Factors affecting Bitcoin after Halving 2024

The article helps you understand the overall situation of Bitcoin during the 2024 Halving. What factors affect BTC and the market in general, and which project groups and narratives need attention during this Halving.

Looking back at previous Halving cycles

Halving is an event that takes place every 210,000 Bitcoin blocks (~ 4 years) when Bitcoin's block reward for miners will be halved. It is expected that the upcoming 4th halving will take place in April 2024. After this halving, the block reward for miners on each block will only be 3,125 BTC compared to 6.25 BTC at the present time, leading to a decrease in supply. Bitcoin's annual issuance is only 0.9%.

In previous Halvings, Bitcoin prices would often increase sharply after Halvings with the main story revolving around the issue of supply cuts. Specifically:

·      Halving 2012: price increased by 55,208% since the bottom of 2011.

·      Halving 2016: price increased by 11,274% since the bottom of 2015.

·      Halving 2020: price increased by 1,888% since the bottom of 2019.

·      Pre-Halving 2024: price increases 322% since the 2022 bottom (as of March 27, 2024).

However, a sample of only 3 times in the past does not tell everything. The main factor helping this asset class grow comes mainly from the demand and market perspective for Bitcoin. Unlike previous years, Bitcoin in 2024 has witnessed clear changes both within the ecosystem (Ordinal, Bitcoin layer 2, ...) and external impacts (Bitcoin ETF spot, current situation). macro,...). In the sections below the article, Coin98 Insights will analyze more deeply the differences of Bitcoin in this 2024 Halving.

Factors that may affect Bitcoin after Halving

Throughout mid-2023 until now, the expectation of spot Bitcoin ETFs being adopted has been the main factor driving the crypto market. Some consider spot Bitcoin ETFs to be news buying/selling events, but it cannot be denied the importance of this cash flow from the beginning of the year until now.

Huge cash flow from spot Bitcoin ETFs

Spot Bitcoin ETF is considered an important bridge to help attract cash flow from the financial market into the crypto market, especially after crypto banks go bankrupt in the period 2022-2023. Since the spot Bitcoin ETF was approved (January 10, 2024), more than 25 billion USD has flowed into the market, an average of about 418 million USD per day. According to Coinbase, the number of spot Bitcoin ETFs trading daily is at 4-5 billion USD, accounting for 15-20% of the total trading volume coming from CEX exchanges.

More than 2 months since launch, spot Bitcoin ETFs hold more than 180k BTC - 3 times the amount of Bitcoin mined during the same period. After Halving 2024, the number of BTC mined will be halved with only 450 BTC released each day. This further increases the imbalance between supply and demand for Bitcoin, causing upward pressure on prices in the post-Halving period.

Thus, the cash flow from Bitcoin ETF Spot helps increase the buying pressure on BTC combined with the supply that will gradually decrease after the halving event, this creates a more positive effect than Bitcoin in general..

Selling pressure from GBTC and Bitcoin holders

Besides the positive factors of increased supply and buying demand as mentioned above, we still need to pay attention to the selling pressure from Grayscale (GBTC - Grayscale Bitcoin Trust) and profitable Bitcoin holders. .

Currently, GBTC is holding about 343k BTC (~24 billion USD) accounting for 41.2% of the amount of BTC held by spot Bitcoin ETFs. Since spot ETFs were approved, GBTC has sold 274k BTC (14.66 billion USD) putting great pressure on the market. The main reason is that GBTC shareholders are taking profits after the GBTC price was discounted throughout 2023.

Besides, FTX and Genesis are also said to be the cause of the recent decline of the market after selling 1 billion USD and 1.3 billion USD in January and March of this year, respectively. Some large organizations also switched from owning GBTC to spot Bitcoin ETFs due to low management costs (0.3% compared to 1.5%) as well as tax incentives.

According to Glassnode, when Bitcoin price reached its ATH of 73.2k USD, long-term (LTH) and short-term (STH) Bitcoin holders recorded profits comparable to the 2021 bull market period. This also created unlimited selling pressure. small in the near future when Bitcoin holders can choose Halving as a news buying/selling event.

