21Shares report

21Shares Report:
How is the Fourth Bitcoin Halving Different?Original : ZHBitcoin is still showing new vitality after its halving, with net inflows of more than $10 billion into the U.S. Bitcoin Spot ETF and positions of more than 400,000, the market is optimistic, investor confidence is increasing, and the uses of Bitcoin are expanding, with plenty of room for growth in the future.
——Generated by ChatGPTBitcoin no longer has only savings value, halved and still has new life.**Written by: 21Shares
Compiled by: Peng SUN, Foresight News> TL;DRThe U.S. Bitcoin Spot ETF has seen net inflows of over $10 billion and positions of over 400,000, already exceeding the annual supply (~164,000) after April's halving.With a $7 trillion ETF market in the U.S., four times the size of Europe, bitcoin's market capitalization would double with just 1% of the money flowing in.The supply of bitcoins is dwindling, with exchange balances now at 2.3 million, a five-year low.Long-term investors who have held Bitcoin for more than 155 days saw their BTC positions fall from 14.9 million to 14.29 million, accounting for nearly 70% of the total supply, while short-term holders saw their BTC positions increase from nearly 2.3 million to 3.07 million, an increase of more than 33%.Bitcoin has hit all-time highs, but the giant whales who hold more than 1,000 BTC are not selling, believing that BTC still has a lot of room to grow. compare this to March and October 2021, when the giant whales sold Bitcoin for $60,000 and then BTC hit all-time highs.In terms of MVRV Z-values, bitcoin investors have been catching up over the past month, but it still suggests that we may be in the early stages of a bull market.With net unrealized gains and losses (NUPL) currently averaging 0.6, the market has not yet entered the extreme greed phase due to ETF inflows preempting expected market activity after the halving, and if the carve out is made, then Bitcoin is likely to consolidate over the next few weeks.Bitcoin no longer has only a savings value, and Ordinals, BRC-20 tokens, BTC L2, and others will drive more demand for Bitcoin and expand its use cases.In April 2024, Bitcoin will be halved for the fourth time, and the 12-month period following each halving has been a strong one for Bitcoin's price, but this one seems to be different, as Foresight News compiles the highlights of 21Shares' Bitcoin Halving Report, which delves deeper into the impact of the 2024 halving and how it will affect the Bitcoin market, the mining industry, and the ecosystem as a whole.What are the implications of Bitcoin's four-year halving cycle?Why is it halved every four years?While we don't really know why Satoshi Nakamoto set a four-year halving cycle, the cycle coincides with major events such as the U.S. election, creating uncertainty in the markets.Since U.S. fiscal policy has a strong impact on the global economy, the halving of bitcoin could be seen as intentionally providing stability to the volatile traditional financial system during a time of political transition.Of course, the four years, while not an exact match, could be a psychological benchmark, such as a traditional economic cycle, an election, or a major sporting event.How does halving affect the price of Bitcoin?Bitcoin halving is having less and less of an impact, with the growth from each halving declining. bitcoin surged about 5,500% in the cycle after the first halving, about 1,250% in the cycle after the second halving, and about 700% in the current cycle.In other words, Bitcoin's steady growth over the years is indicative of a maturing market. explosive growth is often accompanied by hype and speculation, while a more sustained rate of growth suggests increased stability and wider application, similar to traditional assets such as gold.However, one big difference in this cycle is the exogenous demand from ETF inflows, which caused Bitcoin to break out of its all-time highs before halving, and so is likely to lead to a new round of growth unlike anything seen before. of course, this could also stem from a supply shock, which we will explain further below.How does the halving affect miners?The impact of the halving of bitcoin on miners includes several aspects, such as a reduction in block rewards, and changes in profitability and operating costs, but these are all dependent on the bitcoin price at the time.For example, while block rewards may decrease, the price of bitcoin will rise accordingly. for example, miners such as Marathon and Core Scientific will choose to refinance their loans to avoid mine closure.Of course, miners are not in a bad way. if miners drop out of the network, mining becomes less difficult, which reduces electricity bills and makes bitcoin mining more cost-effective. at this point, miners also rejoin the network, which increases arithmetic power. conversely, some miners may dump bitcoins, which we'll explore further in conjunction with other alternative metrics that can help estimate their dumping pressure.What will miners do before halving?Deposits from miners to exchanges are an important indicator. typically, miners sell BTC to cover operating costs such as electricity and hardware expenses. however, in the current halving cycle, miners are selling less compared to previous