In 2024, a transformative period for digital assets, particularly Bitcoin, is underway. The recent approval by the U.S. Securities and Exchange Commission (SEC) of a spot Bitcoin ETF and the approaching halving event in April promise substantial shifts in both supply and demand. Grasping these transformations is crucial for understanding the evolving role of digital assets in fostering global financial accessibility.
On the demand side, the SEC’s green light for a spot Bitcoin ETF opens avenues for a surge in new investors seeking direct exposure to Bitcoin’s price through traditional investment accounts. This move allows investors to bypass the intricacies of cryptocurrency exchanges, opting for a familiar investment vehicle in the form of an ETF. Consequently, Bitcoin is poised to experience enhanced liquidity and increased price stability. Equally significant is the SEC’s approval, marking a noteworthy milestone in Bitcoin’s acknowledgment by established financial institutions.
Concerning supply dynamics, Bitcoin’s scarcity intensifies approximately every four years during each halving event. The upcoming halving in April 2024 entails a reduction in Bitcoin miners’ rewards by half, lowering the issuance rate of new Bitcoins by 50%. The ensuing block reward will be 3.125, a decrease from the current 6.25.
Historically, each halving event has correlated with substantial surges in Bitcoin prices in the subsequent months and years (refer to the chart). While the event’s timing is foreseeable, the market will require time to establish a new price equilibrium, mirroring patterns observed in Bitcoin’s previous halvings.
On May 11, 2020, Bitcoin underwent its most recent halving, reducing the block reward from 12.5 BTC to 6.25 BTC. Post this event, Bitcoin has exhibited a remarkable Compound Annual Growth Rate (CAGR) of 52%, with the swiftest growth observed within the initial 9 to 12 months following the halving. This pattern echoes the outcomes of previous halving events in 2020.
These intertwined elements construct a compelling rationale for investing in Bitcoin, presenting a potential entry opportunity. Utilizing a stock-to-flow model, an approach aiming to quantify the value of an asset with limited supply, we ascertain that the implied value of each Bitcoin in April 2024 hovers around $62,000. This reflects an approximately 34% surge relative to current prices, as of January 10th.
The terrain of digital assets, notably Bitcoin, is poised for substantial transformation in the current year. The green light given by the SEC for a spot Bitcoin ETF and the upcoming halving event in April are poised to redefine the dynamics of Bitcoin’s supply and demand.