Anticipating Bitcoin's Halving Event and Investment Implications

The cryptocurrency market remains highly active lately as investors are increasingly interested in new spot bitcoin (BTC) exchange-traded funds ahead of the upcoming bitcoin halving event in April. This event typically generates significant attention and anticipation in the crypto market.

Simultaneously, there’s a growing focus on the global digital asset regulatory environment. Last month, European regulators passed new anti-money laundering legislation, and the U.S. Securities and Exchange Commission (SEC) has initiated actions that could lead to Ethereum (ETH) being classified as a security ahead of a critical May deadline on various spot Ethereum ETF applications.

Historically, the period from February through April has shown strength in bitcoin prices, and investors are optimistic that the crypto rally observed in early 2024 will extend into the second quarter.

The cryptocurrency market has continued its strong upward trend this year, building on the significant gains seen in 2023, when Ethereum surged by 85% and bitcoin by more than 150% in 2023. Heading into April, bitcoin prices are up about 64% year-to-date, and Ethereum prices have rallied more than 51%.

During the first half of March, bitcoin prices surged to reach a new intraday all-time high of $73,750.16. However, the latter part of the month saw bitcoin trading within a broad range of approximately $60,000 to $72,000. By the end of March, bitcoin prices closed at $70,849, marking a monthly gain of 14%.

In contrast, Ethereum prices experienced a more modest increase of 5.8% for the month, ending at $3,611.

Spot Bitcoin ETFs in the Spotlight

Bitcoin’s price surged above $71,000 multiple times last week, and this increase was supported by significant net inflows exceeding $243.4 million into bitcoin exchange-traded funds (ETFs) on Thursday.

Notably, the Ark 21Shares Bitcoin ETF (ARKB) recorded net inflows of $200.7 million last Wednesday alone, making it the third bitcoin ETF to surpass the $200 million mark since the SEC approved the listing and trading of 11 spot bitcoin exchange-traded product (ETP) shares after years of repeated rejections in January.

Before ARKB, BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity Advantage Bitcoin ETF (FBTC) crossed this $200 million mark in a single day.

According to James Wo, founder and CEO of Digital Finance Group, the spot bitcoin ETFs continue to play a central role in the 2024 crypto rally.

“Bitcoin broke past its all-time high in March as the bitcoin ETFs saw a daily net inflow of over $1 billion, an amount higher than the inflow experienced from the launch date. As more participants seek to gain exposure to cryptocurrencies, the bitcoin ETFs provided easier access to this asset class, which fueled the strong demand in March, pulling up the rest of the crypto market with it,” Wo stated.

Bitcoin Halving Event: The Primary Catalyst for a Prolonged Climb in Cryptocurrency’s Value

Bitcoin’s recent surge and its overall value proposition are primarily driven by increasing anticipation surrounding the upcoming “Bitcoin halving” event, scheduled to occur on April 19, 2024. This event is a built-in feature of Bitcoin’s protocol that reduces the rate of bitcoin production, with the block reward expected to decline from 6.25 BTC to 3.125 BTC.

The halving event holds significance on multiple fronts. Firstly, it directly impacts the economics of Bitcoin mining. As the block reward decreases, miners earn fewer Bitcoins, potentially affecting the profitability of mining operations. This could lead some miners to cease operations if mining costs outweigh the rewards, resulting in adjustments to the network’s hash rate and mining difficulty.

Additionally, the halving sparks heightened speculation and interest from investors and traders. Historically, Bitcoin halving events have been linked to bull markets and price surges due to reduced supply and sustained or increased demand. The halving underscores Bitcoin’s deflationary nature and scarcity. With the issuance rate halved, Bitcoin becomes scarcer over time, potentially driving up demand and long-term price appreciation.

Historically, halving events have led to substantial price increases for Bitcoin. For instance, after the 2012 halving, Bitcoin’s price surged from $12 to over $900 within a year. Likewise, following the second halving in 2026, the price climbed from about $600 to $2,500.

Further, the third halving event held in May 2020 saw the price jump from around $8,000 to over $40,000 within a year.

