The Bitcoin halving countdown has started, here is what you need to know.
Newsletter Overview:
Bitcoin Mining Overview
Bitcoin mining is crucial to the stability and security of the overall network. The more miners in circulation supporting the network, the more secure it becomes. Bitcoin mining is the process by which new Bitcoins are created and added to the circulating supply, as a reward to miners who are verifying and solving transactions and activity on the blockchain.?
Here's a simplified overview of how Bitcoin mining works:
What is the Bitcoin Halving
The Bitcoin halving is an event that occurs approximately every four years as part of the cryptocurrency's protocol. It is programmed into the Bitcoin codebase to control the inflation/supply of new Bitcoins and ultimately limit the total supply of Bitcoin to 21 million. The last Bitcoin will not be mined until the year 2140, with the last halving event expected to take place in the year 2136.?
During a Bitcoin halving, the reward that miners receive for validating and adding new blocks to the blockchain is cut in half. This reduction in the reward serves to slow down the rate at which new bitcoins are created and introduced into circulation. The halving events are pre-programmed and occur every 210,000 blocks, which roughly translates to about four years. Bitcoin has a predetermined inflation rate, and ultimately, we know how many Bitcoins will be in circulation at any point in time in the future, which is a vast contrast to the supply of fiat currency.?
The Bitcoin halving event has historically marked the start of a new cryptocurrency bull market, due to the dramatic reduction in supply of new Bitcoin entering the market. With the reduction in supply, and increase in demand as the adoption rate of Bitcoin and digital assets continues to grow, it creates a major supply/demand imbalance. Bitcoin is becoming one of the most scarce assets in history.?
Bitcoin Issuance Rate
The previous Bitcoin halving events took place in 2012, 2016, and 2020. In the beginning, when Bitcoin was launched in 2009, miners received 50 bitcoins as a reward for each block they mined. After the first halving in 2012, the reward was reduced to 25 bitcoins per block. In the second halving in 2016, it dropped to 12.5 bitcoins per block. The most recent halving occurred in May 2020, reducing the reward to 6.25 bitcoins per block (900 BTC per day).
The halving events are significant because they impact the rate at which new bitcoins are created, influencing the overall supply and potentially affecting the market dynamics. Some investors and analysts pay close attention to these events, speculating on how they might influence the price of Bitcoin in the short and long term.?
Historically speaking, the Bitcoin halving event has signalled the start of a new cryptocurrency bull market.?
Bitcoin's Sprial Chart Update
Although Bitcoin and digital assets are a relatively new asset class, Bitcoin has already formed a cycle. Bitcoin typically moves within different phases inside a 4-cycle. This can be demonstrated using the Bitcoin spiral chart.
Analysing Bitcoin in terms of blocks mined X price, rather than time X price, allows for a more in-depth look at market averages. Every lap around the spiral represents 210,000 blocks mined, which is roughly a 4-year cycle.
1) The white circle represents Bitcoin halving events.
2) The green circle represents bull market tops.
3) The red circle represents bear market lows.?
The 4-year cycle of Bitcoin is dictated by blocks mined rather than time. Each year, 52,500 blocks of Bitcoin are mined (1 quarter of the spiral), implying that 210,000 blocks of Bitcoin are mined in the four years between halving events.?
Every mined block currently contains 6.25 BTC, and 144 blocks of Bitcoin are mined each day. This equates to an increase in the supply of 900 Bitcoin every day (at the current rate, which will be cut in half in April 2024).
Looking at previous cycles, we can observe that Bitcoin has on average reached a bull market peak halfway through the second year, around block 78,750 (roughly 1.5 years after a halving event). With the next halving due in April 2024, using previous market averages we can estimate the next bull market peak may occur during Q4 of 2025.?
Furthermore, Bitcoin bear market bottoms have on average occurred halfway through the third year of the cycle. After a halving event, Bitcoin has typically bottomed at block 131,250 (about 2.5 years after a halving event, or 1.5 years before the next halving event).?
This cycle can and will change depending on the number of miners in circulation and the strength and power of the new miners coming into the market.
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Bitcoin’s 4-Year Cycle
The Bitcoin spiral chart details how Bitcoin moves in a 4-year cycle. Using the Bitcoin weekly log chart we can also see an obvious trend Bitcoin is following. If we use the halving event as the starting point in the 4-year cycle we can break the cycle into phases, bull market, bear market, and accumulation phase.?
