Spot Bitcoin ETF Approval and the Next Bitcoin Halving: A Catalyst to the Next Crypto Bull Run

Introduction

The approval of spot Bitcoin exchange-traded funds (ETFs) and the upcoming Bitcoin halving are poised to overhaul the digital asset’s demand-and-supply dynamics. Analysts have hinted that both developments will likely positively impact the value of Bitcoin while catalyzing crypto’s next bull run. Understanding these events is crucial to demystifying cryptocurrencies’ impact on the global financial landscape in the coming months.

Spot Bitcoin ETFs will open the door for institutional investors wanting to deal with Bitcoin via their traditional financial accounts. Through this, they can access the cryptocurrency through a familiar financial vehicle known as ETFs. The move will astronomically increase the demand for Bitcoin, boost people’s confidence in cryptocurrencies, and spark greater price stability in Bitcoin.

Each halving event, which happens approximately every four years, increases the scarcity of Bitcoin. Coupled with the increased demand caused by spot Bitcoin ETFs, 2024’s halving has the potential to surge the price of Bitcoin significantly. Halving has historically led to increased prices of Bitcoin after some months, and this year’s may not be an exception. In this article, we will explore how approval of Bitcoin ETFs and the next halving event can trigger another crypto bull run, potentially rebranding Bitcoin as a reliable investment vehicle.

What is Crypto Bull Run?

The bull run is the merry season in the cryptocurrency space where market conditions are favorable. It is a period where the prices of cryptocurrencies continue to rise due to several market factors. This contrasts with a bear run where the market is depressed and unfavorable. During a bull run, crypto investors and holders laugh at the bank while living luxurious lives from the multiple profits they have gained from the market.

A bull run can last from several months to years. However, for a market to be in a bull run, the asset rise must persist for a prolonged time. Although there is no standard for when a market is considered bullish, a general method of noting a bull run is when the market value increases by 20%.

The primary cause of bull runs is market optimism, when investors have confidence that the price of a cryptocurrency will rise. Bitcoin halving has historically sent the price of Bitcoin over the roof. Notable people’s opinions can also trigger a bull run in the crypto market, for instance, a tweet from a celebrity supporting a particular cryptocurrency can kick off bull runs. Furthermore, the endorsement of Bitcoin by major traditional financial institutions during the ETF saga has increased people’s confidence in the digital asset, potentially triggering a bull run.

Source: Bitpay

One doesn’t have to look too far in the past to see crypto bull runs in action. A noteworthy crypto bull run happened in 2017 when the price of Bitcoin increased from $1,000 at the beginning of the year to $17,700 by December. Another one occurred in 2021, when Bitcoin’s market capitalization was at $772 billion at the beginning of the year and ended at almost $1.5 trillion.

A Peek Into Bitcoin Price Cycle

Source: Investopedia

Bitcoin has experienced notable price cycles since its appearance in 2009. These cycles, attributed to bearish and bullish events, highlight the inherent volatility of the digital asset and its dominance as the world’s first and most prominent cryptocurrency. Let’s explore the cycles in four phases:

1) The early days: During its early days, Bitcoin only interested early crypto enthusiasts who got little monetary incentives from it. The first commercially reported use case of Bitcoin was a developer who bought two pizzas for 10,000 BTC in 2010. Bitcoin began to gain traction in 2011, moving from around $1 to $31 in July, then crashing back to less than $3 by December.

2) The double peak of 2013: Bitcoin experienced double peaks in 2013. The first peak happened in April when its price rose from around $40 to $266. The year experienced another peak by December, with Bitcoin price moving from about $100 in October to over $1,100 by December.

3) The surge of 2017: By 2017, Bitcoin had started gaining popularity in mainstream media. From $1,100 in January, the year closed with a staggering price of $20,000. This rapid rise was driven by the emergence of IPOs, the launch of Bitcoin futures, and significant mainstream attention.

4) The 2020 - 2012 saga: The economic uncertainties caused by COVID-19 and the resultant global economic depression also affected Bitcoin, as its price dropped to $3,800 in March 2020. By 2021, the digital asset recovered and achieved an all-time high of $60,000.