In the past, bitcoin’s price typically showed stability before its halving events, often due to an uptick in supply available on exchanges. However, this time, there’s a notable difference, as pointed out by Austin Arnold, a crypto market analyst and the founder of “Altcoin Daily.”

He added that an unprecedented level of excitement and institutional fear of missing out (FOMO) surrounding Bitcoin, fueled by a quest for inflation-resistant assets, contributes to a potential supply-and-demand shock even before the actual halving occurs.

Arnold further projected a doubling of Bitcoin’s price within a year post-halving, potentially reaching between $100,000 and $150,000, guided by the fundamental principle of supply and demand dynamics.

Bottom Line

Several major cryptocurrencies experienced a rally lately, fueled by various potential catalysts such as significant net inflows into bitcoin ETFs, notable filings for spot Ether ETFs, and anticipation surrounding the upcoming “bitcoin halving” event scheduled on April 19.

The bitcoin halving event, which is the fourth in bitcoin’s history, with prior halvings in 2012, 2016, and 2020, involves cutting miners’ rewards in half to control the introduction of new bitcoins until the maximum limit of 21 million bitcoins is reached. Historically, bitcoin’s price has surged after each halving event, leading investors to speculate on a potential rally next month.

Analysts speculate that the current Bitcoin price of around $66,000 could potentially reach approximately $150,000 post-halving, highlighting the anticipation and impact of this event on Bitcoin’s market dynamics. The halving event brings significant attention to the crypto space, attracting new investors and contributing to increased trading activity.

While Bitcoin halving events have been associated with bull markets and substantial price rallies, past performance does not indicate future results. So, investors should exercise caution and conduct thorough analysis before making investment decisions, as the crypto market is known for its volatility and unpredictability.

Is the Bitcoin Bull Run Over?

Bitcoin (BTC) prices recently surged above the $52,000 mark, pushing its market capitalization back over $1 trillion for the first time since December 2021. The rally in the prices of the flagship cryptocurrency is due to anticipation building around the impending 'Bitcoin Halving' in April this year and the sustained inflow of USD into spot Bitcoin exchange-traded funds (ETFs).

Primary Drivers Behind Bitcoin’s Price Increase

Spot bitcoin ETFs are driving BTC’s recent surge. In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of 11 spot bitcoin exchange-traded product (ETP) shares after years of repeated rejections.

Bitcoin ETFs recorded another strong week, with net inflows exceeding $2.2 billion from February 12 to 16. As per Bloomberg analyst Eric Balchunas, the combined volume was higher than inflows received by any other among the 2,400 ETFs available in the U.S.

According to data from BitMEX Research, BlackRock’s iShares Bitcoin Trust (IBIT) received the most capital, accumulating positive flows of $1.6 billion over the last week. “$IBIT alone has taken in $5.2b YTD, which is 50% of BlackRock’s total net ETF flows, out of 417 ETFs,” stated Eric Balchunas.

Among the spot Bitcoin ETFs holding billions of dollars in assets, Fidelity Advantage Bitcoin ETF (FBTC) witnessed considerable inflows, amassing $648.5 million from February 12 to 16. The Ark 21Shares Bitcoin ETF (ARKB) gathered around $405 million in the same period, while the Bitwise Bitcoin ETP Trust (BITB) garnered $232.1 million in capital inflows.

However, outflows from the Grayscale Bitcoin Trust (GBTC) are hampering the combined performance of the other newly approved spot Bitcoin ETFs. Between February 12 and 16, the fund saw withdrawals of around $624 million. Since its conversion from an over-the-counter product to a spot ETF on January 10, Grayscale’s fund has witnessed more than $7 billion in capital outflows.

The other new ETFs are majorly driving Bitcoin’s recent price gains. The cryptocurrency is up approximately 91% in the past four months, ending on February 15.

Also, growing anticipation around a cryptic-sounding event known as “the halving,” which is to take place on April 19, 2024, is one of the primary drivers behind Bitcoin’s surge. The “halving” is a feature in Bitcoin’s protocol that automatically reduces the rate of Bitcoin production. Generally, it pushes the price of bitcoin higher.

The price rise of the world’s largest cryptocurrency was also buoyed by expectations of interest rate cuts later this year as inflation eases.

