With the entry of giants and the halving narrative, is now the best time to buy Bitcoin?

Is it the best time to buy Bitcoin now with giants entering and the halving narrative?

Original author: WealthBee

It is not an exaggeration to describe the trend of BTC since June as a “big rise and fall”, but more accurately, it should be a big fall followed by a big rise. The price of BTC was initially affected by negative factors such as the Binance being sued black swan event, the extraction of liquidity from the US bond, and BTC once fell to a low of 24,800. Just when the market was desperate, as the world’s largest asset management company with over $10 trillion in assets under management and nearly 100% ETF approval record, BlackRock applied for a Bitcoin spot ETF to the SEC, and then WisdomTree, Invesco, Fidelity Investments and other traditional institutions began to apply one after another, while the exchange EDX, which specializes in serving institutions, was officially launched in the United States.

A series of news about traditional financial institutions entering the world of cryptocurrencies has stimulated investors’ nerves. Against the backdrop of Bitcoin’s upcoming halving, is the institution’s choice to enter at this time to “get on board” this round of halving trend? Regardless of the answer, the price of Bitcoin has rebounded from 24,800 to a high of 31,000, it seems that the “bulls are back”.

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What sparks will be generated between the entry of giants and the collision of traditional finance with the world of cryptocurrencies?

Looking back, native cryptocurrency exchanges Binance and Coinbase were sued by the SEC, causing the market to freeze, while BlackRock and other traditional financial institutions chose to enter the market at this time, is it a “coincidence” or a “conspiracy”? This is indeed intriguing.

Regardless of whether the SEC is rolling out the regulatory red carpet for traditional financial institutions, what we need to understand more is the impact of the entry of traditional financial institutions on the world of cryptocurrencies. How should ordinary investors respond?

First of all, the entry of traditional financial institutions will undoubtedly inject a large amount of liquidity into the cryptocurrency market. ETFs can be listed and traded on stock exchanges, which will provide investors with more convenient channels for Bitcoin trading. With the introduction of ETFs, more traditional and institutional investors can easily participate in the Bitcoin market, driving more funds into the market. Markus Thielen, Head of Cryptocurrency Research at the digital asset service platform Matrixport, has pointed out that “BlackRock’s Bitcoin ETF, once approved, will attract $10 billion within three months and $20 billion within six months – this will greatly support the price of Bitcoin”. The participation of traditional financial institutions may bring more stable capital flow to the Bitcoin market, improving market depth and liquidity.

Secondly, the participation of traditional financial institutions will help further improve regulatory compliance in the cryptocurrency industry. Since this year, the SEC has launched continuous suppression against crypto-friendly banks, crypto exchanges, and custodial service providers. Traditional financial institutions are usually subject to strict regulation by regulatory authorities and comply with a series of stringent compliance requirements. The participation of these institutions will drive the cryptocurrency industry towards greater standardization and transparency.

Meanwhile, due to the imperfect regulatory framework and unclear regulatory system, “black swan” events in regulation occur frequently. This not only affects investors’ sentiment but also hinders the healthy development of the market. Under the leadership of traditional financial institutions, regulatory agencies may be more proactive in formulating and adjusting regulatory policies and regulations, establishing a more comprehensive regulatory framework to ensure the healthy development of the market and the protection of investors. This will further enhance the confidence of market participants and attract more traditional and institutional investors to enter the cryptocurrency market.

Furthermore, the application for an ETF may have an impact on the price volatility of Bitcoin. In the short term, whether the application is approved or not, the impact of the news will cause significant price fluctuations in the market. When the SEC stated on June 30th that the application for a Bitcoin spot ETF was inadequate, the price of Bitcoin fluctuated by about 5% in an hour. Therefore, investors should pay more attention to the risks brought by news.

In the long term, according to data provided by crypto researcher @TheCryptoLark, the funds managed by BlackRock alone amount to $10 trillion, while compared with that, the circulating Bitcoin (BTC) on exchanges accounts for only 10% of the total, about $50 billion. BlackRock only needs a mere 0.5% of the funds to purchase all the BTC circulating on exchanges. After the ETF is approved, there is a high possibility that the price of Bitcoin will experience significant fluctuations due to the surge in trading volume. Of course, if we look further into the future, the price of BTC will rise due to the increase in trading demand caused by the approval of the ETF.

Finally, the entry of traditional financial institutions will play a certain role in promoting the development of the entire industry. Nicolas Bertrand, the cryptocurrency director at Nomura Securities, believes that diversified products and many competitors are the driving force behind the development of the industry. The involvement of traditional financial institutions in the field of cryptocurrency assets will only lead to “competition” in the short term, and the entry of more companies into the industry will promote the expansion of the market size. Further exploration and participation of traditional financial institutions in the cryptocurrency market will promote the recognition and adoption of Bitcoin and other crypto assets by the financial industry, accelerating the integration of traditional finance and the crypto world.

