Bitcoin halving 2024 - the Year of the Dragon
Spot Bitcoin ETFs have recently been launched in the market. They offer investors an opportunity to invest in Bitcoin's price without having to buy and store them in their own wallets or manage the associated security risks. With the introduction of Bitcoin ETFs, more investors, including individuals with a broker account and institutional investors, can now easily access Bitcoin investments.
Disclaimer: I wrote that these inflows may change. I wrote this on the weekend, and we already got some wild action. However, everything in this article explained remains relevant for the bigger picture for the directional trade
Even though a ton of cash flows into these ETFs, excluding the Grayscale Bitcoin Trust (GBTC), there has been a positive influx of $7.8 billion. Leading this growth are the iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC), with Assets Under Management (AUM) of $3.2 billion and $2.7 billion, respectively, as reported by Bloomberg.
At the time of the start of writing (February 9/10) new post, things started to slow down a bit. This may change; it's the weekend now. The pace at which funds flowed into these ETFs slowed down; however, there was not a single day of net outflows when excluding GBTC.
But it doesn't mean the party is over. I don't know if it's mostly regular traders of institutions leading the charge, not to mention how many are jumping ship from GBTC to these new ETFs
There are still two important questions that need to be answered.
- Firstly, it is unclear how much of the demand for these ETFs comes from retail investors and how much is from institutional investors.
- Secondly, we don't know how much of the money leaving GBTC is being invested in other spot BTC ETFs instead.
Moving money from GBTC to one of the new ETFs is not just about preferring lower fees but also timing and taxes. For anyone with GBTC for a while, you've got to weigh whether the switch makes sense financially, especially considering taxes.
GBTC was previously available only to accredited investors through a private placement. However, with the conversion of GBTC to an ETF, investors now have the option to invest in other ETFs. The decision to move investments from GBTC to other ETFs may depend on timing and the trade-off between the benefits of lower management fees in the new ETFs versus the potential tax implications.
So, GBTC has been through a tough time, shedding over 20% of its AUM (assets under management) since it morphed into an ETF. That's a hefty $6.1 billion walking out of the door. These outflows caught the eyes of just everyone keeping tabs on crypto.
Initially, the outflows surged, reaching their highest in the first week of trading, but have since decreased from $640 million to $80 million in daily net outflows. Also reported, we got the FTX estate doing some spring cleaning of their GBTC shares. Meanwhile, the cryptocurrency lender Genesis has sought approval from a bankruptcy court to sell $1.4 billion worth of GBTC.
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Bitcoin halving
The upcoming Bitcoin halving event in April is an important moment (arguably), as mining rewards will decrease from 6.25 BTC per block to 3.125 BTC per block. As this event approaches, there's been a notable uptick in miners selling off their BTC holdings.
In January alone, ~142k BTC were moved to exchanges by miners. That's a month-over-month increase in the average daily BTC volume sent to exchanges.
This sell-off may be due to miners adjusting to the upcoming halving. Some miners might upgrade their infrastructure to scale to maintain profitability when the reward is halved. This could involve increasing production capabilities to lower the break-even point with the reduced rewards.
On the other hand, some miners may be accumulating cash in anticipation of a consolidation in the mining industry. This consolidation is expected to phase out smaller players, allowing larger miners to expand their production through acquisition.
Despite this trend of miners liquidating their BTC holdings, some entities in the market, such as Microstrategy, were increasing their BTC exposure. In its latest filings, Microstrategy reported buying an additional 850 BTC in January, bringing its total holdings to 190k BTC.
I will leave this graph here
Bitcoin's price has historically experienced a bull market after halving the 2012, 2016, and 2020 events. The economic reasoning behind this pattern is simple.
As the mining reward diminishes, the value of the mining output (BTC) must increase to ensure mining remains economically viable.
Miners may exit the industry if Bitcoin's price doesn't increase, leading to reduced computational power.
This balance between reduced rewards and the need for increased BTC prices to sustain miner participation is a critical aspect of Bitcoin's design aimed to enhance its long-term value.
I am mainly trading this chart I tweeted out on February 7th.
Perhaps it could be this simple for $BTC pic.twitter.com/bzPgnHtFQd
— Romano (@RNR_0) February 7, 2024
This is my longer-term price target for Bitcoin. I don't have a "stoploss" set, but I would probably feel some discomfort if we do dip below $38k, and I might hedge with futures, most likely, maybe options. However, this is not an overleveraged "day trade" but a useful map toward a longer-term target.
Sure, there might be some headwinds along the way, but this is probably as simple as possible. If you had asked me what the chance is to hit $70k by August 2024, I would say around ~32-24% probability.
The chart below shows the cumulative flow of investments into all Bitcoin funds compared to Gold ETF holdings. Notice the divergence in investor preference between Bitcoin and gold.
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