Passing by an advertisement featuring a Bitcoin cryptocurrency token on February 15, 2022 in Hong Kong, China. Cryptocurrencies are growing in popularity worldwide as investors look to diversify into the new asset class. (Photo by Anthony Kwan/Getty Images)Getty Images
Bitcoin bulls received a long-awaited confirmation last week when the flagship cryptocurrency hit new yearly highs, hitting $50,000. Just days later, it reached its $1 trillion market cap for the first time since 2021, sparking widespread sentiment that this cycle's worst crypto winter is well and truly in the past.
After breaking through the symbolic $50,000 mark, there is high hope that the uptrend will continue. But with Genesis just getting clearance to sell $1.3 billion worth of GBTC shares and some analysts warning that BTC is overbought, could the tide be turning?
Signals that expect growth
Although Bitcoin's notorious volatility no longer manifests itself quite as aggressively as it once did, it has only been less than fourteen months since prices hovered around $16,000 following the turbulent events of 2022. Although BTC rallied around $20,000, it struggled to achieve this. Bitcoin ETFs gained significant traction throughout the first half of 2023. However, as speculation grew over the possibility that a Bitcoin ETF would finally receive the long-awaited green light from the US Securities and Exchange Commission, markets began to heat up last quarter.
Open interest in Bitcoin
Eugene Chung, VP & Head of Institutions at Bybit, believes there are reasons to remain confident. In an interview, he told me: “Open interest in Bitcoin on Bybit is at an all-time high, currently $8.4 billion, indicating strong supply from our traders at these prices.”
Open interest is a metric that refers to the number of open long and short positions that exist on an exchange. In January 2024, this metric surpassed $20 billion and reached its 16-month peak. The increase in this metric was expected to push Bitcoin prices higher, which came to fruition when Bitcoin surpassed $50,000 within a month of this increase.
John Patrick Mullin, CEO and co-founder of compliant DeFi ecosystem MANTRA, agreed that Bitcoin will continue its upward trend in the future, stating:
“Despite technical indicators pointing to overbought conditions that typically precede a market correction, [we are seeing] Appetite for call options at or above Bitcoin's lifetime high [which] reflects the belief that the price of Bitcoin will continue to rise. This optimism is likely fueled by Bitcoin’s underlying fundamentals, recent market dynamics, and potentially anticipation of positive developments in the crypto space.”
Special conditions of the 2024 halving
Bitcoin’s “underlying fundamentals” refer to the upcoming halving event, which is expected to take place around April 20th or 21st. Despite the rising excitement, there has been a significant lag of twelve to eighteen months between previous halving events and the next all-time high. However, some believe that this time is different as the market already shows significant momentum.
Bybit's Chung breaks it down to pure numbers and explains the supply shock that the halving will bring: “On the demand side, we have the new ETFs that have already attracted about $10 billion in inflows since their launch and about $500 recently US dollars recorded.” M flows in every day, which corresponds to 10,200 Bitcoins. The daily issuance of new Bitcoins from the blockchain is only 900 per day, and when the April halving occurs, the issuance will be reduced to 450 Bitcoins per day.”
Tristan Dickinson, head of marketing and communications at the dYdX Foundation, acknowledges the ETF effect and explains: “BTC breaking $50,000 signals early positive sentiment.” The halving typically brings price fluctuations and a peak in interest cryptocurrency sector with it; However, with the influx of Bitcoin ETFs – the most successful ETF launched in the US in 30 years – it is becoming increasingly likely that April will outperform previous trends and mark the start of a bullish market.”
The halving in 2024 will be the fourth halving that even the crypto community is experiencing. Using existing data on halving trends, analysts have divided the halving into four phases: The first phase is 70 days before the halving and prices are declining. The second phase occurs approximately 60 days after the halving and sees an upward movement due to opened short positions looking to reap the rewards of the halving hype.
The third phase begins weeks before the halving and is expected to see falling prices due to selling pressure on investors and miners. Finally, the fourth phase occurs around 100 days after the halving, where Bitcoin records an ATH.