With the increased popularity of Bitcoin on a global scale, the current phase in the lifecycle of the coin is driven by the emergence of numerous crypto projects, imminent Bitcoin halving, and the institutional attention caused by the approval of spot Bitcoin ETFs.

What are Spot Bitcoin ETFs?

Simply put, ETFs are investment vehicles that allow people to invest in something without having direct access to it. There are generally two types of ETFs, namely spot ETFs and futures ETFs. Spot ETFs have an actual connection with the asset, so their price reflects the real-life market dynamics. On the other hand, future ETFs peg the price of an asset to a forecasted value, increasing potential risks and gains.

Spot Bitcoin ETFs allow investors to directly invest in Bitcoin using traditional financial institutions. For the first time in the United States, the Securities and Exchange Commission (SEC) approved the listing of spot Bitcoin ETFs in eleven institutional financial players. Following many speculations and controversies, the SEC approved the applications on January 10, 2024, signaling a notable shift in the regulatory perception of cryptocurrencies.

Aftermath of Approval

After their approval by the SEC, trading of spot Bitcoin ETFs officially kickstarted on the NYSE, Nasdaq, and Chicago Board Options Exchange. Depending on the issuer, the trading fees for the ETFs are pegged at 0.2 to 1.5%, excluding waivers. These new crypto investment vehicles are expected to increase the demand for Bitcoin and attract new investor classes.

Source: Investor’s Business Daily

Reuters reported that the trading volume of all the approved Bitcoin ETFs reached $4.6 billion on the day following their approval. This huge trading volume was also followed by a spike in Bitcoin price to $49,000, which later dropped to below $44,600 on the following day. However, experts did not see these initial price actions as a problem, suggesting they only manifested the overall market sentiment.

How ETFs Will Improve Institutional Demand

There is a good indication that the approval of spot Bitcoin ETFs will increase the institutional demand for Bitcoin and other digital assets. A survey of 500 financial advisors conducted by Nasdaq in 2022 showed that 72% of firms would be willing to invest in Bitcoin if the SEC approved the spot ETFs.

Owing to the volatile and unpredictable nature of cryptocurrencies, traditional investors have hitherto been slower to enter the ecosystem. However, the provision offered by spot ETFs indicates regulatory greenlight to Bitcoin, and can potentially bring trillions of institutional funds off the sidelines. It is expected that investment advisors, hedge funds, and sovereign wealth funds will enter the crypto market to drive more ETF inflows.

Impact on the Crypto Market

It is expected that the approval of spot Bitcoin ETFs will profoundly impact the cryptocurrency market. This will foster an increase in the value of Bitcoin, increased liquidity, and confidence of traditional players in cryptocurrencies. Institutional investors command large amounts of capital and will be attracted to crypto following the ETF approval.

In a survey by Fidelity Digital Assets, 70% of institutional investors are likely to invest in digital assets if the SEC approves the ETFs and 90% find the asset class appealing. Although several other countries like Brazil and Canada have already approved spot Bitcoin ETFs, the US SEC’s move to approve them will be integral in boosting Bitcoin’s overall market capitalization while legitimizing it as an investable asset for anyone.

Bitcoin Halving: The Next Milestone

The major past price actions on Bitcoin revolved around halving events. Halving is a strategy that helps to ensure the scarcity and finite supply of Bitcoins by decreasing the reward of its miners by half. Bitcoin halving events occur after every 210,000 blocks are mined, typically occurring every four years. From the onset, Bitcoin was programmed to have a total supply of 21 million Bitcoins, with the last Bitcoin scheduled to be mined by the year 2140.

Why Halving?

The halving policy is integrated into Bitcoin’s algorithm to counteract inflation and uphold scarcity. As the issuance of new Bitcoins reduces following halving events, the price of Bitcoin will significantly increase if the demand increases or stays the same. This is one of the key mechanisms that drive Bitcoin’s value as it claims its spot as the digital gold. Historically, each halving event has been followed by increased volatility and the initiation of long-term bull runs.

