Short of new all time high prices in the top crypto coins or crypto stocks, 2023 was a momentous year for the industry.Here’s a quick recap of just a handful of the numerous catalysts that had an impact on the market last year:
– The SEC became more combative with the industry and deemed numerous digital assets to be securities through various enforcement actions.
– Crypto-adjacent banks like Silvergate and Signature Bank no longer exist.
– Major industry players Binance (
BNB-USD) and Digital Currency Group have dealt with litigation and/or regulatory battles.
Despite these enormous issues, there are several positives to consider as well now that we’ve entered a new year.A spot Bitcoin (
BTC-USD) ETF in the United States appears to be a foregone conclusion for early January.The SEC has been repeatedly losing in court when challenged on principles.And the market has witnessed nearly $2 billion of net crypto investment inflows in the last year.As the kids on crypto-Twitter say, “we are so back.”
Looking Ahead
With crypto winter thawing and a Bitcoin halving set for April, investors can now shift their sights to themes and opportunities for 2024.
In the past, we’ve seen broad crypto market rallies based on very specific themes.
2020 was ruled by “DeFi Summer” and the rise of lending and borrowing on public blockchains.
We’ve seen previous excitement in areas like NFTs, community tokens, blockchain-based gaming, and even real world asset (or RWA)
tokenization.
In this article, we’re going to look beyond the blue chip assets in the crypto ecosystem like BTC or Ethereum (
ETH-USD) and assess some of the crypto-adjacent ideas that I’m personally pursuing this year.For my top 3 picks of 2024, I’ll offer a Bitcoin mining stock, an altcoin, and a contrarian play.
1 – Bitcoin Miner: CleanSpark
To those of you who have followed my work here on Seeking Alpha over the last year, this is probably not a surprising pick.2023 was a great year for
CleanSpark ( CLSK) shareholders and I suspect 2024 won’t be much different.Beyond the ETF, the most obvious factor impacting Bitcoin’s price in 2024 is the halving in April.Simply put, in less than four months the Bitcoin issuance from new blocks will decline from 6.25 BTC to 3.125.This is a fundamental problem for the miners.
To counteract that issuance shortfall, miners either need to see Bitcoin’s USD price double or revenue must come from other sources.
Transaction fees are likely the best option for miners because it doesn’t require building out another revenue stream around AI or from selling high performance computing.
Transaction fees paid to Bitcoin miners is a catalyst I’ve explored a handful of times through various Seeking Alpha articles.
We now have a final number for December and the BTC paid to the miners from transaction fees in December 2023 was over 7.9k BTC.This was far and away the largest number of the year and a positive sign for miners going forward if transaction fees can minimize the impact from the halving.
What I specifically like about CleanSpark is it has the right combination of factors that I prioritize in my mining stock allocations.CleanSpark is a top 5 public miner in average monthly production, BTC holdings, and debt to equity percentage and it’s the only miner that can make that claim.
With a 467% return in the last twelve months, CLSK shares have had one of the largest runups in the entire mining space and caution may be warranted at this juncture.But I think a deep pullback in CleanSpark is a buy opportunity.
2 – Altcoin: THORChain
In my view, THORChain (
RUNE-USD) is one of the most useful protocols in the broader crypto ecosystem.When you strip away all of the meme coins in crypto and get down to fundamentals, the true utility of the decentralized ledger on a public blockchain is proof of ownership.
The utility of the assets that live on chain can vary.
We’ve already observed digital assets on blockchains used for peer to peer payments, content paywalls, and website routing.
One of the major problems is the fragmentation of activity through various chains and ecosystems.Which is to say, there is no single standard blockchain because all of them have their own advantages and disadvantages.Historically, traders have had to use centralized exchanges like FTX or Binance to swap between assets like BTC or ETH.
Short of that, usage of centrally issued assets like Wrapped Bitcoin (
WBTC-USD) has been required as well.Each of these methods require trust in a centralized entity.Such trust is not required on THORChain because the native asset serves as the settlement instrument.
Like any crypto protocol, THORChain utilizes liquidity providers.Those providers pledge liquidity to specific pools and are paid swap fees as compensation.
If a user wants to swap from Bitcoin to Ethereum, the protocol trades RUNE between the pools and the user’s swap is completed.The beauty of the network is that users can interact with it without ever realizing it.