The impact of Bitcoin ETFs on the market must not be undermined. It is expected to show itself in the third phase of the halving by providing a barrier against selling pressure in the market, thus 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, agrees, stating: “The halving milestone, coupled with the inflow of money from traders launching newly launched Bitcoin ETFs, is stimulating the market and will potentially propel Bitcoin to new heights.”
Bitcoin technical updates
Although they are currently grabbing a lot of headlines, it is worth noting that ETFs and halvings are not the only factors that can increase Bitcoin's value. One of the few bright spots in an otherwise gloomy 2023 was the launch of the Ordinals protocol for Bitcoin in January 2023, which gained popularity due to the ability to commit assets to the Bitcoin blockchain, enabling NFT-like functionality.
The right combinations of different atomic numbers could potentially enable dynamic content creation on the Bitcoin blockchain and enable interactive content. In addition, they could be used similarly to Ethereum's smart contracts to unlock even more complex functionality on the blockchain. Although the first few months of launch were slow for the Ordinals NFTs, their trading volume peaked in May 2023, reaching over $452 million.
Some in the industry believe such developments could further drive Bitcoin's price and profile in 2024. Kyle Ellicott, a member and investor in the Stacks Bitcoin Layer 2 ecosystem, is bullish based on the current pipeline. He said: “We can expect similar upward price movements as technical innovation takes place in the mature Bitcoin ecosystem.” “Since January, a growing pipeline of new projects has entered the market, including BitVM, B2 Network, Botanix, new Bitcoin L2- and DeFi applications as well as privacy standards, driven in part by increased demand for Bitcoin L2s transaction volumes.”
He added: “This year is shaping up to be the most expansive technical year yet for the industry.”
BitVM is an upgrade that enables smart contracts to be executed on the Bitcoin blockchain, while B2 Network is a Layer 2 solution that aims to increase transaction speed and expand potential use cases. Botanix, on the other hand, is another Layer 2 system that can deploy Ethereum's smart contracts on the Bitcoin blockchain. All of these technical updates are aimed at increasing the functionality, transaction speed and volumes of the Bitcoin blockchain, which are expected to have a positive impact on 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 cryptocurrency and further boost demand. He told Forbes: “Crypto offers fast and secure transactions without the need for a central authority, making cross-border payments easy and efficient.” However, the volatility of crypto prices still poses a challenge for use in everyday transactions. Overall, the coming Months will be crucial for Bitcoin and the crypto market in general, and digital payments will continue to evolve as cryptocurrencies become more widely accepted and integrated.”
With Bitcoin on firmer regulatory footing and further supply tightening imminent, a sense of familiar bullish optimism is taking hold. Despite short-term price fluctuations and the occasional naysayer, most in the industry agree that as 2024 approaches, it will be a dynamic year.
Halving and Bitcoin ETFs
There is no denying that the 2024 halving will be a unique event. It will be the first halving in Bitcoin's history, with demand also coming from traditional markets. While some experts are sure that the inflows via Bitcoin ETFs act as a hedge against the expected price drops that usually occur just before the halving, others disagree. Collective Shift senior analyst Nicholas Sciberras is one such person.
He points out that even though inflows through Bitcoin ETFs are significantly high, the halving in 2024 will drastically reduce Bitcoin supply. So it's a game of chance. The increasing scarcity will put strong selling pressure on short-term investors and miners. According to Sciberras, there is no way to know exactly whether inflows will overcome selling pressure or vice versa.
Short-term success vs. mainstream acceptance
While signs point to a very likely rise in Bitcoin's price, mainstream adoption is still a big question mark. Market conditions show that demand for Bitcoin as well as its technical capabilities are increasing, which is expected to have a positive impact on prices in the near future. However, concerns about energy consumption and technical security are hindering Bitcoin's gradual mainstream adoption, which could also negatively impact prices in the near future.
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I am a freelance writer and contribute to media outlets such as Cointelegraph, CoinSpeaker and Bitcoin Insider. I have been invited to speak about new technologies by prestigious institutions such as the House of Commons in London and the World Changer's Summit in the Vatican. I own and trade modest amounts of BTC and ETH because I believe in the future of the digital economy. My research focuses on AI, crypto and the evolving landscape of Web3.
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