cycles.Throughout February 2024, miners deposited an average of 127 BTC into exchanges, nearly 70% less than in the previous cycle: between February and March 2020, miners deposited 417.4 BTC into exchanges. however, it is important to note that miners have to pay for their operating costs in US dollars and the increase in the price of bitcoin following the passage of the ETF has also contributed to the decrease in the amount of BTC being sold off.The Halving Effect: Bitcoin's Four-Year Cycle CompassHistorically, Bitcoin has performed very well in the 12 months following a halving. on average, it takes 172 days for Bitcoin to break above its previous ATH after a halving, and 308 days to reach a new cycle top after a breakout.However, with Bitcoin currently trading around its ATH, it appears that the current cycle may behave differently, as in the past, Bitcoin has traded on average 40-50% above its previous high in the weeks leading up to the halving.Additionally, Bitcoin had its strongest monthly positive trend in history in February.How is this halving cycle different?This bitcoin halving seems to be different from the past, with more and more organizations adopting bitcoin, and more and more bitcoin being used.Let's explore the current supply and demand for bitcoin so that we can better analyze the differences in each.Demand Side: ETF Buying PressureAs Bitcoin has continued to grow in recent weeks, interest in the US spot ETF has increased, attracting over $10 billion in net inflows to date. that's an average of around 2,500 Bitcoins (~$150 million) over 14 days, which is three times the daily new BTC output (900), and close to 5.5 times that (450) when cut in half.As seen in the chart below, the ETF holds over 400,000 Bitcoins, already more than Bitcoin's annual supply (~164,000) after it was cut in half in April.Additionally, based on Glassnode's averages for Highly Liquid and Liquid Assets, along with short-term holder supply and exchange balances, current demand is already covering ~4.5% of Bitcoin's available supply, totaling ~4.7 million BTC.Additionally, the U.S. has a $7 trillion ETF market, four times the size of Europe, and before ETFs were approved, 77% of asset managers were reluctant to invest in bitcoin. in the U.S., where registered investment advisors manage about $114 trillion in assets, they are mandated to invest in a new product 90 days after it is launched, so as little as 1% of the money allocated to bitcoin could trigger a massive inflow, doubling the market cap and tightening supply.Banks such as Wells Fargo and Merrill Lynch are already offering spot bitcoin ETFs to some of their wealth management clients, while Morgan Stanley is reportedly evaluating bitcoin funds for its brokerage platform.Cetera is also one of the first wealth managers to formally roll out a formal policy on bitcoin ETFs, marking the beginning of a new wave of demand.Supply side: growing illiquidityInvestors who have held bitcoin for more than 155 days are very strong believers in bitcoin. bitcoin holdings by long-time holders spiked to an all-time high (14.9 million) in december, before falling back to around 14.29 million today (nearly 70% of total supply).•Similar to 2017/18 and 2020/21, the current cycle has seen long-term holders gradually sell higher since the ETF's adoption to date.•However, while the BTC holdings of long-term holders fell from 14.9 million to 14.29 million (a 4% drop), the BTC holdings of short-term holders surged from nearly 2.3 million to 3.07 million, an increase of more than 33%. an equilibrium has developed between the two groups, which usually occurs early in a bull market after a halving, but is now occurring earlier due to the exogenous demand for ETFs, leading to a near-neutralization of the market's forces.•In this scenario, BTC's exchange balances would hit a five-year low of 2.3 million pieces, reinforcing the idea that BTC's supply is plummeting.•If this trend continues, the supply side of Bitcoin will become increasingly illiquid, setting the stage for a supply crunch and a potential explosion of a parabolic bull market.Change in chain before halvingMarket Value to Real Value Ratio (MVRV - Z-value)Market Capitalization to Real Value Ratio is a metric that assesses the valuation of Bitcoin by comparing its current market capitalization to the real value of Bitcoin. real value is the total value of all BTC based on their last traded price, and essentially represents the average purchase price of all BTC in circulation. z-value standardizes the MVRV metric by measuring the standard deviation of the current MVRV from the historical average. if the market capitalization is a few times higher than its real value, it indicates that the BTC are considered to be over-valued, which historically has been a sign that the market is topping out, and vice-versa.Bitcoin's current MVRV Z value is around 3, which is in stark contrast to February 2021 when it was around 6. However, Bitcoin appears to be showing a slight bias in the current cycle when compared to previous halving. this is specifically reflected in the large increase in Bitcoin's real-world price, which has averaged 2.4 over the past 30 days, compared to an average of 1.07 over the same time period over the past three cycles. this suggests that investors