For example, Edge wallet uses THORChain on the backend but the users would never know it because usage of RUNE is abstracted away at the application layer.
Despite “crypto winter,” last year, THORChain was one of the few networks that was organically growing in usage despite weakness in the broader ecosystem.Since THORChain is essentially a chain-agnostic DEX, the protocol is a crypto-native competitor to Coinbase (
COIN).
When THORChain is utilized to a larger degree, there is an organic bid on RUNE.
And we’ve seen how an increase in chain usage over the last several months has benefited the price of the coin.While off highs, RUNE has increased by over 300% in the last 12 months.In my view, RUNE is arguably the best “pure play” way to bet on the growth of crypto as a broad ecosystem without having to actually pick between the blockchain networks themselves.
3 – Contrarian Play: Algorand
Algorand (
ALGO-USD) is a blockchain network that I’ve covered in the past.
The chain has been plagued by poor sentiment following a hack of one of the chain’s leading wallet applications last year.
It’s a layer 1 blockchain that enables high throughput with transaction fees that are a fraction of a penny.Last year, the SEC deemed the coin to be an unregistered security.
Interestingly, current SEC chair Gary Gensler was at MIT at the same time as Algorand founder Silvio Micali with the former speaking
quite highly of Algorand’s technology before his SEC appointment.I suspect the agency’s declaration that ALGO is an unregistered security has been damaging to the coins price performance.Like ALGO, Solana ( SOL-USD) and Cardano ( ADA-USD) were also deemed to be securities by Gensler’s SEC last year.
The difference between the performances of those coins has simply been usage and sentiment.Solana has had a resurrection with success from meme coin trading and Visa’s recent pilot program announcement has likely boosted sentiment in the network.Algorand has not benefited from either yet.
However, we’re starting to see some signs of life from a network activity standpoint.
With $166 million on December 22nd and $182 million on December 31st, 2 of Algorand’s 5 largest days for USD-denominated transaction volume in the past 12 months happened within the last two weeks of 2023.While it’s declined from its high, there is still $78 million in USD stablecoins on the network.
This may not sniff the billions that can be observed on chains like Solana or Avalanche.But compared to other L1 chains like Near Protocol (
NEAR-USD), Aptos ( APT-USD), or Hedera ( HBAR-USD) that have larger market caps, I’d argue Algorand isn’t being properly valued for the stablecoin footprint that it secures.
Risks
Each of these picks have different risks associated with them.For CLSK, investors should be aware of dilution risk, the halving, and the possibility that the shares will underperform the asset itself.Long term, the economics of Bitcoin mining aren’t great since the network is coded for a decrease in new coin issuance, which is still the primary incentive for mining.
For RUNE, there is risk that the protocol could stop functioning or a notable cross-chain competitor could build a better system.RUNE increases in coin price when the network usage grows and there is always the possibility that centralized exchanges will maintain share over DEXes.
Algorand has largely been a disaster of a crypto hold over the last couple years.It’s a contrarian idea because it hasn’t worked and the rally from the bottom has been much less favorable than what has been observed from other low-cost chains like Solana.
It is possible that Algorand is indeed a dying chain.
Summary
I believe 2024 is going to be a strong year for crypto and crypto-related assets.
In this top 3 list, I’ve provided a few different ideas that hit on different themes.Bitcoin mining could be a highly profitable endeavor if transaction fees remain elevated or if Bitcoin’s price rises substantially higher.
I like CleanSpark in either scenario.THORChain has been a runner in the last 6 months but I think that move has been warranted.However, each of these assets have flown in recent weeks and weakness early in the year shouldn’t be unexpected.In my opinion, declines in RUNE or CLSK are buy opportunities.
As for Algorand, the chain has been largely left for dead but it appears as though activity is starting to pick back up.
Buyers of ALGO at the beginning of 2024 are certainly not chasing a multi-bagger to the extent a RUNE or CLSK buyer might be.That said, the lack of excitement in ALGO is because the chain itself has been very underwhelming.All of these ideas have substantial risks to consider, but they’re large parts of my personal portfolio for 2024.
Editor’s Note: This article covers one or more microcap stocks.Please be aware of the risks associated with these stocks..
