Bitcoin bulls received a long-awaited vindication last week as the flagship crypto scaled new yearly highs to reach $50,000. Only a few days later, it went on to regain its $1 trillion market capitalization for the first time since 2021, creating a widespread sentiment that the worst of this cycle’s crypto winter is firmly in the past.
Following a breakthrough of the symbolic $50,000 barrier, hopes are high that the upward trajectory will continue. But with Genesis just having been cleared to sell GBTC shares worth $1.3 billion and some analysts warning that BTC is overbought, could the tide still turn?
Signals Expecting Growth
Although Bitcoin’s infamous volatility doesn’t manifest quite as aggressively as it used to, it’s only less than fourteen months since prices were languishing around $16,000 following the tumultuous events of 2022. Despite having recovered $20,000, BTC struggled to gain much traction over the entire first half of 2023. However, as speculation grew about the possibility of a Bitcoin ETF finally getting the long-awaited green light from the US SEC, the markets began to heat up in the final quarter.
Open Interest in Bitcoin
Eugene Chung, VP & Head of Institutions at Bybit, believes there are reasons to remain confident. He told me in an interview that, “open interest for Bitcoin on Bybit is at an all-time high, currently $8.4 billion, showing a strong bid at these prices from our traders.”
Open interest is a metric that refers to the number of open positions, both long and short, that are present on an exchange. In January 2024, this metric exceeded $20 billion and recorded its 16-month-high. The surge of this metric was expected to push Bitcoin prices higher which turned into fruition as Bitcoin exceeded the $50,000 barrier within a month after this surge.
John Patrick Mullin, CEO and Co-Founder of compliant DeFi ecosystem MANTRA agreed that Bitcoin will continue its upward trajectory in the future by stating:
“Despite technical indicators suggesting overbought conditions, which typically precede a market correction, [we are seeing] appetite for call options at or above Bitcoin’s lifetime high [which] reflects a conviction that Bitcoin’s price will continue to rise. This optimism is likely fueled by the underlying fundamentals of Bitcoin, recent market dynamics, and possibly anticipation of positive developments within the crypto space.”
Special Conditions of 2024 Halving
The “underlying fundamentals” of Bitcoin are a reference to the upcoming halving event, which is slated to happen around April 20 or 21. Despite the building excitement, there has been a considerable lag of twelve to eighteen months between previous halving events and the next all-time high. However, some are suggesting that this time around is different, given that there’s already significant traction in the market.
Bybit’s Chung breaks it down to pure numbers, explaining the supply shock that the halving will create: “On the demand side, we have the new ETFs that have already attracted about $10B inflows since launch and have recently seen about $500M inflows per day, which is the equivalent to 10,200 bitcoins. The daily issuance of new bitcoins from the blockchain is only 900 per day, and when the halving happens in April, issuance will be slashed to 450 bitcoins per day.”
Tristan Dickinson, Head of Marketing and Communications at dYdX Foundation, acknowledges the ETF effect, stating: “BTC breaking the $50k barrier signals early positive sentiment. The halving typically brings price fluctuations and a peak in interest in the cryptocurrency sector; however, with the influx of Bitcoin ETF – the most successful US-launched ETF in 30 years – it’s increasingly likely that April will surpass previous trends and usher in the start of a bullish market.”
The 2024 halving will be the fourth halving even the crypto community experiences. Using the existing data on halving trends, analysts divided the halving into four phases: The first stage is 70 days before the halving and the prices are downwards. The second stage takes place around 60 days from the halving and records a bullish movement due to opened short positions that are looking to reap the rewards of the halving hype.
The third phase starts weeks before the halving and is expected to record falling prices due to the selling pressure on investors and miners. Finally, the fourth stage occurs around 100 days after the halving event, where Bitcoin records an ATH.
Bitcoin ETFs’ effect on the market is not something to be undermined. It is expected to show itself in the third phase of the halving by providing a barrier against the selling pressure in the market, therefore preventing the Bitcoin price from falling too much. In this case, the ATH Bitcoin records in the fourth stage are likely to be even higher than expected.
