Why 2024 Will Be the Year of Bitcoin?

2024 is already shaping up to be a transformative year for digital assets, especially Bitcoin. With the SEC approving a spot Bitcoin ETF last week, and Bitcoin’s next halving event scheduled for April, we expect significant shifts in both supply and demand. Understanding these shifts is critical to understanding the role digital assets may play in the coming years as they help facilitate global financial accessibility.

On the demand side, the SEC's approval of a spot Bitcoin ETF will open the door to a large number of new investors seeking to invest in the price of Bitcoin directly in their traditional investment accounts. They can now abandon the complex trading of cryptocurrency exchanges and use a familiar investment tool - ETFs. This will give Bitcoin higher liquidity and greater price stability. Equally important, the SEC's approval is an important milestone in Bitcoin's growing legitimacy among established financial institutions.

As for supply, Bitcoin's scarcity increases approximately every four years with each halving event. A Bitcoin halving is the process by which the reward for Bitcoin miners is cut in half, reducing the rate of new Bitcoin issuance by 50%. The next halving is expected to take place in April 2024, when the block reward will be 3.125, compared to 6.25 today.

Historically, this has led to a significant increase in the price of Bitcoin in the months and years that followed (see chart). While the actual timing of this event is predictable, it takes time for the market to find a new price equilibrium. Looking at Bitcoin's previous halvings, we see significant growth in the months and years following each halving.

Bitcoin’s last halving occurred on May 11, 2020, when the block reward dropped from 12.5 BTC to 6.25 BTC. Since the event, Bitcoin has grown at a compound annual growth rate of 52%, with the fastest growth occurring in the first 9 to 12 months after the event. The previous halving in 2020 produced a similar situation.

The combination of these factors provides a compelling investment case for Bitcoin and a potential entry point. Using the stock-to-flow model, which attempts to quantify the value of an asset with a limited supply, we find that the implied value per Bitcoin in April 2024 is approximately $62,000, a roughly 34% upside to current prices, as shown below: January 10th.

The landscape of digital assets, especially Bitcoin, is set to change significantly this year. The SEC’s approval of a spot Bitcoin ETF and the April halving event will reshape Bitcoin’s supply and demand dynamics.