As the Halving Approaches, is the Bitcoin (BTC) Run-Up Sustainable?

The price of Bitcoin has risen to levels not seen since November 2021, when the last bull market topped $69,000.

On Wednesday, BTC price went past $61,000, seeing an increase of more than 281% since the Nov. 2022 low of under $16,000. Meanwhile, in 2024, the price of the crypto king has risen 41% to yet again become a trillion-dollar asset.

As of writing, BTC/USD has been trading at $60,760, up 19% in the past seven days. In tandem with Bitcoin, the shares of crypto exchange Coinbase (COIN) also climbed to $207, up from $69 in Sept. 2023 and about $30 from Dec. 2022. Similarly, MicroStrategy (MSTR) started rallying pre-market and is now trading above $962, up from $440 just over a month ago and about $145 at the beginning of 2023.

Earlier this week, MicroStrategy’s Chairman Michael Saylor announced that the company had increased its BTC holdings by 3,000 between Feb 15 and Feb 25 at an average price of $51,813 per coin, putting its total Bitcoin stash to 193,000 BTC worth nearly $11.39 bln at current prices.

As the largest cryptocurrency by market cap surges, it has taken other assets up with it, too, which has sent the total crypto market cap to $2.37 trillion.

The second-largest crypto, ETH, has also exceeded $3,300. Meanwhile, the biggest gainer among the top 100 crypto assets this past week has been PEPE, which rallied more than 200%. Dogwifhat (WIF) is another big winner whose price jumped 120% during this period.

While altcoins are recording significant gains, too, Bitcoin is the clear winner in terms of attention right now as it prepares for its biggest monthly gain since Oct. 2021. With that, Bitcoin open interest (OI), which is the total number of open contracts, hit a new high at 446.9 BTC, equivalent to $26.5 bln, as per CoinGlass. These numbers surpassed the record $24.27 bln hit in April 2021 and $23.06 bln in Nov. more than two years ago.

Earlier this month, the OI was $16 bln, and five months ago, it was $10.9 bln. This increase in OI represents new money coming into the market, painting a bullish picture. 

Currently, the Chicago Mercantile Exchange (CME) is leading the pack in terms of OI at 127.9k BTC (worth $7.58 bln), commanding over a 30% total market share. The global derivatives marketplace is followed by Binance at 110.73 BTC ($6.57 bln), then Bybit at 73.50k BTC ($4.35 bln), and OKX at 41.9k BTC ($2.5 bln).

These numbers have market sentiments falling under the ‘greed’ category, with the Crypto Fear and Greed Index now having a reading of 82 out of 100.

While the heightened market sentiments and constant positive momentum have some expecting and calling for a dip, others are seeing a higher possibility of Bitcoin hitting a new ATH before the halving. As Katie Stockton, founder of Fairlead Strategies, wrote, “We do not expect a major pullback from Bitcoin given its breakout and positive intermediate-term momentum.”

When it comes to ATH, we have to account for inflation over the past two years, which means BTC would need to reach at least $76,000 to match the spending power of the previous $69,000 ATH. While these numbers seem achievable in the near future, what exactly is driving this rally? FOMO (fear of missing out) could be a major factor, but it looks like this time, institutions can’t get enough of the digital currency. This is evident in the record inflows seen by spot bitcoin exchange-traded funds (ETFs) that only launched last month.

“We’re seeing evidence of elevated interest from both retail and institutional looking to get exposure to digital gold. History suggests even steeper and more violent rallies are ahead.” 

– Matthew Sigel, head of digital asset research at VanEck

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Bitcoin Spot ETF Flows: Institutions Buying Bitcoin

Bitcoin has been outperforming traditional assets such as gold and stocks. These latest gains have been on the back of renewed interest in the largest cryptocurrency by market cap after the US Securities and Exchange Commission (SEC) approved the first Bitcoin spot ETF on Jan 10. 

Tuesday, as Eric Balchunas, a Senior ETF Analyst for Bloomberg, noted, has been an “intense” one with more than $2 bln recorded in traded volume collectively by nine ETFs and ​​10,167.5 BTC net inflow. This comes after the volume hit a high of $3.2 bln last week, indicating extremely strong bullish sentiments.

