Institutional funds pouring in $1 billion into the crypto market, how will Bitcoin halving affect subsequent investments?
Influx of Institutional Funds $1 Billion Investment in Crypto Market; Impact of Upcoming Bitcoin Halving on Future VenturesMore and more institutional investors are being attracted to Bitcoin, with over $1 billion invested in Bitcoin in just two months. This can be seen as a barometer of the recovery of cryptocurrencies, indicating a promising development trajectory for the market in 2023 and beyond. Bitcoin is gradually gaining recognition from institutional investors as a legitimate asset class with significant long-term growth potential. Furthermore, the combination of Bitcoin’s limited supply and the upcoming halving event enhances its attractiveness, especially for investors seeking scarcity. There is also the potential launch of Bitcoin ETFs.
Over $1 billion in institutional investment in Bitcoin
CoinShares released its latest weekly report* on November 13, emphasizing the narrative of funds flowing back into Bitcoin and altcoins. As excitement builds for the possibility of the first US ETF approval, Bitcoin, Ethereum, and some major altcoins are experiencing price increases.
According to TradingView’s data, the entire cryptocurrency market cap has increased by $600 billion since November 2022. As detailed in the CoinShares report, funds for cryptocurrency investment products have significantly increased in the past two months. The report reveals, “The total inflows into digital asset investment products last week were $293 million, pushing the seven-week inflow past the $1 billion mark. The total inflows for the year to date are $1.14 billion, the third-highest annual inflow on record.”
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An eye-catching statistic highlights the revival of cryptocurrencies in 2023: the assets under management (AUM) of cryptocurrency exchange-traded products (ETPs) have almost doubled since the beginning of the year, increasing by nearly 10% in just the past week.
CoinShares emphasizes, “The total AUM now stands at $44.3 billion, reaching the highest level since the major cryptocurrency fund collapses in May 2022.” The report also reveals that bullish sentiment dominates Bitcoin trading volume. The report states, “The inflows into Bitcoin last week were $240 million, pushing the total inflows for the year to date to $1.08 billion, while shorting Bitcoin saw outflows of $7 million, indicating a continued bullish market sentiment.”
Bitcoin scalability to meet evolving demands
With the continuous growth of the cryptocurrency market, Ordinals has also become extremely popular. Previously, an article from the veDAO Research Institute mentioned the network congestion caused by the surge in Ordinals transactions, and as interest in BRC-20 tokens intensifies, Bitcoin transaction fees have also risen. After weeks of accumulation, average transaction fees have soared since the end of October, reaching a six-month high on November 9, exceeding $16. Fortunately, the constantly evolving Bitcoin sidechains and scalability protocol ecosystem are expected to streamline Ordinals transactions and restore fees to more manageable levels.
In the 14 years since the birth of Bitcoin, the volume of transaction data has surged, and the emergence of Ordinals is just the latest trend, putting pressure on the limited throughput of the blockchain. As researchers began to focus on Bitcoin’s scalability challenges in the mid-2010s, the initial focus was on achieving faster and cheaper transactions. For example, the Lightning Network, launched in 2019 as a dedicated Layer2 network, aims to support peer-to-peer Bitcoin micro-payments without incurring transaction fees.
Against the backdrop of Ordinals, connecting BRC-20 tokens to more efficient sidechains can significantly reduce costs and create a smoother trading environment. For example, Bioniq uses the Internet Computer Protocol (ICP) to encapsulate Ordinals, allowing users to trade without incurring transaction fees. Similarly, there is Bitmos, a dedicated blockchain network built on Cosmos, aimed at enhancing the scalability of the Ordinals project. The platform is planned to be launched next year, and a cross-chain bridge will allow users to freely move BRC-20 tokens between Cosmos chains.
With the development of Ordinals, bridge and scaling solutions may provide support for new and more complex use cases for Bitcoin-based assets. This will also reflect on the dynamics of Bitcoin supply.
Reevaluating the dynamics of Bitcoin supply
To address the growing interest, on-chain analytics company Glassnode has conducted in-depth research on reevaluating the dynamics of Bitcoin supply. According to Glassnode’s latest weekly report, “The Week On-Chain,” there are only five months left until the next block halving, and the amount of Bitcoin held for storage has now exceeded the mining output by 2.4 times. The upcoming fourth halving event holds significant fundamental and technical implications for Bitcoin. Glassnode notes that considering the significant returns seen in previous cycles, this is an attractive event for investors.
The weekly report includes multiple charts, with the above chart showing the Bitcoin supply held by long-term holders (LTH), entities that have held the tokens for 155 days or longer. Philip Swift, the founder of the statistical platform Look Into Bitcoin, emphasizes that the presence of wallet entities is increasing regardless of size and tweeted on the 13th, “This is what adoption looks like.”
How will the halving impact investments in 2024?
The next Bitcoin halving event will occur in April 2024, during which the amount of Bitcoin awarded to miners will be halved. This event is expected to further reduce the supply of Bitcoin, which may make the asset more attractive to investors.
In the past few Bitcoin halvings, we have observed some meaningful trends. First, after each halving, the price of Bitcoin tends to experience a period of increase. Whether this trend will continue into the next halving remains to be seen. Historically, the halving events have intensified the scarcity of cryptocurrencies in the market, leading to upward pressure on prices, which explains the bull markets that follow each halving event.
After experiencing the crypto winter of 2022 and the economic downturn of 2023, the halving schedule of Bitcoin in 2024 is crucial. By slowing down the creation speed of Bitcoin, it gradually limits the supply of Bitcoin over time, creating a gold-like scarcity. The halving of Bitcoin promotes innovation and resilience in its native cryptocurrency, distinguishing it from fiat currencies. The 2024 Bitcoin halving will affect the speed at which new Bitcoins enter the market. This event will reduce the rewards from 6.25 BTC to 3.125 BTC, and to maintain profitability, miners must find ways to optimize their operations. This may prompt miners to increase efficiency.
Furthermore, we can also look at this issue from a longer timeline. In the early stages of Bitcoin, its price was relatively low and volatile. However, over time and with the gradual adoption of Bitcoin, its price began to rise. This suggests that although halving events may have some impact on Bitcoin’s price, the long-term trend is likely more dependent on factors such as market supply and demand, macroeconomic environment, and the development of the Bitcoin ecosystem.
Conclusion
Overall, institutional adoption of Bitcoin is a positive signal for the crypto industry, indicating that institutional investors are increasingly accepting Bitcoin and considering it a legitimate asset class. The next halving event may also have a positive impact on Bitcoin’s price, attracting more investors to invest in this asset.
References:
https://insights.glassnode.com/the-week-onchain-week-46-2023/
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