Google Trends Show a Decline in Bitcoin Interest

Recently, Bitcoin’s price jumped above the $52,000 mark; however, fascination with cryptocurrency seems to be diminishing. Google Trends data suggests a subdued level of interest, with the search term “bitcoin” scoring just 36 out of 100 in global metrics over the last 90 days.

That is a sharp contrast to the excitement seen about three years ago when Bitcoin first exceeded the $50,000 level, with Google Trends showing a score of 71 out of 100 for the search term “bitcoin” during that period.

Even with the introduction of spot bitcoin ETFs on January 11 this year, the search term “bitcoin” on Google Trends peaked at a score of 100. But since then, there has not been a significant surge in interest, with the search term “bitcoin” being steady at a score of 36 out of 100.

Despite high valuation, the declining fascination with bitcoin suggests a potential consolidation and maturation of the crypto market, where investors are more cautious in their approach or a shift in the public’s focus. While institutional investors have entered the scene, retail investors appear less engaged.

To regain the attention of the retail crowd, Bitcoin might need to surge to even greater heights.

Future Of Bitcoin Price Trajectory

The recent surge of Bitcoin to levels not witnessed in more than two years has sparked debate among analysts on the sustainability of the upward momentum. While some analysts expect this rise to be followed by a correction, others believe the bull run will continue.

According to Swissblock analysts, Bitcoin may signal a correction in the short term. Analysts wrote that the momentum of Bitcoin, which has paused at the key resistance mark of $52,000 following a recent rapid ascent of nearly 33% over the past few weeks, could indicate “a pullback” as they consider the increase potentially unsustainable.

Despite a short-term dip, Swissblock analysts added that any forthcoming pullback could be a buying opportunity if BTC holds its support near the $47,500 level. The report advises investors to consider any correction as a potential entry point for long-term positions.

Despite warnings of a potential correction, some analysts continue to be positive about Bitcoin’s future trajectory. 10x Research analysts expect a price target of $57,500 for the next surge, indicating that the uptrend in BTC could continue beyond the current resistance level.

10x Research analyst Markus Thielen has an optimistic outlook on Bitcoin, arguing that its solid liquidity and rising demand for Bitcoin futures could push its price to $57,500. He cited historical patterns before previous block reward halvings as supporting evidence for further upside potential.

In addition, institutional cryptocurrency exchange FalconX observed “extraordinary” trading volumes supporting the uptrend in early 2024, like those seen during the March 2024 regional banking crisis.

FalconX analysts also noted that historically low volumes after price increases have sometimes indicated false breakouts in crypto markets, but liquidity conditions around the January rally have generally remained strong.

Bottom Line

In January this year, the Securities and Exchange Commission finally approved 11 spot bitcoin exchange-traded funds to start listing and trading on U.S. exchanges. The growing success of U.S. spot bitcoin ETFs turned investor sentiment more optimistic, allowing Bitcoin to exceed the $52,000 level, marking the first time it has hit this price since late 2021.

Also, the value of all the bitcoin in circulation, or market cap, grew above $1 trillion after the price surge.

According to Nigel Green, Founder and CEO of deVere Group, the introduction of the spot Bitcoin ETFs provides a new avenue for institutional investors to cautiously enter the cryptocurrency market, representing a significant step toward broader adoption and acceptance.

“This approval by the financial regulator of the world’s largest economy is a landmark moment for bitcoin and the wider crypto market and boosts prices in the long-term, even if there’s a sell-off in the near-term,” said Green. “The approval of bitcoin ETFs represents a resounding institutional validation of the cryptocurrency, marking a departure from its initial reputation as a speculative and volatile asset.”

Further, Bitcoin prices are strengthened by the upcoming “halving,” the supply-restricting event written in Bitcoin’s code that occurs every four years and is set for April 2024.

The recent introduction of spot bitcoin ETFs signifies a major development in the integration of bitcoin into mainstream investment options, possibly attracting a wider array of investors beyond conventional crypto enthusiasts.

But the relatively muted response to bitcoin’s increased value, as indicated by Google Trends data, suggests that the crypto market might be transitioning into a more mature and consolidating phase, wherein investors exercise more caution and discernment.

