Crypto Outlook for 2024: Will US Approve Bitcoin ETF?

Nic Carter, funding partner at Castle Island Ventures, discusses the outlook for the crypto market, and the upcoming decision by US regulators on whether to approve exchange-traded funds that directly buy Bitcoin. He also talks about the resignation of Grayscale Investments Chairman Barry Silbert. Carter speaks on Bloomberg Television.
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[CC may contain inaccuracies] When you look at how much the market has been anticipating that Bitcoin ETF and how much it’s rallied, how much is that already priced in and how much more can future catalysts like having add to the price of Bitcoin into 2024?

Yeah, I mean, the market certainly is almost certain at this point that we will be getting an ETF in the coming days. Most analysts think it’s likely to come before January 10th. I think it’s likely to come on the eighth. And so the near-term price certainly reflects that expectation.

So in May, we may even see a new selling event here. However, over the medium term, the ETF unlocks whole new classes of capital that otherwise wouldn’t be able to enter the market than haven’t been able to allocate to Bitcoin. So I think you will see structural flows

That will be positive for Bitcoin. The halving I’m probably less constructive on, but I think makes a very marginal difference. You’re only seeing a small effect on supply in terms of marginal supply creation. So the halving is, I wouldn’t say less of an exciting development, but the ETF is something we’ve been anticipating

Waiting for for literally ten years at this point. And so you can see that excitement expressed in the price of Bitcoin in recent months. What about you mentioned a potential selling event. What would cause investors to either take profits or get out of certain crypto assets at this point?

Well, of course there’s tax selling potentially to end the year here, and we’ve seen the market give up some of those gains in recent days. But just fundamentally, it’s about expectations versus catalysts. And the market at this point thoroughly expects the ETF.

And I think the big rally we’ve seen from kind of the twenties, low thirties into the sort of mid-forties for Bitcoin, I think that’s almost entirely ETF based. And so, you know, on day off it might be

A bit of a pop, but I think the effect might be muted where I expect to see the price developing in the immediate medium term. That’s where I’m excited. That’s when I think you see rallies and other kind of financial entities that previously weren’t able to necessarily

Recommend Bitcoin to their clients, get the ability to do that. With the ETFs, I think we’ll see the marketing rampage from the Bitcoin ETF sponsor as some of the largest financial institutions in the world, and that’s when I think this thing really takes off as we enter and throughout 2024.

Got to get your reaction, Nick, to Barry Celebrity. The was the CEO and founder of grayscale parents digital currency group. Well it turns out that he is now gone and he’s going to be succeeded by Mark Sheskey, the chief financial officer of DCG.

The president, that’s Mark Murphy, the president of DCG, also resigned from the grayscale board. Now, grayscale didn’t cite a reason for the board’s changes, but they are effective January 1st, and that’s according to a filing with the SEC. So we’re just learning that today.

Does that provoke any thing that you might want to share with us and you? Yeah. I mean, look, as of right now, DCG hasn’t said anything about the resignations. Barry, of course, a stalwart character in the crypto markets and built effectively the largest conglomerate in the crypto space over the last decade,

One of the most interesting and successful businesses in crypto. It’s a shame to see him step back and I think ultimately a shame to see the dire straits the DCG has found itself in with the NYSE case against them. We don’t know if that’s related to the departure.

It could actually simply be something as straightforward as the S.E.C. asking grayscale to have Barry step aside, maybe to sweeten the deal for their pending ETF application. So if I had to guess, that’s what I would list as probably the most likely cause of his departure.

But ultimately, you know, it’s interesting that virtually every single main character, so to speak, in the crypto space over the last two day two years has now left or ended up in prison in some cases, or been forced to sell the business. So I guess the lesson is just never be

The main character. I mean, does it make you think any differently about the underlying asset or about these ETFs and their potential for approval, particularly given that we know that there had been discussions between grayscale and the regulator as to, you know, redemptions and what that

Would look like and you know, how that process would work. It was different from grayscale and for some of the other ETF sponsors. Yeah, I would say Chris Kyle has a less straightforward path to the ATF here, even though their victory in the courts was the main catalyst of this whole wave

Of ETFs being approved. And the jury is still out as to whether Grayskull itself will be in the first wave of those ETF approvals and how exactly that gets me to an ETF conversion will occur. I if I had to guess, as I said, I think Barry’s departure from the Board of

Grayscale here is part of a sweetener in order to make that process smoother effectively. But yeah, the jury is still out actually. On whether BTC itself will be in that first wave of approvals. I think with the 13 sponsors currently pending in their applications. Nick Even with a rise in bitcoin prices,

It’s not like the industry itself has been without its challenges, significant regulatory hurdles. You talked about the one seen by DCG and Barry Silbert, let alone what we’ve seen at Binance, for example as well. If you’re speaking to a group of investors and you’re telling them how to

Perform due diligence on counterparties, on places to invest, how do they take these issues into stock? Yeah. I mean, the defending of finance and finance gradually losing market share. I think they likely will go after the case against the in the organisation.

