Skip to content

CONTRIBUTORS

Christopher Jensen

Research Analyst,
Data Science and Digital Lending Strategies

Tony Pecore,

SVP, Director of Digital Asset Management 

Cryptocurrency prices (led by Bitcoin) were rising into the end of 2023 amid support from a series of news headlines that emerged in the latter half of the year. These included the following:

  • Repudiation of key crypto individuals and firms that were seen as bad actors—specifically the conviction of Sam Bankman-Fried of FTX for fraud1 and the admission of money laundering violations from founder and CEO of Binance, Changpeng Zhao.2
  • Rulings against the US Securities and Exchange Commission (SEC) in high-profile court cases from both Ripple and Grayscale. Judges disagreed with the SEC’s characterization of Ripple’s XRP token as a security3 and called the regulator’s rejection of Grayscale’s spot bitcoin ETF application “capricious and arbitrary.”4

Prospects for increased investor flows into Bitcoin come just as the asset is expected to see the pace at which new supply is created slow down. Bitcoin is expected to reach its next “halving” event sometime between March and May 2024. This refers to a cut in the size of the reward paid to bitcoin miners for verifying transactions on the payment network.  

Bitcoin is an algorithmically controlled asset where the release of new supply is pre-programmed into the code. Each time 210,000 blocks of transactions are added to the ledger, the size of the mining reward is cut in half. The bitcoin network has been through three prior halving events. In other cycles, the price of bitcoin has bottomed about 477 days prior to the halving, climbed in the period leading up to the event and then surged in the subsequent months.5 With bitcoin prices having hit a low of US$15,782 in November 2022 and then having rallied to over US$40,000 by early December 2023, this pattern seems to be repeating ahead of the fourth  halving event based on price activity to date.

Fundamental considerations and ecosystem metrics for the broader set of crypto coins and tokens also show a growth environment.

  • Ethereum, the largest layer-1 blockchain, has generated US$16.8 billion in fees with over 60.0% of this converting into revenue. This means that the Ethereum network surpassed US$10 billion revenue in just seven years, according to research from Caleb and Brown, putting the protocol on pace to match tech leaders Google (Alphabet) and Facebook (Meta) in reaching this revenue milestone in as fast a timeframe.6
  • A World Bank and Global Macro Investor study shows that crypto uptake is exceeding the pace of internet adoption. After seven years of development (beginning in 1992), the internet globally had reached 187 million users (+76% yearly growth) whereas crypto adoption (beginning with the launch of Ethereum in 2015) was 425 million (+137% yearly growth).7
  • Monthly active addresses in the crypto domain hit an all-time high of 15 million, doubling over the past two years as a growing variety of apps and services offered individuals new ways to engage. More than 700 new apps were created in 2022 alone.8
  • Almost 30,000 developers contributed to, or built on, crypto projects in 2023—an increase of +60% in the last 3 years despite crypto winter9 and significant price declines.10 

These factors collectively lead us to see continued strength and to expect renewed interest in crypto as an asset class in 2024 as the market sees a definitive end to crypto winter. 

Endnotes

  1. Source: Martinez, A. and Gura, David. “FTX Founder Sam Bankman-Fried is found guilty of all charges including fraud.” NPR. November 3, 2023.
  2. Source: Gura, David. “CZ, founder of crypto giant Binance, pleads guilty to money laundering violations.” NPR. November 21, 2023.
  3. Source: “Ripple scores big win against SEC 2024 is looking bullish for XRP.” TheStreetCrypto.com. October 5, 2023.
  4. Source: Sun, Zhiyuan. “Breaking: Grayscale wins SEC lawsuit for Bitcoin ETF review.” CoinTelegraph. August 29, 2023.
  5. Source: “Pantera Capital Reveals $149,000 Bitcoin Price Target – Here’s the Timeline.” The Daily Hold. November 16, 2022.
  6. Source: Caleb & Brown Weekly Rollup. September 26, 2023.
  7. Sources: Crypto.com, World Bank, Global Macro Investor. Accessed October 16, 2023.
  8. Source: “State of Crypto 2023.” a16zcrypto. 2023. 
  9. A crypto winter is caused by a decline in the value of cryptocurrency assets and trading volume over a period. 
  10. Source: “State of Crypto 2023.” a16zcrypto. 2023.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

 

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured; may lose value; and are not bank guaranteed.

You need Adobe Acrobat Reader to view and print PDF documents. Download a free version from Adobe's website.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.