may have been catching up in the recent past, as the realized price is reflective of the last price at which each Bitcoin was traded. while MVRV is at the high end of the range when compared to historical averages, it is still indicative of the fact that we may be in the early stages of belief in the Bitcoin bull market; as the passage of ETFs has likely preempted the BTC price, which no longer revolves around just the sentiment of the markets, and the narratives associated with halving.Net Unrealized Gains and Losses (NUPL)We observe something similar with Net Unrealized Profit and Loss (NUPL), which evaluates the profitability of bitcoin holders by comparing the current market value of their holdings to the original purchase price, a good indicator of market sentiment, with 0 representing extreme fear and 1 representing extreme greed.Currently, the NUPL has an average of 0.6, indicating that bitcoin greed has not yet peaked, unlike the average of 0.7 during the February-March 2021 period when bitcoin rose to $60,000.However, comparing Bitcoin's current average NUPL to that prior to the three previous halving events (two months prior) reveals a growing bullish sentiment in the Bitcoin market, with Bitcoin's current average NUPL at 0.6, compared to the previous cycles' average NUPL of 0.42. This further argues for our view that ETF inflows are preempting the expected market activity following the halving, and that if the carve-out is made, Bitcoin is likely to consolidate in the coming weeks.Looking at the data on the chain, this cycle is already behaving slightly differently and may be tilting the cycle to the left.Halving coincides with a favorable market structureWhile 2024 is the 'halving year' for Bitcoin, it also coincides with other favorable factors for Bitcoin, which creates a dynamic mix of supply and demand that is worth watching:•Improving Macro Environment: As the Fed has held rates steady for the past two meetings, the market expects a 39% probability of at least one rate cut by June 2024 and a 51.9% probability of one cut by December 2024, according to the CME FedWatch tool. uncertainty about a rate cut will persist as a series of conflicting data point to persistent inflation.•ETF Buying Pressure: The approval of the U.S. Spot ETF has been beneficial to Bitcoin's market structure, having attracted over $10 billion in net inflows since its launch, and holding over 400,000 BTC to date, more than 240% above the halved annualized mintage.•Long-Term Holders Contribute to the Illiquidity of the BTC Supply: As if halving the supply didn't have enough of an impact, the Bitcoin supply held by long-term holders (i.e., investors who haven't transferred their BTC in at least 155 days) has stabilized at around 14.29 million BTC as of March 15, 2024, which is roughly 70% of the circulating supply of BTC.•Bitcoin has hit all-time highs, but the mega-whales remain unmoved: despite the staggering rise in bitcoin since the launch of the ETF, the mega-whales, who hold positions of more than 1,000 BTC, didn't sell when the market strengthened. even when bitcoin reached $60,000 (in March and October 2021, the mega-whales sold at $60,000 and then BTC hit all-time highs), investors showed faith in bitcoin, suggesting that they believe that the current uptrend still leaves a lot of room to grow. despite the fact that as of March 1st, 99.6% of the circulating supply of bitcoins was in the red, the sentiment is still bullish.•In summary, the largest crypto assets are generally bullish considering all factors.We conclude that the current cycle may indeed be slightly different.While investors should be warned that Bitcoin is still a relatively volatile asset and could see a pullback, it is conducive to entering a new bull market.After halvingOften we think of Bitcoin as having only savings value left, but after halving it still has a new lease on life.Fundamentally, we expect innovations such as Ordinals and BRC-20 tokens to drive more demand for Bitcoin and expand its use cases. This is critical because it ensures that miners will be able to survive on transaction revenues, and block rewards will continue to decrease in 2140. because of Bitcoin's finite block sizes, transaction fees will increase when demand for transactions increases.In 2023, transaction fee revenues for miners increased from approximately 0.73% at the beginning of the year to over 30% by December 2023, with daily transaction fees at times exceeding $15 million.1 The increase in transaction fees is likely to affect the price of smaller transactions and drive greater adoption of Bitcoin Layer2 such as Lightning Network, Stacks, and others.However, Bitcoin scaling has also caught the attention of the market. Just like the early Ether Layer2 solutions (Arbitrum, Optimism, Polygon, etc.), projects focusing on Bitcoin scaling are making inroads into Bitcoin by introducing a variety of scaling solutions based on Optimitic Rollups and zkRollups. While their long-term development is unpredictable, they are conducive to unlocking more utility from Bitcoin or even achieving large-scale growth, as Ether has done. Of interest is the fact that Bitcoin TVL soared by a factor of seven in March, to $2.7 billion, ranking amongst the top 6 largest networks, led by the two new Layer2s.