$1 billion in institutional funds poured into the crypto market, how does the Bitcoin halving affect subsequent investments?

More and more institutional investors are attracted to Bitcoin, with more than $1 billion injected into Bitcoin in just two months. This is arguably a bellwether for crypto recovery, boding the trajectory of the market in 2023 and beyond. Bitcoin is gradually gaining acceptance from institutional investors as an orthodox asset class with considerable long-term growth potential. In addition, the combination of Bitcoin’s limited supply and the upcoming halving event enhances its appeal, especially for investors looking for scarcity, as well as the potential launch of a Bitcoin ETF.

More than $1 billion has been invested in Bitcoin by institutions

CoinShares released its latest weekly report on November 13, highlighting the narrative of a resurgence of money into Bitcoin and altcoins. Bitcoin, Ethereum, and some major altcoins are experiencing price increases as excitement heats up over the possibility of the first ETF in the U.S. being approved.

! [$1 billion in institutional funds poured into the crypto market, how does the Bitcoin halving affect follow-up investments?] (https://cdn-img.panewslab.com/panews/images/U97HX2UoJu.png)

According to TradingView, the entire crypto market cap has increased by $600 billion since November 2022. As detailed in the CoinShares report, there has been a significant increase in funds spent on cryptocurrency investment products over the past two months. “Inflows into digital asset investment products totalled $293 million last week, pushing seven-week inflows above the $1 billion mark,” the report discloses. Year-to-date inflows totaled $1.14 billion, the third-highest annual inflow on record. ”

A striking statistic highlights the resurgence of cryptocurrencies in 2023: assets under management (AUM) of crypto exchange-traded products (ETPs) have almost doubled since the beginning of the year, increasing by almost 10% in the last week alone.

“Total AUM now stands at $44.3 billion, the highest level since the major crypto fund collapse in May 2022,” CoinShares highlighted. The report also revealed that Bitcoin bulls dominated the trading volume. “Bitcoin inflows totaled $240 million last week, driving year-to-date inflows to $1.08 billion, while shorting Bitcoin saw $7 million outflows, indicating that the market remains bullish,” the report states. ”

! [$1 billion in institutional funds poured into the crypto market, how does the Bitcoin halving affect follow-up investments?] (https://cdn-img.panewslab.com/panews/images/3zpd4P468J.png)

Bitcoin scaling to meet evolving needs

As the crypto market continues to grow, Ordinals is also extremely hot. A previous veDAO Research article mentioned the network congestion caused by the Ordinals transaction surge, and the Bitcoin transaction fees climbed as interest in the BRC-20 token grew. After weeks of accumulation, the average transaction fee has soared since the end of October, reaching a six-month peak of over $16 on November 9. Thankfully, the growing ecosystem of Bitcoin sidechains and scaling protocols promises to simplify Ordinals transactions and restore fees to more manageable levels.

In the 14 years since the birth of Bitcoin, the volume of transaction data has exploded, and the emergence of Ordinals is just the latest trend that has put pressure on the limited throughput of blockchains. As researchers began focusing on Bitcoin’s scalability challenges from the mid-2010s, the initial focus was on enabling faster and cheaper transactions. For example, the Lightning Network, launched in 2019 as a dedicated Layer 2 network, is designed to support peer-to-peer Bitcoin micropayments.

In the context of Ordinals, connecting BRC-20 tokens to more efficient sidechains can drastically reduce fees and create a smoother trading environment. For example, Bioniq uses the Internet Computer Protocol (ICP) to encapsulate Ordinals, which users can then trade without incurring transaction fees. The same goes for Bitmos, a dedicated blockchain network built on Cosmos to improve the scalability of the Ordinals project. The platform is scheduled to launch next year, and the cross-chain bridge will allow users to create BRC-20 tokens that can be moved freely between Cosmos chains.

As Ordinals grows, bridging and scaling solutions are likely to support new, more complex use cases for Bitcoin-based assets. And this will also be reflected in the supply dynamics of Bitcoin.

A reassessment of the dynamics of the Bitcoin supply

In response to the growing interest, on-chain analytics firm Glassnode has delved into reassessing Bitcoin supply dynamics. According to Glassnode’s latest weekly report, “The Week On-Chain”, with only five months left until the next block halving, the amount of Bitcoin used for storage has now exceeded 2.4 times the amount mined. The upcoming fourth halving event has important fundamental and technical implications for Bitcoin. Glassnode notes that this is an extremely attractive event for investors, given the significant returns in previous cycles.

! [$1 billion in institutional funds poured into the crypto market, how does the Bitcoin halving affect follow-up investments?] (https://cdn-img.panewslab.com/panews/images/kJ1uNWRv3d.png)

The weekly report includes several charts, with the chart above showing the Bitcoin supply store for long-term holders (LTHs), i.e., entities that have held tokens for 155 days or more. Philip Swift, founder of the statistics platform Look Into Bitcoin, emphasized that the presence of wallet entities is increasing, regardless of size, and tweeted on the 13th, “This is what adoption looks like.”

! [$1 billion in institutional funds poured into the crypto market, how does the Bitcoin halving affect follow-up investments?] (https://cdn-img.panewslab.com/panews/images/5A06iC5L25.png)

How will the halving affect investments in 2024?

The next Bitcoin halving event will take place in April 2024, during which the amount of Bitcoin rewarded to miners will be halved. This event is expected to further reduce the supply of Bitcoin, which could make the asset more attractive to investors.

In the last few Bitcoin halves, we can observe some meaningful trends. First of all, after each halving, the price of Bitcoin will experience a period of increase. Whether this trend will continue until the next halving is unknown. Historically, Bitcoin’s halving events have exacerbated market scarcity for cryptocurrencies, leading to upward upward pressure on prices, which explains the bull run that occurs after each halving event.

After the crypto winter of 2022 and the economic downturn of 2023, Bitcoin’s 2024 halving schedule is crucial. By slowing down the creation of Bitcoin, it will limit the supply of Bitcoin over time, and the gold-like scarcity applies to this as well. Bitcoin’s halving has fostered innovation and resilience in its native cryptocurrency, differentiating it from fiat currencies. The Bitcoin halving in 2024 will affect how quickly new bitcoins can enter the market. The event will result in a reduction in rewards from 6.25 BTC to 3.125 BTC, and in order to maintain profitability, miners will have to find ways to optimize their operations as the rewards decrease. This may motivate miners to be more efficient.

In addition, we can also look at this from a longer timeline. In the early stages of Bitcoin, its price was relatively low and volatile. However, with the passage of time and the gradual popularity of Bitcoin, its price began to rise gradually. This means that while 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, the macroeconomic environment, and the development of the Bitcoin ecosystem.

Conclusion

Overall, the increase in institutional exposure to Bitcoin is a positive sign for the crypto industry, indicating that institutional investors are increasingly accepting Bitcoin as a legitimate asset class. The next halving event could also have a positive impact on the price of Bitcoin, attracting more investors to invest in the asset.

Bibliography: