In 2023, Bitcoin was one of the best-performing assets, driven by the expectation of Fed rate cuts. On Dec. 6, 2023, Bitcoin surged above $44,000 again, and reached a near two-year high of $45,886 on Jan. 2, 2024. The uncertain approval of Bitcoin ETFs and the arrival of the halving cycle have added more variables and attention to the Bitcoin trend in 2024. In this article, we will explore how to focus on the key points in the midst of upcoming events.

Summary

• Black Rock, the world’s largest asset manager, filed an application with the U.S. Securities and Exchange Commission (SEC) on June 15, 2023, to launch a Bitcoin spot ETF (iShares Bitcoin Trust).
• Many investors are betting on the final approval result, which would be a milestone event for the global digital asset market. Although the approval is still highly uncertain, the back-and-forth communication with the SEC is a progressive signal.
• The expected time of the fourth Bitcoin halving is also gradually approaching, and it is generally expected to occur in April 2024: the block reward of Bitcoin will be halved from 6.25 BTC to 3.125 BTC.
• Digital assets have gradually become one of the alternative asset allocation options for more institutions and high-net-worth clients in recent years. Although their correlation with traditional asset classes has increased, their different underlying logic still gives them diversification capabilities to some degrees.

Bitcoin Spot ETF

Black Rock, the world’s largest asset manager, filed an application with the U.S. Securities and Exchange Commission (SEC) on June 15, 2023, to launch a Bitcoin spot ETF (iShares Bitcoin Trust). After the news was released, the price of Bitcoin rose 7% from its three-month low of $24,800 to $26,700. However, before that, all other asset management companies’ applications for Bitcoin ETFs were rejected by the SEC.

In August 2023, a U.S. federal court ruled that the SEC needed to reconsider the Bitcoin ETF application submitted by Grayscale Investments, and the market’s expectation of a possible approval of the Bitcoin ETF was once again raised, and the price also rose accordingly.

On October 16 of the same year, a media outlet broke the news that the SEC had approved Black Rock’s iShares Bitcoin spot ETF, which caused a sensation on social media, and Bitcoin soared above $30,000. However, multiple sources came out to debunk the rumour, and the media outlet also deleted the news that was released earlier.

Many investors are currently betting on the final approval result, and once the Bitcoin ETF is listed in the United States, it will be a milestone event for the global digital asset market. The allocation from traditional asset/wealth manager will increase more long positions in the market, which will boost the price of Bitcoin.

Although the approval is still highly uncertain, the back-and-forth communication with the SEC is a progressive signal. However, the price would be negatively affected if the approval is not in its full force.

Bitcoin Halving

The expected time of the fourth Bitcoin halving is also gradually approaching, and it is generally expected to occur in April 2024: the block reward of Bitcoin will be halved from 6.25 BTC to 3.125 BTC.

From the historical data, Bitcoin’s previous three halving cycles were followed by significant increases, but the current market environment is also different from the original one. When Bitcoin’s audience was smaller, the holders were more concerned about whether it could become a digital currency/payment currency. Now Bitcoin has become an alternative investment asset class, and many traditional institutions also have allocated in this sector.

Compared with the first two halvings, the third halving was affected by the macroeconomic environment, and the price of Bitcoin was in a downward trend. However, after the halving, the new round of development of DeFi boosted up the price of Bitcoin.

It is also worth noting that among the listed miners, their performance is similar to that of a “leveraged” Bitcoin. The best-performing miner stocks also outperformed Bitcoin. For example, Marathon Digital Holdings (MARA), as the leader of the Bitcoin mining industry, performed even better than Bitcoin: digital asset mining companies expanded their business to increase Bitcoin output (the higher the computing power, the more block rewards they can get) as the price of Bitcoin rose. If the SEC finally approves the listing of the Bitcoin ETF, the demand for mining will increase significantly.

How to position at present?

Under the current multiple uncertainties, the allocation of bitcoin should also be adjusted accordingly; factors such as the capital inflow brought by the approval of spot ETFs, the impact of the bitcoin halving cycle, the evolution of the internal ecology of bitcoin and digital assets, and the practical application of digital assets in the portfolio.

If spot ETFs are approved

• Expanded investor base: Spot bitcoin ETFs will allow more traditional investors and ordinary investors to easily access and invest in bitcoin through familiar channels and tools, thereby increasing the liquidity and demand of bitcoin;
• Improved compliance: If the SEC finally approves the listing of ETFs, it will indicate the legality and credibility of bitcoin as a financial asset, thereby promoting the popularisation and acceptance of bitcoin. At the same time, regulatory agencies will also impose corresponding supervision, improving the compliance level of investing through traditional financial instruments;
• Long positions: The launch of spot bitcoin ETFs will attract more funds to flow into the bitcoin market, thereby directly boosting the market of this asset class. Past experience shows that the listing of bitcoin ETFs in Canada and Brazil was accompanied by a rise in bitcoin prices;

The evolution of bitcoin’s ecology

• As the income source of bitcoin miners is block rewards, after the continuous halving, the final block rewards will approach zero, and future miners will rely more on transaction fees for income, which will drive the demand for the internal transaction ecology of bitcoin, that is, the development wave of “BitcoinFi”;
• Therefore, in the foreseeable future, bitcoin transaction fees will gradually increase as the block rewards decrease, until they become the only source of income for miners; the experiments of BRC20 (homogeneous tokens on the bitcoin network) in recent years have initially affected the ecology of the bitcoin blockchain, and will eventually change the incentive model of the bitcoin chain;
• Bitcoin’s share of the overall cryptocurrency market has fallen since around 2020, from 70% of the market share to a low point of less than 40% of the market share, but since the end of 2022, bitcoin’s market share has recovered to 50%, once again solidify its investment position in this asset class;

Ideas and suggestions

Digital assets have gradually become one of the alternative asset allocation options for more institutions and high-net-worth clients in recent years. Although their correlation with traditional asset classes has increased, their different underlying logic still gives them the ability to diversify to some degrees;

Under the current two main factors, the halving cycle can hedge the uncertainty of ETF approval to a certain extent, and the continuous attempts of more traditional institutions have gradually made more investors start to participate in the allocation of related fields; due to the high volatility and speculative atmosphere of digital assets, even for investors who are interested in digital assets, we believe that only a maximum of 1% of bitcoin should be allocated in the portfolio, rather than other digital assets, to achieve the utility of portfolio diversification.

As the final decision time for ETF approval approaches, and the halving cycle arrives, we believe that the future development of bitcoin as an alternative asset class is still worth looking forward to; the discussion and change of various variables and parameters also indirectly confirms the recognition of the value of digital asset technology by investors. As an important innovation in finance and other distributed technologies, we also believe in the continuous development and application of blockchain technology in the future.