Bitcoin’s Future Post-halving and ETF Approval
Bitcoin has a volatile and exciting history, from being named the year’s best investment in 2013 to 2014’s worst investment. In this history, there’s an event that investors look forward to called the Bitcoin Halving. Since its inception in 2009, Bitcoin has had three halvings, and all have had investors scrambling to understand how the halving affects its market value. But there’s widespread anticipation surrounding Bitcoin’s fourth halving, mainly from a key event that happened earlier.
The U.S. government moved to adopt a policy that could change the landscape of Bitcoin and the wider crypto space forever. Being the world power they are, this move sent ripples throughout the markets. So, while the past three halving cycles have been associated with market bull runs, the next one may shock traders as no one knows what to expect.
In this article, I’ll discuss the halving, why the next one is important, the potential impact of the U.S. Bitcoin ETF approvals, how these can affect Bitcoin’s price and institutional interest, and Bitcoin’s possible future after both events.
What Is Bitcoin Halving?
To understand Bitcoin halving, you first need to understand “decentralization” and how Bitcoins are “produced.” Here’s the scope.
Fiat currencies are centralized, which means their supply changes under the rule of central banks. Bitcoin, on the other hand, has a fixed supply of 21 million Bitcoins. Since Bitcoin is a decentralized currency, no single entity can control or affect its supply, so there will only ever be 21 million Bitcoins in existence.
As you read this, just over 19 million bitcoins have been “produced” in a process called mining. Bitcoin mining is the process of verifying transactions on the blockchain by solving puzzles with hardware and software. Miners are rewarded with new bitcoins when they solve a puzzle.
Knowing this helps you understand the definition of Bitcoin Halving better. The Bitcoin Halving event was designed and embedded into Bitcoin’s blockchain code. So when the “halving” happens, the earlier-mentioned reward for Bitcoin miners gets cut in half. Since the first halving, the reward has been halved from 50 BTC → 25 BTC → 12.5 BTC →, and in just weeks, it will stand at 6.25 BTC.
Since the halving reduces the incentive for miners, the network automatically reduces the production rate of new coins. Based on the concept of supply and demand, we can assume the designer of this halving wanted to counteract inflation by maintaining scarcity.
Now, let’s explore why this next halving is surrounded by so much anticipation and why it could be the most special halving yet.
Why Is The Next Bitcoin Halving Important to Investors?
Bitcoin is a ruling body over every other coin. So, it’s safe to say it’s the most important coin in the digital market and that’s why previous Bitcoin halvings have had a massive impact on the market. The last three halvings have spurred widespread bull runs, but you should remember that three halvings are a small sample size.
In the last quarter of 2012, Bitcoin’s price was $12. Within 367 days, it shot up to $1,164, almost 100 times its previous value.
After the 2016 halving, the price of Bitcoin grew from around $650 to a new high of $19,712 over 524 days. The highest price Bitcoin has reached so far, more than $69,000, happened in November 2021, 549 days after the halving in 2020.
Even though past performance doesn’t entirely indicate future results, the potential price increase is a valid reason for investors to anticipate the halving. But that’s just one of the primary reasons for the anticipation. The other concerns an event that rocked the cryptocurrency space at the beginning of the year.
Potential Impact of U.S Spot Bitcoin Approval
In January 2024, the Securities and Exchanges Commission in the U.S. approved 11 new spot bitcoin exchange-traded funds [ETFs].
A spot bitcoin ETF is an exchange-traded fund that tracks the real-time price of bitcoin. The fund is backed by bitcoin, and an equivalent amount of bitcoin is held to back every share of the ETF that is sold.
These newly approved ETFs have inspired a significant increase in interest from institutional investors. This means the big boys will seek a slice of the $1.7 trillion digital asset pie.
As mentioned earlier, the reduction of Bitcoin mining can create what financial experts call a “supply shock.” But this shock can only happen if the demand for bitcoin grows — which the approval of the spot ETFs can create. The combination of both events can create a massive bull for investors.
This is why the next halving could be the most crucial crypto event we will witness in a while. Beyond the possible price increase and the increase in institutional interest, there’s still more to Bitcoin’s future post-halving and post-ETF approval.
The Bitcoin Market’s Possible Ladscaoe After Both Events
While the approval of a spot Bitcoin ETF and the halving are potentially bullish signals, Bitcoin’s future is promising yet complex. Analysts have varied views on Bitcoin’s mid-term outlook post-2024 halving. Some predict a significant rally fueled by the halving’s scarcity effect induced and the influx of institutional and retail investment following ETF approvals. For instance, approval of spot Bitcoin ETFs has injected optimism into the market, with some speculation that Bitcoin’s price could shoot up to $160,000. However, risks remain due to the market’s typical volatility.
We also have the halving cycle pattern that points towards a significant rally before the halving, a brief correction, a major bull run, and then a steep correction, with the all-time high occurring approximately 18 months post-halving.
Note: This pattern indicates that strategic buying and selling around the halving event could be beneficial.
In the longer term, beyond 2024, projections are even more optimistic. For instance, PlanB’s Stock-to-Flow (S2F) model predicts an extraordinary valuation for Bitcoin, suggesting that the reduced supply combined with growing demand could significantly elevate Bitcoin’s price.
But, while these predictions provide a bullish outlook, it’s crucial to remember that the cryptocurrency market is simply unpredictable. Factors such as regulatory changes, market sentiment, and technological developments will continue to shape Bitcoin’s journey significantly. Therefore, investors should approach cautiously, conducting research and considering multiple scenarios before making investment decisions.
Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as financial advice. The content is based on the author’s research and personal opinions and does not constitute professional financial guidance. Cryptocurrency investments carry risks, and readers should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.