I think it’s actually positive for the development of regulated spot markets in the US and I think it was the lot kind of grey swan hanging over the industry. And so I think we’re looking at a more mature, more regulated, more surveilled

And more domestic market for the Bitcoin for the asset which is positive. And I think that was sort of the last barrier last to fall before we got these ETF approvals. Now in terms of looking at these exchanges, one phenomenon we see now emerging with spontaneous at the

Industry level and at the policy level is the notion of proof of reserves, which is a accounting and cryptographic procedure to prove that the exchange has the assets that they claim they have. And if these had been in place during debacles like RTX or previous exchange insolvencies, those wouldn’t have

Occurred, or at least investors who have been armed with more information. So I would look to exchanges to be doing these proofs of reserves or look to regulators asking these exchanges to do that. I would look to exchanges undertaking newer, more modern practices like

Segregating custody and exchange, which is the obviously the way it’s done in traditional markets. So overall, I would say we’re seeing a more mature market. We’re seeing these exchanges develop alongside the way that they look in the traditional space. So overall, I think very positive development for the industry.

What about outside of Bitcoin? We talked so much about Bitcoin and the rise that it’s seen despite a lot of these regulatory and legal issues and exchange issues. Solana Etherium a lot of conversation about other crypto assets. Where do you stand in picking your spots? Well, I mean, look, it’s been Bitcoin’s

Year, of course, with the ETF, but it’s also been stolen this year. They’ve recovered from this dark cloud hanging over them with a lot of people felt their fate was tied up in the fate of Matthew and Sam Bankman-fried. They’ve clearly moved on from that hangover and done tremendously well in

Recent months, and we’re seeing a defi ecosystem emerge on Solana, which people are excited about. Ethereum, I think is caught in the middle. You know, they’re pursuing a more challenging, arguably scaling approach with focusing on rollups and el tos, which, you know, I think is more difficult in the near term.

And fees are still higher on a theorem in the near term as they execute on the roadmap. So I would say most investors are now looking to see how Ethereum reacts to the emergence of competitors like Solana in 2024, how they’re going to execute on their roadmap, whether they’re able to

Do that, whether they’re able to seize the narrative back from some of these newer competitors like Solana. That’s kind of the big, big question that’s hanging over these markets. I’m optimistic ultimately that they’ll be able to do well. From our perspective, we just look to

The entrepreneurs to tell us where they’d like to build, and we see founders building on an array of different blockchains. Certainly Solana has a lot of hype and excitement and focus right now, but the number one blockchain where our startups and our founders build remains a

Theorem. And so I’m still optimistic about the long term fate of that blockchain. Yeah, well, the Bloomberg Crypto index is above its 20 1718 high, not quite up to its 2021 high. It’s got a long way to go for that. But Nick, the hypothetical situation where all of the ETFs are approved, right?

I mean we have no idea if that’ll be the case, if one will be approved as a230. Which one would you recommend? Would you recommend all of them equally? Well, I’m a Fidelity alum, so of course I have to be faithful to my colleagues and peers of Fidelity. We’re investors in the bitwise

Company at the Castle Island level. But, you know, ultimately, I think we’re just excited to see, you know, this major stop being made. This is the most important development in the history of Bitcoin. And we’ve been waiting, as I said, for literally ten years.

And so, you know, regardless of which one does well, the whole industry benefits from investors being able to get more efficient, more direct exposure to the asset and getting these gigantic sponsors on board like the BlackRock’s and the Fidelity, something Invesco of the world.

So overall, I can’t say I necessarily recommend one, but, you know, I’m really excited to see this development. But it’s funny that you say direct because it’s in a wrapper, isn’t it? I mean, this was initially an industry that was in the face of finance, if you will.

Why buy an ETF when you can just buy bitcoin? Yeah, I’m in Derechos and compared to the incumbent ETFs which are futures based and, you know, certainly less efficient in terms of exposure. But you’re right I mean there is still a role for spot exchanges to play and I

Think we will see the spot exchanges challenged by virtue of low expense ratio ETFs enabling people to very efficiently allocate to Bitcoin in their brokerage as opposed to signing on with an exchange. So, I mean, the thing that we have to look at here is, you know, how do the

Incumbent exchanges react? Do they have decompression as a result of the ETFs? I mean, I think there’s always a role for people to want to get access to the asset directly, because, of course, Bitcoin itself has the unique qualities that people want, not necessarily just

Some financial exposure. Real quick, Nick, I have to ask you, I mean, Anthony Scaramucci says it’s going to happen this week. You said specifically January 8th. We know the deadline is January 10th by January 8th to Monday, and it just makes sense. So stay tuned. Keep your eyes peeled.