This activity is led by BlackRock’s IBIT accounting for $1.3 bln of the trading volume recorded on Tuesday. The asset manager giant’s Bitcoin ETF product also saw $520 mln in net inflows, which is “more than most large-cap US stocks trade.” 

So far, BlackRock has gathered $6.54 bln in total to lead the Bitcoin spot ETF race. Then comes Fidelity with $4.47 bln, Ark at $1.5 bln, and Bitwise at $1.1 bln. In contrast, Grayscale has seen a total of $7.59 bln in outflows. This brings net inflows to $6.7 bln.

These nine newly approved spot Bitcoin ETFs in the US now have more than 300,000 BTC worth more than $17 bln, as per data from K33 Research. This represents 1.5% of the 19.64 million BTC supply currently in circulation. 

These ETFs are not just proving to be a success, but a roaring one at that, as institutional investors run to get their hands on Bitcoin in a regulated manner. In less than two months, these newly launched Bitcoin ETFs have managed to pull in so much capital that they are already poised to exceed gold funds.

“Bitcoin ETFs, though barely six weeks old, have taken in over $8 billion more than gold peers, already have 40% as much in assets and could pass them in size in less than two years,” wrote Bloomberg analysts Eric Balchunas and Andre Yapp.

Interestingly, while Bitcoin products have been attracting investment, gold funds have been seeing net outflows. SPDR Gold Shares, one of the largest gold ETF funds, has seen $2.7 bln in net outflows, while BlackRock’s iShares Gold Trust had $350 million flowing out since January. Analysts believe Bitcoin ETFs have added competition for the precious metal. Is it the right time to find a new utility for gold as a generation moves away from seeing it as a “store of value?”

However, institutions aren’t only interested in Bitcoin, as they are now eyeing Ethereum for such a product. BlackRock CEO Larry Fink has said he “sees value” in Ethereum Spot ETF.

Besides ETFs, Bitcoin ETPs are now also gaining traction, with Vetle Lunde, Senior Analyst at K33 Research, noting in a tweet that these products are nearing 1 million BTC under management, up 133,300 BTC year-to-date (YTD).

In addition to all this, institutional demand speculation also has a role to play in Bitcoin’s rally, as Glassnode noted in its Feb 27 newsletter. The on-chain market intelligence firm indicated that investors are increasingly seeking risk, citing “growing signs of speculation appearing across capital flows, exchange activity, derivatives leverage, and even institutional demand.”

According to Glassnode, the inflow of exchange volume is recording levels previously not seen. These volumes are dominated by short-term holders who are depositing over $2 billion to platforms every day, pointing to “a relatively strong demand for speculation and trading activity.”

Glassnode further highlighted a “steady and healthy inflow of capital” into Bitcoin, which has led to the average investor now holding an unrealized profit of over 120% per coin. It then noted that the recovery rally for BTC is nearing its completion. 

Upcoming Halving: More Upside or Is This Time Different?

While inflows are currently ruling the market, another big event is fast approaching, which has historically led to a significant increase in Bitcoin prices. 

For instance, in 2016 halving, the price of Bitcoin was around $660 before the event, surging past $2,000 a year later. Similarly, in May 2020, BTC price was about $8.7K, soaring to $69k in April 2021.

This event is halving which occurs every 210,000 blocks where miners’ block reward gets cut in half, aligning with the historical four-year cycle. Estimated to be in April 2024, the event will bring the reward from 6.25 BTC to 3.125 BTC. 

Unlike fiat currency, which central banks can print in unlimited amounts, Bitcoin has a fixed supply of 21 million. On top of it, the largest decentralized network regularly cuts down the supply, making BTC an anti-inflationary asset.

Despite being a known event that occurs without fault, halving tends to instill optimism and drive a bullish trend in the crypto market every time. The positive price movement can be attributed to demand and supply dynamics. As Bitcoin’s supply issuance goes down by 50% while demand remains the same or, in the current case, increases, this translates to an increase in price.

