Investing in 2024: Crypto Stocks or Magnificent 7 Tech?

In 2023, mega-cap technology stocks experienced a remarkable resurgence, largely fueled by groundbreaking advancements in artificial intelligence (AI), bouncing back from a challenging 2022 that had left investors wary. Parallelly, the cryptocurrency market, particularly Bitcoin, witnessed a meteoric rise, surging by an impressive 157.93%, signaling a strong comeback. Are we poised for another year of technological triumphs or crypto mania？

Many crypto-related stocks rose even more than bitcoin, with some posting year-to-date gains twice as large as that of bitcoin. Some of the best-performing crypto stocks of 2023, were Coinbase Global, MicroStrategy, Riot Platforms, Marathon Digital, and Ebang, according to MarketWatch's Frances Yue.

The market is now expecting more crypto-related products to be available to the public in the upcoming year. "The attention and buzz around Bitcoin is gaining more momentum again," said Craig Toberman, founder of Toberman Wealth in St. Louis. "It appears to many that we are coming out of this crypto winter."

Experts anticipate the Magnificent 7 could be poised to see more gains in the new year thanks to the AI boom.

Nvidia was the top performer with a staggering rise of 239.58%. Tesla comes in second with an impressive rise of 108.82%, followed by Meta Platforms with a rise of 191.14%. Amazon.com and Alphabet have also shown significant growth, with gains of 83.08% and 55.64%, respectively. Apple and Microsoft have also had a good year, with gains of 52.42% and 57.03%, respectively. Overall, the tech industry has had a strong year in the stock market, with these mega-cap companies leading the market.

The trajectory of next year's market performance is predominantly hinged on the dynamics of the U.S. economy and the Federal Reserve's monetary policy strategy. The Fed's robust financial interventions during the pandemic, which included significant COVID-19 stimulus packages, have led to an accumulation of surplus savings for both individuals and businesses. This excess has been gradually dwindling in the face of a tightening economic cycle.

The inflationary pressures that arose from the pandemic and the ongoing Russia-Ukraine conflict have started to recede, leaving the challenge of managing core inflation as the primary concern. Recent communications from the Federal Reserve indicate a growing acceptance of higher inflation levels, suggesting the potential for interest rate cuts in the latter half of 2024. This nuanced approach by the Federal Reserve signals a strategic shift that could be pivotal in ensuring a soft landing for the U.S. economy amidst global uncertainties. The economic outlook is poised to benefit both assets.

The Federal Reserve's latest press conference was "as dovish as anybody expected, and the markets are behaving that way," said Galaxy Digital founder and CEO Novogratz. Crypto is thriving under that environment, "trading almost like a mania," he said.

He added that the government's spending deficit at 5-6%, the upcoming election, and the lack of cryptocurrency regulation is helping crypto stocks' success.

While for the magnificent 7, UBS analysts said in a research note that "An unusual feature of generative AI is that, right from the onset of the new technology, many of the same companies are already operating in multiple stages of the value chain—from cloud to the ownership of large language models (LLMs), to the development of end-user applications."

The Magnificent 7 has "the significant resources needed to build and benefit from complex AI models," and UBS "expect[s] the large players to grow larger still."

As we approach 2024, which sector do you find more compelling for investment - the AI-driven tech giants or the dynamic potential of cryptocurrencies?