Shinsuke Sato, CEO and Founder of Slash concurs, stating: “The halving milestone, coupled with the influx of funds from traders introducing newly launched Bitcoin ETFs, is stimulating the market and will potentially propel Bitcoin to new heights.”
Technical Updates to Bitcoin
Although they are currently driving much of the headlines, it’s worth noting that ETFs and halvings aren’t the only factors that can drive Bitcoin’s value. One of the few bright spots in the otherwise bleak year that was 2023 was the launch of the Ordinals protocol on Bitcoin in January 2023, which proved hugely popular thanks to the ability to inscribe assets onto the Bitcoin blockchain, giving rise to NFT-like capabilities.
The correct combinations of different Ordinals could potentially allow dynamic content creation on the Bitcoin blockchain and make interactive content possible. Moreover, they could be utilized similarly to Ethereum’s smart contracts to unlock even more complex functionalities on the blockchain. Even though the first few months after the launch were slow for the Ordinals NFTs, their trading volume reached its peak in May 2023 and hit over $452 million.
Some in the industry believe that these kinds of developments could continue to propel Bitcoin’s price and profile in 2024. Kyle Ellicott, a member and investor of the Stacks Bitcoin Layer 2 ecosystem, is optimistic based on the current pipeline. He said: “We can anticipate similar upward price movements as technical innovations occur through the maturing Bitcoin ecosystem. Since January, an increasing pipeline of new projects, including BitVM, B2 Network, Botanix, new Bitcoin L2 and DeFi applications, and privacy standards have come to market, partly due to increased demand in Bitcoin L2s transaction volumes.”
He added: “This year is shaping up to be the most expansive technical year so far for the industry.”
BitVM is an upgrade that will allow smart contracts to be executed on the Bitcoin blockchain, while B2 Network, is a layer-2 solution that aims at increasing transaction speed and expanding the potential use cases. Botanix, on the other hand, is another layer-2 system that will have the ability to deploy the smart contracts of Ethereum on the Bitcoin blockchain. All these technical updates aim at increasing the scope of capabilities, transaction speeds, and amounts of the Bitcoin blockchain, which are expected to reflect positively on the prices.
Lower Volatility to Increase Use Cases
Slash’s Shinsuke Sato believes that Bitcoin’s lower volatility could support the rise of more payment-based utilities for the flagship crypto, further driving demand. He told Forbes: “Crypto offers swift, secure transactions without the need for a central authority, making cross-border payments easy and efficient. However, volatility in crypto prices still poses a challenge to its use in everyday transactions. Overall, the coming months will be pivotal for Bitcoin and the crypto market in general, and digital payments are set to evolve with the broader acceptance and integration of cryptocurrencies.”
With Bitcoin on a more solid regulatory footing and a further supply constraint arriving imminently, there is a sense of the familiar bullish optimism setting in. Short-term price fluctuations and the odd naysayer notwithstanding, most in the industry agree that 2024 is shaping up to be a dynamic year.
Halving and Bitcoin ETFs
There’s no denying that the 2024 halving will be a unique event. It will be the first halving in Bitcoin history with demand coming from traditional markets as well. While some experts are certain that the inflows through Bitcoin ETFs will perform as a hedge against the expected price drops usually recorded close to halving, some disagree. Senior analyst Nicholas Sciberras from Collective Shift is one such person.
He points out that even the inflow through Bitcoin ETFs is considerably high, the 2024 halving will dramatically cut the Bitcoin supply. Thus, it is a gamble. Increasing scarcity will create a strong sell pressure on short-term investors and miners. According to Sciberras, there is no way of properly knowing if the inflows will overcome the sell pressure, or vica-versa.
Short Term Success vs. Mainstream Adoption
While signs are pointing to a very likely price increase in Bitcoin, the mainstream adoption is still a big question mark. The market conditions are showing that the demand on Bitcoin is increasing, as well as its technical capabilities, which are expected to reflect positively on the prices in the near future. However, concerns over energy consumption and technical safety hinders gradual mainstream adoption for Bitcoin, which might reflect negatively on the prices in the near future as well.
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