Bitcoin Halving Dates

Source: Cointelegraph

Three Bitcoin halving events have occurred, each decreasing miners’ reward by half. It is a general perception that since the reward of miners is progressively decreasing with each halving event, miners do not have enough incentive to cover operational costs, and most of them may diminish or rely on transaction fees to stay in business. The following contains an accurate but highly simplified breakdown of the three previous halving events:

1) First halving event: It occurred on November 8, 2012, and the block reward was reduced to 25 BTC from 50 BTC. Before the first halving, Bitcoin was only known to the crypto-anarchists working on the initiative. The price during halving was $13 and was followed by a $1,152 peak in the following year. This surge brought Bitcoin into the mainstream spotlight, but by the time Bitcoin fell to $200 in 2015, many lost confidence in it and proclaimed that Bitcoin was dead.

2) Second halving event: The second halving happened on July 16, 2016, to reduce block reward to 12.5 BTC. The price at halving was $664 and was followed by a $17,760 peak in the following year. Bitcoin returned to the spotlight during this period, and many ICOs and crypto startups emerged.

3) Third halving event: This occurred on May 11, 2020, and reduced the block reward further to 6.25 BTC. The price at halving was $9,734 and was followed by a $67,549 peak in the following year. Although the third halving occurred during the COVID-19 pandemic, it still followed the pattern of previous halving events, indicating the resilience of Bitcoin.

The next halving event predicted to happen in April 2024, will further reduce the block reward of miners to 3.125 BTC. This event is unique because it coincides with spot Bitcoin ETFs, a move that looks pretty favorable for the top digital asset.

Implications of the Halving Event

Miners are directly affected by halving because it decreases their reward for adding new transactions to the blockchain. As a result, the number of new Bitcoin in circulation decreases, triggering a demand and supply interplay. If the scarcity of Bitcoin is accompanied by increased demand, the price of Bitcoin will increase, which may be an incentive for miners; otherwise, they will have problems staying competitive.

Halving events also impacts the inflation rate of Bitcoin. Within the crypto community, inflation is the rate at which new coins get added to the market. Every halving event was historically followed by a bull run and lower Bitcoin’s inflation rate. For instance, the inflation rate was 50% in 2011, reduced to 12% after the 2012 halving, dropped to 4-5% after the 2016 halving, and is currently at 1.74%.

As more countries are getting involved with Bitcoin due to its perceived value, it is expected that its value will keep on rising. With an increased trend of stores, companies, and institutions accepting cryptocurrencies for payments, the halving event will further boost the demand for Bitcoin, further stabilizing the currency.

Halving and ETFs as Catalyst to the Next Bull Run

Following current and past trends, it is clear that the confluence of spot ETF approval and the upcoming halving event presents a perfect condition that can trigger another bull run. Analysts have predicted that both events will contribute to the propeller that shoots Bitcoin price to greater heights, ushering in a new era in the history of the top cryptocurrency.

With the approval of spot ETFs, retail and institutional investors now have regulated access to Bitcoin through traditional financial markets. This move will surely legitimize Bitcoin and open the door for billions of traditional money into cryptocurrencies. Because investors can now buy Bitcoin within the confines of existing financial frameworks, there is higher confidence and fewer risks involved. This will bolster the general market condition and trigger an upward uptick in Bitcoin price, stimulating another bull run.

Historically, Bitcoin halving events have been catalysts of significant price appreciation and bull runs, and this year may not be an exception. Coupled with the increased demand caused by spot ETF approval, the decreased supply of Bitcoins caused by halving will stimulate market dynamics that push Bitcoin into its next bull run.

Conclusion

Considering the events happening in cryptocurrencies this year (2024), the future looks promising. The approval of spot Bitcoin ETFs by the US SEC was a glorified moment across the crypto community, and it happened towards a halving event, another milestone in the cryptosphere. By bringing traditional financial players into the crypto space, the spot ETFs move will fuel wider adoption and propel Bitcoin toward mainstream acceptance and legitimacy. Although the short-term price volatility of Bitcoin may persist, its long-term trend promises to be very bullish as it continues to solidify as an invaluable asset in the global financial landscape.