Key Points
- The recent Bitcoin halving event resulted in a 110% price increase amid significant volatility.
- Despite a slowdown in the second quarter of 2024, Bitcoin ETFs have shown substantial growth, with predictions of continued demand.
Bitcoin’s much-anticipated halving event, which took place on April 20, saw the reward for mining a block cut from 6.25 BTC to 3.125 BTC. This is the fourth time such a halving has occurred since Bitcoin’s creation, and these events have often been followed by significant price increases. The 2012 halving led to a 9,500% rise in Bitcoin’s value, and the 2016 halving resulted in a 3,000% increase over the next year. However, the 2020 halving saw a more modest price rally of 650%. In this latest halving, Bitcoin saw a 110% price increase before the event, despite considerable volatility. In the week leading up to the halving, Bitcoin’s value fell 17% from $72,000 to $60,000.
Post-Halving Price Fluctuations
Following the halving, Bitcoin’s price has not stabilized but has continued to fluctuate. On April 24, it reached $67,000, only to fall back to $62,500 just 72 hours later. Asset management company Bitwise has advised investors to proceed with caution, suggesting the halving was a “sell the news” event. Analysts from JPMorgan and Deutsche Bank have projected that BTC could drop to as low as $42,000 in the coming weeks.
Growth of Bitcoin ETFs
Bitcoin exchange-traded funds (ETFs) based in the United States have seen impressive growth since their launch in January 2024. For instance, BlackRock’s iShares Bitcoin Trust (IBIT) experienced 71 consecutive days of daily inflows, accumulating nearly $15.5 billion in assets before recording zero net inflows on April 24. This achievement placed IBIT among the top 10 longest inflow streaks for any ETF in history. Despite IBIT’s pause, other Bitcoin ETFs, such as Fidelity’s Wise Origin Bitcoin Fund and ARK Invest’s ARK 21Shares Bitcoin ETF, have continued to attract inflows. Since their launch, U.S. spot Bitcoin ETFs have accumulated $12.3 billion in assets under management. However, inflows have slowed somewhat in the second quarter of 2024 compared to the first quarter’s peak of $6 billion in February. Despite this, analysts remain optimistic about continued demand. Matt Hougan, chief investment officer for Bitwise, believes BTC ETFs are “just getting started,” citing untapped potential from institutions still conducting due diligence and the lack of availability on major wealth management platforms like Morgan Stanley and Merrill Lynch.
Hougan predicts that Bitcoin ETFs could attract over $200 billion of inflows by the next halving in 2028, aligning with the historic growth trajectory of gold ETFs after their debut. He also believes central banks may begin allocating Bitcoin as a non-debt reserve asset, contributing to a projected Bitcoin price above $250,000 by 2028. Alvin Kan, chief operating officer at Bitget Wallet, believes that the regulatory clarity brought in through BTC ETFs could positively impact the asset’s long-term growth. Spot BTC ETFs have the potential to drive regulatory arbitrage and aid in the legitimization and widespread adoption of Bitcoin and consequently cryptocurrencies as a whole.
Arthur Hayes of Maelstrom Capital suggests that market catalysts like next week’s U.S. Treasury refunding announcement, which could inject $1.4 trillion of liquidity, could buoy the crypto sector over the coming few months.
Growth of Bitcoin’s Layer-2 Ecosystem
Over the past year, the growth of Bitcoin’s layer-2 ecosystem has emerged as a key driver, potentially propelling the cryptocurrency to new heights in the future. Chief among these developments has been the recent Nakamoto upgrade to the Stacks network, a leading L2 built on Bitcoin. The Nakamoto upgrade, which began its rollout shortly after Bitcoin’s latest halving, enhances transaction throughput and establishes finality for L2 transactions on Bitcoin’s base layer. By enabling faster block processing times of around five seconds (compared to 10–30 minutes previously), Stacks aims to unlock Bitcoin’s programmability akin to Ethereum and Solana.
According to Muneeb Ali, Stacks’ co-founder, this advancement in L2 infrastructure will reignite interest in Bitcoin itself as users begin to separate BTC, the asset, from Bitcoin’s robust underlying rails. With nearly $1 trillion in Bitcoin’s market cap representing idle capital awaiting meaningful utilization, Ali believes that L2s present an opportunity to create an “economic flywheel” around BTC through decentralized applications and smart contracts.
Iva Wisher, chief operating officer for Prom, a modular zero-knowledge Ethereum Virtual Machine layer-2 solution, shares a similar outlook. She believes that L2s can bring multiple opportunities for expanding the capabilities of the Bitcoin protocol. Combined with the rising inflows into BTC ETFs and more mainstream financial institutions embracing Bitcoin, there’s plenty to be optimistic about.
Beyond Stacks, the burgeoning Bitcoin L2 ecosystem has given rise to innovations like Ordinals and BRC-20 tokens, which saw a surge in interest following Bitcoin’s most recent all-time high. Ordinals introduce a way to inscribe digital artifacts directly onto individual satoshis, the smallest units of Bitcoin. This innovation allows for the creation and ownership of nonfungible tokens (NFTs) without leaving the security and decentralization of the Bitcoin blockchain. Each ordinal inscription is unique, attaching data such as images, text or code to specific satoshis, making them collectible and potentially valuable. On the other hand, BRC-20 tokens propose a standard for issuing fungible assets on the Bitcoin network, similar to Ethereum’s ERC-20 standard. They aim to expand Bitcoin’s utility by enabling the creation of decentralized finance (DeFi) applications, stablecoins and other financial instruments directly on Bitcoin’s blockchain. Projects like Velar and Solv have already devised solutions that draw from these technologies and allow users to earn interest directly on their dormant BTC.
This experimentation is viewed as a positive force driving research and development around L2s, potentially setting the stage for an “L2 summer” of accelerated growth and competition within Bitcoin’s developer landscape. Jack Vinijtrongjit, CEO of Web3 enterprise software company Saakuru Labs, believes that L2s add a layer of demands and use cases to the Bitcoin ecosystem. Their growth may disrupt the typical flow of funds into altcoins and keep retail investors from seeking better returns outside of the Bitcoin ecosystem.
When asked about how Bitcoin’s price action will continue to unfold in the mid-to-long term, Vinijtrongjit expects further corrections and a potential cooldown for the next two to three months while the market consolidates. Jakub Bojan, CEO of DeFi protocol Soil, suggests that the next few months may see Bitcoin’s price fluctuate, depending on how the situation in the Middle East unfolds. However, he remains optimistic about the adoption and usage of BTC by traditional finance, which could have a positive long-term influence on price action.
As Bitcoin navigates the aftermath of its historic fourth halving, it finds itself at a pivotal juncture. While short-term volatility may persist, a confluence of factors — from surging ETF inflows to the emergence of a thriving L2 ecosystem — paints an optimistic picture of the cryptocurrency’s long-term trajectory.