In addition to the demand-supply economics, the narrative has a huge role here as the event tends to bring the world’s attention to the cryptocurrency space, and as the price starts going up, people start feeling the FOMO, creating a frenzy of Bitcoin buying, driving up its value.

This impending supply squeeze can make this rally even crazier as miners fail to keep up with the growing demand. Moreover, about 80% of BTC supply hasn’t changed hands in the past six months, further adding to the upward price pressure.

With the market seeing further upside potential, it is interesting to note that historically, Bitcoin price’s ATH typically does not coincide with halving events; rather, they occur six to eighteen months afterward. 

However, we are already a mere 13% away from hitting 2021 ATH, and when inflation is adjusted, we need only about a 24.5% upside for new highs. Given that halving is the most anticipated event of the crypto market, it won’t be out of bounds to expect a similar momentum in Bitcoin price this time as well.

What’s Next? Factors to Fuel the Run-up

As of now, halving and the continued inflows in Bitcoin ETFs are the biggest drivers for BTC price. In a research report, investment banking firm Benchmark analyst Mark Palmer estimated Bitcoin’s price to rise to $125,000 driven by a “boost in demand… from the launch of multiple spot bitcoin ETFs… (and) the reduced pace of supply resulting from the halving.”

Meanwhile, Standard Chartered’s head of crypto research, Geoff Kendrick, Bitcoin spot ETFs, see a further influx of capital from the 401(K) market entering the crypto space.

401(k) plans, as per ICI, hold a whopping $6.9 trillion in assets on behalf of millions of former employees and retirees. One of the spot Bitcoin ETF issuers, Bitwise, is actually targeting financial advisors and family offices, which is a “many trillion dollar market.” 

Kendrick expects spot Bitcoin ETFs to see $50 bln to $100 bln in net inflows this year alone. However, he is even more bullish on the spot Ether ETF in May. He actually expects the price impact to be “even greater” for ETH due to the proxies, such as the Canadian ETFs, European ETFs, and Grayscale’s ETHE, being a smaller percentage of the market cap than that of Bitcoin. Kendrick said in an interview with Yahoo Finance:

“So the build-up of excess demand is more likely to be even larger for ether than it was for bitcoin.” 

Meanwhile, JPMorgan Chase expects the resurgence of retail investor interest to act as a key catalyst for Bitcoin and Ether prices in the coming months. As per the global investment bank’s analysts, on-chain data shows that retail investor activity far outpaces institutional flows. The bank further pointed to recent reports from Robinhood, PayPal, and Block showing net positive BTC purchases by their customers in Q4 2023, which coincides with a surge in retail activity on Coinbase.

“The revival of the retail impulse in February perhaps reflects the anticipation of three main crypto catalysts over the coming months,” wrote the bank, pointing out that two of these, the Bitcoin halving event and the next major upgrade of the Ethereum network, are mostly priced in but the approval of spot Ethereum ETFs in coming months has 50% possibility.

Interestingly, this uptick in crypto prices has been despite the Federal Reserve keeping interest rates higher. And if the central bank does end up cutting rates, it might help the prices even further. 

Another positive event for crypto prices could be the spot ETFs in Hong Kong. Earlier this year, several companies in the region, including Venture Smart Financial Holdings and Harvest Fund, shared their plans to launch their spot ETFs for BTC and ETH, which can happen as early as the first half of this year. Reportedly, about ten fund companies are looking to launch spot crypto ETFs.

In addition to it all, 2024, which is treating Bitcoin handsomely, is the year of elections. With the US election introducing uncertainty, it can also help shape Bitcoin’s trajectory. A recent Grayscale survey revealed that about half of young voters who own crypto at higher rates than equities are considering candidates’ positions on crypto before casting their votes. So, the 2024 US presidential election can have a profound impact on not just Bitcoin but the broad crypto market, especially in terms of more crypto-friendly regulations.

Overall, it’s an exciting time to be in Bitcoin and the crypto market as we seem to prepare for yet another crazy bull rally.

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