ethereum mainnet. As TVL continues to grow on high-throughput chains like Solana, and Chainlink continues to struggle with institutional adoption of its LINK token, we expect Pyth to gain meaningful market share with several true innovations (including its "push" architecture and confidence interval system) supporting it.

13. DePin Network Gains Meaningful Adoption

Multiple decentralized physical infrastructure (DePin) networks will gain meaningful adoption, attracting public attention.

Hivemapper is a decentralized mapping protocol aiming to compete with Google Streetview, mapping over 10 million KM, exceeding 15% of global road capacity. Hivemapper uses its native token $HONEY to incentivize thousands of drivers globally to install dashcams in their cars and contribute to its growing database. This global network composed of permissionless contributors may bring meaningful progress and cost advantages to Hivemapper compared to existing Google. By 2023, Google Maps' revenue is expected to exceed $11 billion, presenting a meaningful opportunity for Hivemapper.

Helium is a decentralized wireless hotspot network, and the number of paid users for its nationwide 5G plan will increase from the current 5,000 to 100,000. Anyone can set up a hotspot, and hotspot operators receive payments in Helium's native token. This robust incentive system provides Helium with several key advantages:

• It is capital-light (from Helium's perspective).
• It transforms hotspot providers into advocates and supporters (given their staking of tokens in the network).
• It enables Helium to respond to real-time data, improving the network by adjusting incentive measures (i.e., increasing rewards for poorly covered areas).

The wireless network infrastructure is a $200 billion, relatively mature market. As end-users lean towards low-cost solutions with differentiated brands ("user-owned"), we will see significant space for traditional providers to be disintermediated. Helium claims it can provide data at less than 50% of the cost of traditional networks. With the increasing mainstream adoption of cryptocurrencies, if this claim holds true, they may gain significant market share.

14. New Accounting Standards Drive Increased Corporate Cryptocurrency Holdings

Coinbase will become the first publicly listed company to disclose Layer 2 blockchain revenue in its quarterly reports, with Base's annualized revenue surpassing $100 million. Corporate adoption of the new FASB standards may promote additional disclosures, allowing companies to value cryptocurrencies at fair market value, which will drive companies to hold Bitcoin and other cryptocurrencies as inventory assets. As these accounting changes take effect in 2025 but can be adopted earlier, major non-crypto financial entities (banks, exchanges) may announce the creation of public blockchains similar to L2.

15. DeFi and KYC Regulation Alignment

KYC-supported walled garden applications (such as applications using Ethereum proof services or Uniswap Hooks) will gain significant traction, approaching or even surpassing non-KYC applications in user base and fees. Uniswap will lead this feature, driving institutional liquidity and trading volume for the protocol. The additional trading volume brought by KYC-gated hooks will significantly increase protocol fees, allowing new entrants to participate in DeFi without concerns about interacting with entities subject to OFAC sanctions. The increase in hooks will help Uniswap strengthen its moat and competitiveness, which should drive token appreciation, especially when DAOs eventually vote to open the Uniswap protocol fee switch to allow token appreciation. If so, we expect this fee not to exceed 10 basis points.

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