In Grayscale’s latest report, “2024 Halving: This Time’s Actually Different,” Michael Chow provides an in-depth analysis of the evolving dynamics within the Bitcoin ecosystem as the next halving event approaches in mid-April 2024. The report calls for a significant departure from previous cycles, which has been confirmed Through the emergence of spot Bitcoin ETFs in the US, the evolution of investment flows, and innovative use cases emerging within the Bitcoin network.
The essence of Bitcoin halving
Halvings, designed to halve the reward for mining Bitcoin transactions every four years, are pivotal in maintaining Bitcoin’s scarcity and deflationary profile. “This deflationary characteristic represents a fundamental appeal for many Bitcoin holders,” Zhao explains, emphasizing the stark contrast to the unpredictable supplies of fiat currencies and precious metals.
Despite historic post-halving price spikes, Zhao cautions against assuming such outcomes as guarantees, saying: “Given the highly anticipated nature of these events, if a price rise is a certainty, rational investors will likely buy in advance, leading to a higher… Price before it happens. Half happens.
Distinctive factors for the 2024 half
Macroeconomic factors
According to Zhao, macroeconomic factors differed in each cycle, however, they always pushed the price of Bitcoin to new heights. The researcher describes the European debt crisis in 2012 as a major catalyst for Bitcoin’s rise from $12 to $1,100, highlighting its potential as an alternative store of value amid economic turmoil.
“Similarly, the 2016 ICO boom — which transferred more than $5.6 billion into altcoins — indirectly benefited Bitcoin as well, pushing its price from $650 to $20,000 by December 2017. Most notably, during the pandemic COVID-19 In 2020, stimulus sizes were expanded […] [drove] Investors are turning to Bitcoin as a hedge, causing its price to rise from $8,600 to $68,000 by November 2021,” says Zhao.
Thus, Zhao suggests that while halvings contribute to the narrative of Bitcoin scarcity, the broader economic context always decisively influences Bitcoin’s price.
Strategic adjustments for miners
Anticipating BTC’s halving to the next halving in April, miners have proactively adjusted their strategies to offset the impending reduction in block reward income amid escalating mining difficulties. Zhao noted a strategic move among miners, noting that “there has been a notable trend of miners selling their on-chain Bitcoin holdings in Q4 2023, presumably to build liquidity before block rewards decline.”
This insight indicates that miners are not only reacting, but actively preparing for the challenges ahead, ensuring network resilience. “Taken together, these measures suggest that Bitcoin miners are well positioned to weather the challenges ahead, at least in the short term,” says the Grayscale researcher.
The emergence of ordinal numbers and solutions of the second layer
The introduction of ordinal sprites and the exploration of layer 2 solutions have introduced new dimensions to Bitcoin’s functionality and scalability. Zhao stresses the importance of these innovations, saying: “Digital collectibles have been recorded, generating more than $200 million in transaction fees for miners.” This development has not only increased the utility of Bitcoin, but has also provided miners with new ways to generate revenue.
Furthermore, Zhao highlights the potential of Layer 2 solutions to address Bitcoin’s scalability challenges, noting that “the growing interest in Taproot-enabled wallets…suggests a collective move toward addressing these challenges.” This reflects a concerted effort within the Bitcoin community to enhance the network’s capabilities and accommodate a broader range of applications.
The role of ETF flows
The approval and subsequent introduction of spot Bitcoin ETFs has significantly impacted the structure of the Bitcoin market, facilitating broader access for investors and potentially relieving selling pressure generated by mining rewards. Zhao explains the impact of ETF inflows, asserting that “following the immediate approvals of Bitcoin ETFs in the US, initial net inflows… reached approximately $1.5 billion in just the first 15 trading days.”
This suggests that ETFs can play a crucial role in balancing post-halving market dynamics by absorbing a significant portion of the typical post-halving selling pressure. “In order to maintain current prices, a similar buying pressure of $14 billion per year is needed. After the halving, these requirements will be reduced by half: […] This equates to a reduction of up to $7 billion per year, effectively relieving selling pressure.
Promising forecasts for Bitcoin
According to Grayscale’s analysis, the next Bitcoin halving will be different for a number of reasons. Overall, the outlook is very bullish:
Not only has Bitcoin managed to weather the bear market storm, it has also emerged stronger, defying outdated perceptions as it has evolved in the past year. Although it has long been heralded as digital gold, recent developments indicate that Bitcoin is evolving into something more significant.
At press time, Bitcoin was trading at $49,708.
Featured image created with DALLE, chart from TradingView.com