The drastic shift in sentiment could point toward an evolving landscape for cryptocurrencies, where factors beyond price appreciation play a more substantial role in market dynamics and investor behavior.

Amid declining public interest, investors grappling with the decision to wait or sell bitcoin should consider their risk tolerance, investment horizon, and market outlook. Staying informed, implementing risk management techniques, and diversifying one’s portfolio can help navigate the dynamic cryptocurrency market.

Investors should stay abreast of cryptocurrency news, regulatory developments, and market sentiment, which can provide insights into future trends and potential catalysts for price movements. Also, it is advisable to keep an eye on institutional interest and adoption, which can help gauge the long-term potential of Bitcoin.

Bitcoin ETF Approval: A Catalyst or a Headwind for Market Players?

The U.S. Securities and Exchange Commission (SEC) gave its approval to 11 spot bitcoin exchange-traded funds (ETFs) on January 10 after months of speculations. These newly approved ETFs diverge from previously dubbed "Bitcoin ETFs," which were tied only to future contracts or shares of Bitcoin-entwined corporations. The current batch of sanctioned funds directly hold Bitcoins, aligning more accurately with the spot price of Bitcoin over time and offering a relatively simplified means of investment in the cryptocurrency compared to independent crypto wallets.

This endorsement by the SEC can be seen as a significant validation of Bitcoin's prospective mainstream status. Cryptocurrency optimists are considering this regulatory green light as a potential booster for BTC's price, possibly catapulting it to a six-figure high.

Since October's end, with the growing buzz around the SEC's decision, BTC has climbed over 60% and is currently trading at an almost two-year peak. Despite much anticipation, the market response post-approval remained muted, with the large-cap token witnessing a marginal rise on the following day – a pattern typically observed when investors 'buy the rumor and sell the news.'

In the aftermath of the first wave of ETFs commencing trading on January 11, BTC's price plunged, falling nearly 8% in just five days, estimating a value of roughly $42,700.

Predicting the volatility of BTC's price remains challenging. Its historical best stands at approximately $69,000 during the apex of the crypto surge in November 2021, yet it plummeted to a mere $16,000 by 2022 end. Factors such as increasing interest rates deterring speculative investments, failure of various high-profile tokens and exchanges, and rising apprehensions over stricter crypto regulations largely contributed to this plunge.

However, 2023 witnessed BTC's price soaring over 150% to over $42,000, spurred on by slower rate hikes and renewed market interest in cryptocurrency. This resurgence was also fueled by the anticipation of the SEC's approval of Bitcoin's maiden spot-price ETFs.

Consequently, the recent setback only wiped out BTC's gains earned at the onset of 2024. The dip suggests quick-profit short-term traders possibly inflating the digital currency's price in anticipation of recent ETF approvals, only to capitalize on the profits following the initial excitement.

Market observation currently highlights a heated contest between bullish and bearish forces. A significant recovery appears elusive for buyers of the currency, hinting at sustained pressure from bearish influences. Moreover, BTC is trading below the 10-day and 50-day moving averages, indicating a downturn and reassertion of control by bearish forces.

Typically, if BTC dips below the $42,000 threshold, accelerated selling could follow, potentially driving its value further down. As for those bullish on the asset, they will need to push BTC above the 10- and 50-day EMA to avert a negative outcome.

Moreover, Bloomberg ETF analyst Eric Balchunas said that the newly launched ETFs witnessed inflows of $1.4 billion. On the contrary, the Grayscale Bitcoin Trust (GBTC) saw an outflow of $579 million. However, the net inflows in two trading sessions across the ETFs were $819 million.

This initial flurry of activity aligns with James Seyffart's earlier forecasts. He projects that Bitcoin ETFs could succeed in drawing in around $10 billion within their inaugural year on the market.

But are there any long-term catalysts?

While BTC's price adjusts in response to the pressure of recent ETF approvals, prospects indicate a significant potential for the cryptocurrency's growth.

