How does Bitcoin halving affect subsequent investments?

More and more institutional investors are attracted to Bitcoin, with more than $1 billion injected into Bitcoin in just two months. This can be said to be a bellwether for the recovery of cryptocurrencies, indicating a promising trajectory for the market in 2023 and beyond. Bitcoin is gradually gaining recognition from institutional investors and is seen as an orthodox asset class with considerable long-term growth potential. In addition, the combination of Bitcoin's limited supply and the upcoming halving event enhances its appeal, especially for investors seeking scarcity, as well as the potential launch of a Bitcoin ETF.

Institutional investment in Bitcoin exceeds $1 billion

CoinShares published its latest weekly report* on November 13, highlighting the narrative of money flowing back into Bitcoin and altcoins. Bitcoin, Ethereum and some major altcoins are experiencing price gains as excitement grows over the potential approval of the first US ETF.

According to TradingView, the entire cryptocurrency market cap has increased by $600 billion since November 2022. As detailed in the CoinShares report, funds invested in cryptocurrency investment products have increased significantly in the past two months. The report disclosed: "Inflows into digital asset investment products totaled $293 million last week, pushing the seven-week inflow to exceed the $1 billion mark. The total inflow so far this year is $1.14 billion, the third-highest annual inflow on record."

One striking statistic highlights crypto’s resurgence in 2023: Assets under management (AUM) in cryptocurrency exchange-traded products (ETPs) have nearly doubled since the beginning of the year, increasing by nearly 10% in the last week alone.

CoinShares highlighted: “Total AUM now stands at $44.3 billion, the highest level since the collapse of a major cryptocurrency fund in May 2022." The report also revealed that those who are bullish on Bitcoin dominated the trading volume. The report stated that "Bitcoin inflows totaled $240 million last week, pushing the year-to-date total inflows to $1.08 billion, while short Bitcoin saw outflows of $7 million, indicating that the market remains persistently bullish."

Scaling Bitcoin to meet evolving needs

As the crypto market continues to grow, Ordinals is also extremely popular. The previous veDAO Research Institute article mentioned the network congestion caused by the surge in Ordinals transactions. As people's interest in BRC-20 tokens grows, Bitcoin transaction fees have also climbed. After weeks of accumulation, average transaction fees have soared since the end of October, reaching a 6-month high of more than $16 on November 9. Fortunately, the evolving Bitcoin sidechain and expansion protocol ecosystem is expected to simplify Ordinals transactions and restore fees to more manageable levels.

In the 14 years since Bitcoin was created, the volume of transaction data has exploded, and the emergence of Ordinals is just the latest trend to put pressure on the limited throughput of the blockchain. As researchers began to focus on Bitcoin's scalability challenges in the mid-2010s, the initial focus was on enabling faster and cheaper transactions. For example, the Lightning Network, launched in 2019 as a dedicated Layer 2 network, is designed to support peer-to-peer Bitcoin micropayments.

In the context of Ordinals, connecting BRC-20 tokens to more efficient sidechains can significantly reduce fees and create a smoother trading environment. For example, Bioniq uses the Internet Computer Protocol (ICP) to encapsulate Ordinals, which users can then trade without incurring transaction fees. The same is true for Bitmos, a dedicated blockchain network built on Cosmos that aims to improve the scalability of the Ordinals project. The platform is scheduled to launch next year, and the cross-chain bridge will enable users to create BRC-20 tokens that can be freely moved between Cosmos chains.

As Ordinals develop, bridging and scaling solutions may enable new and more complex use cases for Bitcoin-based assets, which will in turn be reflected in Bitcoin’s supply dynamics.

A Reassessment of Bitcoin’s Supply Dynamics

In response to the growing interest, on-chain analytics firm Glassnode has delved into re-evaluating Bitcoin supply dynamics. According to Glassnode’s latest weekly report, “The Week On-Chain**,” with only five months until the next block halving, the number of Bitcoins in storage now exceeds the amount mined by 2.4 times. The upcoming fourth halving event has important fundamental and technical implications for Bitcoin. Glassnode notes that this is an extremely attractive event for investors given the significant returns in previous cycles.

The weekly report includes multiple charts, the top chart shows the Bitcoin supply storage of long-term holders (LTH), that is, entities that hold tokens for 155 days or more. Philip Swift, founder of the statistical platform Look Into Bitcoin, emphasized that the presence of wallet entities, both large and small, is increasing, and tweeted on the 13th, "This is what adoption looks like."

How will the halving affect investing in 2024?

The next Bitcoin halving event, during which the number of Bitcoins rewarded to miners will be cut in half, will occur in April 2024. This event is expected to further reduce the supply of Bitcoin, which could make the asset more attractive to investors.

In the past few Bitcoin halvings, we can observe some meaningful trends. First, after each halving, the price of Bitcoin will experience a period of increase. Whether this trend will continue until the next halving is unknown. Historically, Bitcoin's halving events have increased the market scarcity of cryptocurrencies, leading to upward price pressure, which explains the bull market that has emerged after each halving event.

After the crypto winter of 2022 and the economic downturn of 2023, Bitcoin’s 2024 halving schedule is critical. By slowing the rate at which Bitcoin is created, it limits the supply of Bitcoin over time, and gold-like scarcity applies here as well. Bitcoin’s halving promotes innovation and resilience in its native cryptocurrency, distinguishing it from fiat currencies. The 2024 Bitcoin halving will impact the rate at which new Bitcoins enter the market. The event will result in a reduction in rewards from 6.25 BTC to 3.125 BTC, and in order to maintain profitability, miners must find ways to optimize operations as rewards decrease. This may prompt miners to become more efficient.

In addition, we can also look at this issue from a longer timeline. In the early stages of Bitcoin, its price was relatively low and volatile. However, as time went on and Bitcoin became more popular, its price began to rise gradually. This means that while the halving event may have a certain impact on the price of Bitcoin, the long-term trend may depend more on other factors such as market supply and demand, the macroeconomic environment, and the development of the Bitcoin ecosystem.

Conclusion

Overall, the increase in institutional investment in Bitcoin is a positive sign for the crypto industry, indicating that institutional investors are becoming more accepting of Bitcoin and viewing it as a legitimate asset class. The next halving event could also have a positive impact on Bitcoin prices, attracting more investors to invest in the asset.