“Bitcoin’s imminent halving is coinciding with unprecedented demands from new ETFs from firms like Blackrock and Fidelity. Analysts think it could lead to explosive growth for the asset through the end of 2024.”
Bitcoin’s supply is capped at 21 million units, a characteristic that has drawn the interest of countless investors as evidenced by the more than $25 billion flowing into spot exchange-traded funds (ETFs) since the beginning of the year.
This surge in demand is occurring at a time when bitcoin’s supply is becoming increasingly constrained. More than 19 million units of the digital currency have been mined and the percentage of bitcoin available for trading on exchanges recently fell to the lowest amount in more than six years.
Plus, the amount of new bitcoin issued by the network will drop from 900 to 450 units per day this month as part of a pre-programmed supply reduction called the “halving,” which occurs every four years. The halving is scheduled to occur on April 16, 2024. All these factors could lead bitcoin’s price to top $100,000 by the end of 2024.
It took more than 10 years for the Securities and Exchange Commission (SEC) to approve an application for a spot-based bitcoin ETF. This pent-up demand led to record-breaking debuts for the products issued by blue chip firms like BlackRock, Fidelity, and Invesco. The 10 new spot bitcoin ETFs now have $35 billion in assets under management, most of which is new inflows.
In the several weeks since the government agency approved these ETFs on January 11, these funds have already been demanding far more bitcoin than miners produce. According to a graphic posted on X by BitMEX Research on April 4, which shows the daily net inflows into spot-based bitcoin ETFs, these funds provided a total demand of 216,469 units of bitcoin between January 11 and April 3.
While there are 57 trading days during this above-mentioned time frame, there are 84 calendar days. If you divide the total demand for bitcoin during this period by the number of calendar days, you get a figure of 2,577 units per calendar day. This is the average daily demand associated with these funds in the several weeks since the SEC gave spot-based bitcoin ETFs a green light. This figure is already about 2.86 times the amount of the 900 digital currency units that bitcoin miners create every day.
Assuming the average daily demand figures remain steady, when the halving will take place, and the rate of supply will be dropping to 450 units per day, these funds will be purchasing approximately 5.7 times as much bitcoin as miners will be supplying daily.
If net inflows into these spot-based bitcoin ETFs increase, which could happen given that many large asset management platforms have not yet onboarded these products, the figure could be significantly higher later in the year.
The above-mentioned supply-demand dynamics are also taking place at a time when the fraction of bitcoin available for trading on exchanges recently fell to 11.75% of total supply, the lowest since December 2017.
Outside of these dynamics, It is important to note that halvings have historically been bullish in their own right. In the roughly 150 days following the 2016 and 2020 halvings, bitcoin prices climbed close to 16% and 24%, respectively.
Demand for bitcoin is likely to continue outstripping supply for the foreseeable future. Bitcoin ETFs’ current demand for the digital currency already exceeds the new supply being generated by miners by a factor of roughly 2.8-to-1. But that is an underestimation of total demand. This does not include the bitcoin purchased by anyone directly on exchanges. As a result, the disparity between demand and supply is more severe than the factor of 2.8-to-1 referenced above.
In April, the daily issuance of new bitcoin will be cut in half to an average of 450 per day. This would create a ratio of roughly 5.7 times (2,577 units of bitcoin purchased vs 450 newly issued units of bitcoin). Again, that is only taking into consideration bitcoin purchased through the ETFs and not bought directly on exchanges. But what could make this halving boost even more explosive is the fact that current holders are not selling like they did during past cycles.
During the large run ups of 2010, 2013, and 2017, the supply available to be traded was increasing. Contrast that to today: this will be the first full cycle in which the available supply on exchanges will be decreasing. One possible explanation for why net inflows into bitcoin ETFs have been so high over the last several weeks is that market participants are front running the expected post-halving price jumps.
However, most of the analysts questioned for this research report were skeptical that this is the case. From our conversations, most investors are allocating to bitcoin for two main reasons: first as a hedge against further currency debasement resulting from our debt growing at an exponential pace; second, bitcoin has a low historical correlation to traditional asset classes and increases the diversification of a portfolio. Investors should not be surprised if they see bitcoin struggle immediately after the halving, both due to historical patterns and the asset’s struggles to definitively break through the $70,000 threshold.
This is the fourth halving and the pattern after the first three is: run up to the halving, a bit of a drop off and sideways movement for a couple quarters after that, and then the real bull market begins. If the market follows that pattern after this halving, the real bull market will begin in Q4 of this year and continue well into 2025. Amid these developments, the digital asset’s price will go in the next few years, bitcoin prices possibly reaching $100,000 in 2024.
Michel Ouellette JMD, ll.l., ll.m.
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J. Michael Dennis, ll.l., ll.m.
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