The primary outcome of the ETF approvals is to enhance accessibility for large-scale institutional investors to accumulate Bitcoin in an open market setting. Investment powerhouse Fidelity, already having launched the Fidelity Wise Origin Bitcoin Fund (FBTC), has projected a soaring Bitcoin value, with expectations of a $1 billion valuation by 2038.

A similarly bullish stance lives within Standard Chartered, whose strategists postulate that spot ETFs could generate between $50 billion and $100 billion in inflows for Bitcoin within this year alone. They further predict a stunning price peak of $200,000 by the close of 2025.

Ark Investment's Cathie Wood, managing the recently approved Ark 21Shares Bitcoin ETF (ARKB), anticipates that the price of Bitcoin could hit $1.5 million by 2030. But why such astronomical levels? Her projections stem from a belief in BTC's value growing with increased institutional adoption, positioning it not merely as a preferred choice for encryption enthusiasts but also acting as a pivotal tool in robust, institutional-grade risk diversification.

The fixed supply cap on Bitcoin at 21 million coins sharply contrasts the inflating supply of fiat currencies, thus potentially amplifying its appeal as a deflationary asset.

The projected trajectory primarily hinges on the pronounced network effect within BTC, where its value heightens with an increase in blockchain users and transactions – supported by ongoing technological advancements and enhanced accessibility.

While certain aspects of these long-term forecasts may appear overly optimistic, it is logical to conclude that Bitcoin ETF approvals will introduce a modicum of stability to its volatile pricing structure. This stabilization could prompt return investment from larger entities and propel BTC prices closer to their historical peak levels.

Also, past trends hint toward any halving year being a catalyst for a bullish surge, traditionally followed by a bull run in the succeeding year. This pattern, chiefly attributed to expanding public interest, augmented risk activity, and heightened discourse surrounding digital currency futures, places Bitcoin squarely at a vantage point. Potential factors such as reduced Bitcoin supply due to halving and the prospects of fresh investments via ETFs could introduce unprecedented market dynamics.

Moreover, anticipation of interest rate reductions in the U.S. intensifies predictions for bullish BTC pricing in 2024. Furthermore, the looming shadows of sticky inflation may steer a wave of investors toward acquiring Bitcoin as safeguards against the devaluation of their fiat currencies.

Bottom Line

Pre-launch speculation surrounding Bitcoin spot ETFs had heightened anticipation. However, when regulatory approval did not spur an upward reaction, traders may have chosen to capitalize on profits, leading to a substantial market recoil.

Not all of the financial world is swayed by optimistic BTC price targets. For instance, former PIMCO CEO Mohamed El-Erian indicated in a recent post that although the SEC's approval could be a pivotal moment for cryptocurrency, it would unlikely broaden Bitcoin's utilization. The outlook remains more constrained.

The SEC itself voices reservations about BTC's investment potential. In a separate announcement, Chair Gary Gensler dubbed Bitcoin as "primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing."

While the markets can be unpredictable, lower price points might draw in long-term investors who keep a close watch on the Bitcoin halving and institutional influx into Bitcoin spot ETFs over the forthcoming weeks.

Despite the prevailing belief that institutional monetary allocation will take time to transpire, it is argued that the subsequent price dip wasn't exactly favorable to capital inflows. Agreeingly, there was substantial conjecture around the concept of selling the fact, so maybe there would be a twist when or if Bitcoin prices begin to ascend again. But at this juncture, one would need to see it to believe it!

The ETFs have yet to gather steam in terms of trading volume fully. Investment giant  BlackRock has reportedly bought a staggering 11,500 BTC from the available supply during the latest dip since the launch of its spot Bitcoin ETF. This amount is significant, considering that only 900 BTCs are issued daily. BlackRock’s purchase effectively represents about 13 days’ worth of Bitcoin production taken on by a single entity, creating speculation of supply concerns.

The presumption pointed toward an immediate and dramatic financial inflow into the Bitcoin ETF may be misguided. There has always been the potential for Bitcoin to experience consistent – even if relatively slow – capital inflows.

The circumstance represents a quintessential pattern of overestimating short-term impacts while concurrently underestimating long-term potentials. The situation underscores a transition phase in market realignment, signaling a need for cautious optimism.

Given the current landscape, investors should proceed with caution venturing into this space.