Macro factors are showing favorable signs

As analyzed in the Bitcoin 2024 Report, macro factors play an important role in helping to guide the financial and crypto markets in the long term. This has been reinforced by the recognition of Bitcoin as a new asset class making up a portion of the portfolios of traditional funds. One of the important indicators affecting the market is the expectation of the FED's interest rate in 2024.

During the FOMC (Federal Open Market Committee) on March 20, the Fed broke the signal about upcoming interest rate cuts, causing Bitcoin price to reverse from nearly 60k to 68k USD. With interest rates forecast to gradually decrease, borrowing costs will be cheaper, boosting investment demand in risky asset classes like Bitcoin in the near future.

Directions for investors after Halving

As analyzed above, cash flow from spot Bitcoin ETFs along with risk-on sentiment post-FOMC can strengthen Bitcoin's growth rate after Halving. However, investors also need to be careful with the significant selling pressure coming from GBTC and Bitcoin holders. Below are some prominent trends surrounding Bitcoin that are expected in the near future.

Focus on long-term projects

Normally, after each growth phase of Bitcoin (phase 1), there will be outstanding growth phases of the Altcoin group (phase 2). This is explained by Pantera Capital because investors will often choose crypto projects with technological potential that can bring superior profits compared to Bitcoin. In the two periods 2015-2018 and 2018-2021, ICOs project groups along with DeFi, GameFi and NFTs respectively led the growth of the Altcoin market.

Although there are projects that disappeared after previous Halvings or cycles, the crypto market still shows recovery and progress with continuous improvements. This is called the Crypto-Price Innovation Cycle by the a16z crypto fund when Bitcoin price will lead interest and cash flow, followed by technology. The current market has thousands of crypto (Altcoin) projects, so investors need to be alert and choose long-term projects to move forward with the market in the next bull-run period.

Projects surrounding the Bitcoin ecosystem

The Bitcoin ecosystem has evolved with outstanding innovations throughout the asset class's history:

·      Namecoin (2011)

·      Colored Coins (2012)

·      Counterparty and Omni Layer (2014)

·      Lightning Network (2016)

·      Stacks (2021)

·      Ordinals (2022)

·      BRC-20s, BitVM, TARO (2023)

Besides, important updates such as SegWit (2017) and Taproot (2021) have been continuously deployed by developers to explore the infinite potential of this digital currency.

The above changes have shown positive signs, creating an important premise for the birth of the Ordinals and Inscriptions trend by the end of 2022 through two proposals SegWit (BIP 141) and Taproot (BIP 341).

In December 2023, the trading volume of NFTs on Bitcoin (Ordinals) accounted for more than 50% of the market share of the entire NFTs segment, creating a great buzz in the crypto community. The above success has attracted builders to build and create new initiatives around the Bitcoin ecosystem, opening up the "Build on Bitcoin" movement.

If compared with Ethereum in terms of DeFi ecosystem, the development potential of the Bitcoin ecosystem is extremely large when Bitcoin's TVL/Mcap index is only at 0.056% compared to 12% for Ethereum (March 28, 2024). ). However, due to the use of Script programming language, Bitcoin is limited in its compatibility with complex smart contracts, making scalability and ecosystem development challenging. From there, promoting the birth of Bitcoin or Bitcoin Layer 2 expansion solutions.

Before 2023, Bitcoin scaling solutions mainly revolve around State channel (Lightning Network) and Sidechain (Stacks, Liquid, Rootstock) due to technical limitations. However, after the Taproot update (2021) and the BitVM initiative (2023), Bitcoin can fully interoperate complex virtual machines such as EVM to create opportunities for Rollup scaling solutions on Bitcoin.

Once the infrastructure layer has been completed, the application layer puzzle pieces will play a role in creating games to attract users to the Bitcoin ecosystem. Halving will act as a catalyst to stimulate community attention to this ecosystem in the future.

Epilogue

Looking at the past, it can be easily assessed that Halving is a factor driving Bitcoin's growth. However, this expectation is somewhat more speculative than real implications for Bitcoin.

Recent changes coming from cash flows from spot Bitcoin ETFs, liquidity factors or legitimate recognition from traditional organizations are the premise for more sustainable development of Bitcoin and the market during the cycle. next. Halving 2024 is expected to be a turning point for the market, opening a new cycle with new stories. Investors need to open their minds to receive opportunities in the next cycle.