Over $1 billion institutional investments pour into the crypto market. What impact will the Bitcoin halving have on future investments?

veDAO研究院

23-11-21 15:00

Read this article in 13 Minutes

AI summary

View the summary

Original Title: "Institutional Funds Pour $1 Billion into Cryptocurrency Market, How Will Bitcoin Halving Affect Future Investments?"

Original Author: veDAO

More and more institutional investors are 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 the cryptocurrency market, indicating the potential development trajectory of the market after 2023. Bitcoin is gradually gaining recognition from institutional investors as a legitimate asset class with considerable long-term growth potential. In addition, the combination of Bitcoin's limited supply and the upcoming halving event enhances its attractiveness, especially for investors seeking scarcity, and there is potential for the launch of a Bitcoin ETF.

Bitcoin's institutional investment exceeds $1 billion

CoinShares released its latest weekly report on November 13th, emphasizing the narrative of funds flowing back into Bitcoin and altcoins. With excitement building over the possibility of the first US ETF being approved, Bitcoin, Ethereum, and some major altcoins are experiencing price increases.

According to TradingView's data, the entire cryptocurrency market capitalization has increased by $600 billion since November 2022. As detailed in the CoinShares report, funds invested in cryptocurrency investment products have increased significantly in the past two months. The report reveals, "Last week, the total inflow of funds into digital asset investment products was $293 million, pushing the seven-week inflow past the $1 billion mark. The total inflow so far this year is $1.14 billion, the third-highest annual inflow on record."

An eye-catching statistic highlights the revival of cryptocurrency in 2023: the assets under management (AUM) of exchange-traded products (ETPs) on cryptocurrency exchanges have almost doubled since the beginning of the year, with an increase of nearly 10% just last week.

CoinShares emphasizes that "total AUM has now reached $44.3 billion, the highest level since the major cryptocurrency fund collapse in May 2022." The report also reveals that those bullish on Bitcoin dominated the trading volume. The report notes that "last week's inflow into Bitcoin was $240 million, pushing the total inflow since the beginning of the year to $1.08 billion, while shorting Bitcoin saw an outflow of $7 million, indicating that the market continues to be bullish."

满足不断发展的需求的比特币扩容

Satisfying the constantly evolving needs of Bitcoin scalability

With the continuous growth of the cryptocurrency market, Ordinals have also become extremely popular. Previously, an article from the veDAO Research Institute mentioned the network congestion caused by the surge in Ordinals transactions. As people's interest in BRC-20 tokens continues to grow, Bitcoin transaction fees have also risen. After several weeks of accumulation, the average transaction fee skyrocketed since the end of October, reaching a six-month high on November 9th, exceeding $16. Fortunately, the continuously developing Bitcoin sidechain and scaling protocol ecosystem is expected to simplify Ordinals transactions and restore fees to more manageable levels.

During 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 that puts pressure on the limited throughput of 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 micropayments.

Against the backdrop of Ordinals, connecting BRC-20 tokens to a more efficient sidechain can significantly reduce costs and create a smoother trading environment. For example, Bioniq uses the Internet Computer Protocol (ICP) to wrap Ordinals, allowing users to trade without incurring transaction fees. Similarly, there is Bitmos, a dedicated blockchain network built on Cosmos, aimed at improving the scalability of the Ordinals project. The platform is scheduled to launch next year, and cross-chain bridges will allow users to create BRC-20 tokens that can move freely between Cosmos chains.

With the development of Ordinals, bridging and scaling solutions may provide support for new and more complex use cases based on Bitcoin assets. This will also be reflected in the supply dynamics of Bitcoin.

Bitcoin Supply Dynamics Re-evaluated

In response to the growing interest, on-chain analytics company Glassnode has conducted an in-depth study to reassess 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 halving event, and the amount of Bitcoin held for storage now exceeds the mining output by 2.4 times. The upcoming fourth halving event has significant fundamental and technical implications for Bitcoin. Glassnode notes that, given the significant returns in the previous cycle, this is an attractive event for investors.

This weekly report includes multiple charts. The above chart shows the Bitcoin supply storage of long-term holders (LTH), which refers to entities that have held the tokens for 155 days or longer. Philip Swift, the founder of statistical platform Look Into Bitcoin, emphasized that the presence of wallet entities, regardless of size, is constantly increasing. On the 13th, he tweeted, "This is what adoption looks like."

How will halving affect investments in 2024?

The next Bitcoin halving event will occur in April 2024, during which the amount of Bitcoin rewarded to miners will be halved. It is expected that this event will 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 significant trends. First, after each halving, the price of Bitcoin experiences a period of growth. Whether this trend will continue until the next halving remains to be seen. Historically, Bitcoin's halving events have intensified the scarcity of the cryptocurrency market, leading to upward pressure on prices, which explains the bull market that occurs after each halving event.

After experiencing the crypto winter of 2022 and the economic downturn of 2023, the Bitcoin halving schedule in 2024 is crucial. By slowing down the creation speed of Bitcoin, it will limit the supply of Bitcoin over time, similar to the scarcity of gold. The Bitcoin halving promotes innovation and resilience of its native cryptocurrency, distinguishing it from fiat currency. The 2024 Bitcoin halving will affect the speed of new Bitcoin entering the market. This event will cause the reward to decrease from 6.25 BTC to 3.125 BTC, and in order to maintain profitability, miners must find ways to optimize their operations. This may prompt miners to increase efficiency.

In addition, 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, as time passed and Bitcoin became more popular, its price began to gradually rise. This means that although the halving event may have some impact on the price of Bitcoin, the long-term trend may depend more on other factors such as market supply and demand, macroeconomic environment, and the development of the Bitcoin ecosystem.

Conclusion

Overall, the increase in institutional adoption of Bitcoin is a positive signal for the cryptocurrency industry. It indicates that institutional investors are increasingly accepting Bitcoin as a legitimate asset class. The next halving event may also have a positive impact on Bitcoin prices, attracting more investors to invest in this asset.