Coinbase delves into next year’s outlook for the virtual currency market

Cryptocurrency winter is over

On the 14th, the institutional research department of Coinbase, a major US crypto asset (virtual currency) exchange, released a report titled “Virtual Currency Market Outlook in 2024.” David Duong, head of the report and author of the report, said the market has already “come out of winter and is now in a transition period” as the market capitalization of cryptocurrencies doubled in 2023.

He also argued that the movements over the past year have exceeded expectations and can be considered proof that virtual currencies have taken root in the financial industry. The challenge going forward is to leverage this momentum to foster a stronger and more innovative cryptocurrency ecosystem, he said.

In an 82-page report, Coinbase delves into the most important trends for the market in the coming year, from L2, gaming, and decentralized physical infrastructure evolution to de-dollarization, regulation, and tokenization.

Coinbase has picked the following four points as major themes for 2024.

• next cycle
• Resetting the macro framework
• connect to the real world
• The future of blockchain

next cycle

“Institutional investor flows will likely be concentrated in Bitcoin until at least the first half of 2024,” Duong said. One reason for this is the pent-up demand from traditional investors looking to enter the virtual currency market.

In 2023, “Bitcoin’s status as a safe alternative” will be strengthened due to bank failures in the United States and the spread of geopolitical conflicts, and major U.S. financial institutions will apply for Bitcoin spot ETFs. It gave implicit approval to coin investment.

Coinbase predicts that Bitcoin’s “unique narrative” will continue its trend of outperforming traditional assets in 2023 into 2024.

He also pointed out that the increased scarcity of Bitcoin due to the Bitcoin halving in April 2024 could be exacerbated by changes in U.S. fiscal policy and vulnerabilities in the commercial real estate sector.

In addition, we have highlighted the following points to note regarding the “next cycle” of virtual currencies.

• Migration to a new trading system:
  As market participants begin to focus on use cases, the virtual currency trading system may shift to Web3 apps.
• Equilibrium in L1:
  Demand for general-purpose alternative layer 1 is decreasing, and existing chains tend to specialize in specific fields and functions.
• Evolution of L2:
  Although L2 is proliferating, most of its activity takes place on Ethereum, “cannibalizing” the activity of alternative L1s.

Resetting the macro framework

Regarding de-dollarization, the report states that while the global monetary system has already begun to move away from the dominance of the US dollar, the role of the US dollar in global financial and trade transactions is so large that progress “may take many generations.” No,” he said.

On the other hand, he argues that in order for Bitcoin to fulfill its important role as an “attractive alternative currency” in an unstable environment, it is not necessary to eliminate the intermediary function of the dollar. Bitcoin, which has value as a “supranational asset” that is not owned or controlled by a single country, could help it achieve “status as part of the reserve assets of many countries” in a situation where it coexists with the dollar. He said that there is a sex.

In 2024, Coinbase sees “macro tailwinds” favorable for risk assets, including continued disinflation, weakening U.S. economic activity, and the Federal Reserve’s interest rate cuts.

He also pointed out that if a Bitcoin spot ETF were approved in the U.S., it would expand access to cryptocurrencies to a new group of investors and “could reshape the market in an unprecedented way.” Regulated ETFs could become the basis for new financial products (such as derivatives) that can be traded between institutional investors.

Throughout 2024, Coinbase predicts that institutional investor participation will increase as the foundation for cryptocurrency regulation is built and regulations become clearer.

Connect to the real world

Coinbase expects the tokenization of real assets to become a major part of the new crypto market cycle, as it is essential to “updating the financial system” and will be a key use case for traditional financial institutions. ing.

Tokenization involves automating workflows and eliminating unnecessary intermediaries in the asset issuance, trading, and record-keeping process. In the current high-yield environment, the capital efficiency of such tokenization through instant settlement of capital market products is becoming more important.

On the other hand, tokenization has many challenges, including regulatory consistency, the development of on-chain ID solutions, and the construction of infrastructure for large-scale operations, so full-scale implementation will take several years. Coinbase predicted that it would take months.

The future of blockchain

The report states that improving the user experience is essential in order to expand the use of virtual currencies from a limited number of initial users to the general public.

Managing virtual currency requires complicated procedures such as managing wallets and private keys, paying gas fees, etc., and it is not something that everyone can do, so unless these important user experience issues can be overcome. , the report points out that maturation of the industry will be difficult.

However, the report says it is confident that the foundations for a better user experience, such as account abstraction efforts, are being laid to close the “gap” between early and mainstream users. Concluded.

The post Coinbase delves into next year’s outlook for the virtual currency market appeared first on Our Bitcoin News.