As the fervor around the approval and launch of 11 spot bitcoin ETFs settles down, and the bevy of legal actions that the SEC is embroiled in continue to drag along, analysts and investors alike have had plenty to digest since 2024 got underway. In addition to the market moving headlines the looming U.S. Presidential election is also influencing market sentiment and appetite around cryptoassets. With former President (and current candidate) Donald Trump weighing in on his opposition to central bank digital currencies (CBDCs), and other politicians also decrying the development of such instruments, the topic of crypto looks set to play a role in the coming campaigns. On the other hand, Congressional leaders continue to highlight the role that crypto can play in financing terrorism and criminal activities, although these totals remain dwarfed by the funding provided by the U.S. dollar.
Important as these headlines are for the long-term sustainability of both bitcoin and the cryptoasset marketplace at large, there are multiple other headlines and trends that investors should be watching. One important trend to note is that, even with policy uncertainty still the dominant policy in the United States, institutional buyers have acquired billions in bitcoin so far in 2024. To that end, politicians and soundbites can swell and ebb over time, but there are several bigger picture issues that are driving policy and business conversations in tangible ways, versus merely adding more fuel to social media debates.
Let’s take a look at a few of them.
FTX Plans To Make Investors Whole
In what many have indicated as an unexpected twist in the continuing saga surrounding the collapse and bankruptcy of FTX, a recent plan was announced indicating the entity plans to make investors whole. This is absolutely good news that should be celebrated for a number of reasons. First, investors who through no fault of their own who suffered losses due to the criminal activities of Bankman-Fried are set to be made whole. Secondly, it is also an indication that the bankruptcy process and associated laws are able to handle a complex, large, and multi-national crypto filing like FTX. Lastly, it should serve as an additional example to crypto investors and advocates that, despite the differences between cryptoassets and fiat asset assets, investors should treat crypto as the financial instruments they are.
It is important to note that these repayments will be made at the market value of cryptocurrencies at the time of FTX bankruptcy filing. For context, the price of bitcoin at that point was approximately $20,000 per token, significantly below current market levels. Regardless of this disappointment for some investors, the fact that FTX will be repaying investors is news worth celebrating.
Crypto Mining To Be Investigated
It should come as no surprise to experienced crypto investors and market participants that the energy consumption and associated environmental impact of crypto is yet again under scrutiny. This time, the scrutiny has moved beyond soundbites, and has taken the form of a government investigation. Specifically, the U.S. Energy Information Administration will begin to closely track the electricity consumed by cryptocurrency mining firms operating within the United States. To do so, the EIA will launch a survey in February 2024, and will focus on a select number of bitcoin miners, which will be required to respond with energy use details among other operation statistics.
This request, and approval, was granted as part of an emergency data collection requested authorized by the Office of Management and Budget. This formal request and additional inquiry come after a tumultuous year for crypto miners from both a profitability perspective as well as a regulatory one. Even as the second largest cryptocurrency in the marketplace, Ether, continues to reduce power consumption as a result of shifting to a proof of stake consensus model, policymakers continue to focus on obtaining more information. Continuing to fuel this interest are reports such as the one recently issued by the Rocky Mountain Institute, estimating that bitcoin globally consumed 127 terawatt-hours (TWh), more than was used by the entire country of Norway.
Tokenization Is Expanding
The movement by TradFi institutions into the blockchain and cryptoasset space continues to accelerate as 2024 gets underway. Setting aside the spot bitcoin ETF headlines that have, justifiably so, dominated most of these conversations, the trend toward development and investment of more tokenized products continues to increase. Specifically the movement toward tokenization of real world assets – not just financial instruments – seems set to only accelerate going forward.
Specifically, the Boston Consulting Group estimates that the market for tokenized liquid assets will be $16 trillion, but that is only a part of the story. A survey conducted by Celent and BNY Mellon found that 91% of institutional investors are interested in putting money to work in tokenized assets, with 97% agreeing that tokenization will fundamentally change the world of wealth management. The trend is clear; tokenonmics is coming for mainstream financial services, and investors of all sizes would be well advised to prepare for this paradigm shift.
Crypto and tokenized assets continue to make inroads across financial markets, and investors should take note.