Halving narrative, will the bull market arrive as scheduled?

Since the news of BlackRock’s ETF application came out, Bitcoin price has experienced a wave of increase, and the current BTC price has been fluctuating between 30,000 and 31,000. The medium-term oscillation period has exceeded 20 days, indicating that the buying power around 30,000 and the selling power around 31,000 are both strong. In the short term, it is necessary to pay more attention to the behavior of Bitcoin price. The direction of Bitcoin price after the oscillation may gradually become clear due to the stimulation of macroeconomic CPI data in the United States and other news. Whether the Bitcoin spot ETF can be approved will also be an important news affecting price behavior. In the long term, under the background of halving, according to past “conventions,” Bitcoin seems to be ushering in a major bull market.

According to the design of Bitcoin, whenever a miner successfully solves a block, they will receive a certain amount of new Bitcoin as a reward. However, in order to control the supply of Bitcoin, the Bitcoin protocol stipulates that the block reward of Bitcoin will be halved approximately every four years, and this halving will reduce the block reward to 3.125 BTC.

The halving mechanism of Bitcoin is designed to limit the total supply of Bitcoin and gradually slow down its growth rate. This is achieved through the halving mechanism to maintain the scarcity and anti-inflationary nature of Bitcoin.

There are less than 300 days left until the fourth Bitcoin halving. Looking back at the history of Bitcoin halvings, it seems that each halving has been accompanied by a surge in the price of Bitcoin:

l November 28, 2012 – The first halving reduced the block reward to 25 BTC, and the price of Bitcoin rose from $12 to $1217.

l July 8, 2016 – The second halving reduced the block reward to 12.5 BTC, and the price of Bitcoin rose from $647 to $19800.

l May 12, 2020 – The third halving reduced the block reward to 6.25 BTC, and the price of Bitcoin rose from $8787 to a high of $64507.

Through the three halving events in the history of Bitcoin, we can see that each halving has been accompanied by a sharp increase in the price of Bitcoin, which seems to prove that the halving does indeed have a positive impact on the price of Bitcoin.

From the perspective of demand, with the popularity of BRC-20, the Bitcoin ecosystem seems to have blossomed. Bitcoin, which used to represent only “digital gold” and served as a store of value, now has increased demand due to the richness of its ecosystem. In addition, the entry of institutions and the demand for trading will also lead to an increase in Bitcoin demand.

From the perspective of supply, the total supply of Bitcoin has been determined to be 21 million coins from the beginning, and the halving that occurs every four years will lower the inflation rate of Bitcoin and reduce the supply. For goods with low supply elasticity like Bitcoin, with the rise in demand and the decrease in supply, it is highly likely that the price will rise.

Observing the past bull and bear markets of Bitcoin, it can be seen that macro liquidity has had a significant impact on the price of Bitcoin. Specifically, the Bitcoin bull market in 2012 occurred against the backdrop of the implementation of the third round of quantitative easing by the Federal Reserve and the adoption of loose policies by the European Central Bank; the bull market in 2016 was related to Brexit, and the Bank of England resumed its bond purchase program to cope with uncertainty, further releasing liquidity. At the same time, the launch of Bitcoin futures attracted a large amount of off-market capital into the market; the bull market in 2020 was influenced by the global pandemic, and the United States implemented a large-scale loose monetary policy, including unlimited quantitative easing, injecting a large amount of liquidity into the market. This led to a large influx of funds into the Bitcoin and other cryptocurrency markets, driving up the price of Bitcoin. Conversely, bear markets are usually consistent with global liquidity tightening. In the bear markets of 2014, 2018, and 2022, global liquidity tightening caused funds to flow out of the Bitcoin market, suppressing the price of Bitcoin.

These results indicate that the monetary policies and liquidity conditions of global central banks have had a significant impact on the Bitcoin market. Loose monetary policy and ample liquidity tend to drive up Bitcoin prices, while tightening monetary policy and liquidity contraction may exert downward pressure on Bitcoin prices.

By the end of 2022, global liquidity seems to have bottomed out, meaning that Bitcoin may have reached its bottom. Meanwhile, US inflation has ended, and the Federal Reserve announced a pause in interest rate hikes in June this year. In this situation, investors may seek returns and allocate funds to the stock market and the cryptocurrency market, thus expecting to see a sustained rise in asset prices.

Conclusion

According to statistics from Cailian Press, Bitcoin has outperformed all other assets in the first half of this year with a price increase of 83.81%. R3PO believes that, against the backdrop of halving, the approval of a Bitcoin spot ETF is likely to become a “catalyst” for the next bull market in Bitcoin. In addition, Bitcoin has rebounded multiple times after touching the ground, and its bottom characteristics in terms of price trends are also quite evident.

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