Now that a Bitcoin spot exchange-traded fund (ETF) has launched in the US, market watchers are looking for the next bullish event to drive the crypto asset higher.

Following the US Securities and Exchange Commission’s (SEC) long-awaited approval, Bitcoin ETFs have outperformed and defied expectations, as if to symbolize the positive and negative aspects of a market swayed by excitement. They produce results at the same time.

The top three Bitcoin ETFs have had inflows of more than $500 million (approximately 730 billion yen, equivalent to 146 yen to the dollar) (Grayscale, converted from GBTC, which has experienced large outflows) (excluding $22 billion in ETFs), demonstrating strong customer demand for investing in Bitcoin (BTC) through traditional investment methods.

In the weeks leading up to January 10, when the Bitcoin ETF was approved, Bitcoin soared to a high of $48,000.

Next event to drive price

Many analysts and traders are now hoping that the upcoming Bitcoin halving will trigger a similar impact on Bitcoin prices as ETFs. There has been a long-standing debate about whether the quadrennial program-induced half-life is “priced in.”

Last week’s approval of a Bitcoin ETF may indicate what’s to come in the next Bitcoin hype cycle.

The listing of 11 new Bitcoin ETFs was clearly a selling moment, at least in hindsight, and Bitcoin has since fallen as much as 12% to $42,250 on January 15th.

It is still too early to tell whether Bitcoin ETFs will attract billions of dollars of new capital and investors, and the outcome of this prediction will depend on actual demand for Bitcoin.

Bitcoin halving, on the other hand, is a supply-side story. Assuming usage of the Bitcoin network remains stable or increases, the price could soar after the supply of new Bitcoins released into the market is limited.

To some extent, the Bitcoin halving story is an afterthought to the fact that Bitcoin has actually boomed in the months following every halving.

For example, six months after the second halving in 2016 (the number of new coins issued per block dropped from 25 BTC to 12.5 BTC), Bitcoin crossed the $1,000 mark for the first time. A similar rally occurred in 2020, with Bitcoin hitting a new all-time high.

However, there is little to indicate that these price increases are directly related to the halving, other than the increase in bullish sentiment and media coverage that typically precedes the halving.

In its latest Mining Report, CoinShares notes that “peak hashrate growth often occurs approximately four months before the halving, likely due to the ‘Bitcoin Rush.’ ”, which may indicate positive sentiment.

Other than the fact that the economic logic surrounding Bitcoin supply shocks is a bit wonky, the supply of new Bitcoins will actually continue to increase for the next 100 years or so, and eventually all 21 million Bitcoins will be mined. become.

Satoshi Nakamoto designed the Bitcoin network to encourage adoption by subsidizing miners through these rewards, so that over time transaction fees would be sufficient to maintain the security and verification of the network. I expected it to grow in scale.

Impact on miners

CoinShares does not offer price predictions in its report, instead claiming that Bitcoin mining will become more competitive after the halving and the least efficient miners will be eliminated.

Since the last halving, Bitcoin’s efficiency has increased by 90%, but its hash rate (which measures the amount of computing power devoted to network security) and cost structure have also increased.

In fact, Bitcoin mining difficulty is currently at a historically high level, with computing power jumping more than 100% in 2023. CoinShares predicts this will drop due to a “miner exodus” after the halving.

The company also understands the complex interactions between hardware and electricity costs that determine the number of miners on the network, difficulty levels, and cost structures that determine whether a particular miner is making money or losing money. Taking this into account, it is possible that the “average production cost per Bitcoin” will normalize to just under $38,000 after the halving.

What does this mean for predicting Bitcoin price? A bit contradictory, but if the Bitcoin price remains above $40,000, miners’ profits could decline.

Although not included in CoinShares’ forecast, lower profitability could also create selling pressure from miners, given that they are often the biggest sellers of Bitcoin.

There are many people who disagree with this idea and see the halving as a potential positive for Bitcoin’s price. But it’s important to note that everyone has their own incentives. The only near certainty about the halving is that it will be a hype moment.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original text: Will the Next Bitcoin Halving Be Another Hype Cycle?