A halving event has previously marked the start of a new bull market phase. The halving events are marked via the red vertical lines on the chart above. This phase has on average, lasted roughly 1.5 years, with the previous 3 tops all occurring in Q4 of that year. Once a bull market top is in place, Bitcoin has previously corrected 80% from its bull market peak, with the bear market lasting roughly 1 year from the bull market peak. Bear market bottoms on average take place 1.5 years before the next Bitcoin halving event, with this last phase known as the accumulation phase. During the accumulation phase, Bitcoin has previously broken above a major negative trend line resistance, that has been in place since the bull market top. Providing an early indication that a bear market low has already occurred (orange circle on the chart above).?
With this current information, Bitcoin is still potentially trading inside the accumulation phase, as the next Bitcoin halving event is not due to take place for another 99 days (end of April 2024).?
It is important to note, that each bull and bear market is different due to the macroeconomic conditions. This particular bull market will potentially be driven by the inflows of liquidity coming from the newly approved Bitcoin spot ETFs.?
Bitcoin Spot ETFs
In an important step that cryptocurrency enthusiasts believe will bring more individual and institutional investors into the market, the US Securities and Exchange Commission has approved the first Bitcoin spot ETFs. Eleven proposals for Bitcoin spot ETFs, including those from BlackRock, Graysclae, Fidelity, and Ark, were authorised by the SEC.
In the upcoming months, billions of dollars are predicted to pour into the Bitcoin spot ETFs. Standard Chartered predicts inflows of $1 billion to occur in the first three months following the initial approval, and over $100 billion by the end of 2024. Another audacious prediction from Standard Chartered is that Bitcoin will reach $200,000 by the end of 2025.
Since the launch of the Bitcoin spot ETFs, Bitcoin is trading -16% from its high of roughly $49,000. This is potentially due to large outflows from the Grayscale fund, which has seen outflows in the region of $1.1 billion. Excluding the outflows from Grayscale, the 10 new Bitcoin spot ETFs have seen inflows in the region of $2 billion.?Despite the negative short-term price action, long-term inflows into Bitcoin spot ETFs are expected to push the price of Bitcoin much higher.
With the bold predictions of major inflows into the Bitcoin spot ETFs over the next 12 months, there will be two major supply shocks impacting the Bitcoin market. Firstly, the Bitcoin spot ETFs will be required to purchase and own the underlying assets, meaning they will reduce the available supply of Bitcoin in circulation. Furthermore, we are approaching the next Bitcoin halving event, which will slash the new supply of Bitcoin entering the market by 50%.?
Both of these supply constraints will positively impact the price of Bitcoin over the longer term. Especially when considering that the new Bitcoin spot ETFs will increase the demand from investors to hold the asset as part of a diversified portfolio.?
UK Bans Access to Bitcoin Spot ETF
Despite the approval of the Bitcoin spot ETFs in the US, these products are not available to UK investors. In the UK, US ETFs are not available for sale because they do not issue key investor documents. In 2021, the FCA banned the sale of crypto derivates, including exchange-traded notes.?
However, that does not mean investors in the UK can not access Bitcoin portfolios.?
ICONOMI, an FCA-registered digital asset portfolio management platform, has provided retail, professional and institutional investors access to Bitcoin and other digital asset portfolios since 2018.
One of the largest portfolios on the ICONOMI platform is the Blockchain Index. The Blockchain Index has returned +3100% since its inception on March 17th 2017. In that same time frame, Bitcoin has returned +1947%, meaning the Blockchain Index has outperformed holding Bitcoin by more than 1100%. The Blockchain Index has a predefined asset allocation, with the portfolio holding 40% Bitcoin, 30% Ethereum and the remaining 30% composed of 25 smaller altcoins.?
ICONOMI not only provides investors access to a variety of different digital asset portfolios (index portfolios, discretionarily managed portfolios, quant portfolios), but investors can build and manage their portfolios using the ICONOMI portfolio management portal.?
If you want to learn more about the Cryptocurrency market - Schedule a 1-on-1 consultation with the author Anthony Fernandez - Head of Business Development at ICONOMI:
Risk Warning: Cryptocurrency is classed as a high-risk investment. Previous returns do not guarantee or guidance of future performance. Don’t invest in cryptocurrency unless you’re prepared to lose all the money you have invested. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.