Bitcoin set to hit new highs with halving

For crypto enthusiasts and believers alike, this jump is a vindication of the viability of digital assets, after a slew of fraud and bankruptcy cases over the last two years tainted the industry. With the long-awaited Bitcoin “halving” drawing nearer, investors are keeping their eyes peeled for more upside in its value.

Without a doubt, a major catalyst for this year’s rally is the US Securities and Exchange Commission’s (SEC) approval of several spot Bitcoin exchange-traded funds (ETF) on Jan 10. The decade-long journey in obtaining the SEC’s approval that started when crypto exchange founders — and the original crypto bros — Cameron and Tyler Winklevoss first applied for it in 2013 has been dubbed a “watershed moment” for the industry.

The presence of a spot Bitcoin ETF is considered a game-changer as it allows investors to gain direct exposure to the current market price of Bitcoin, without needing to hold the digital asset directly.

For Stephen Richardson, managing director of financial markets at Fireblocks, this regulatory approval provided a “fundamental change” in the interpretation of the asset, which was shrouded in negativity from the complexities surrounding the ownership of cryptocurrencies.

See also: Bitcoin resumes advance, rekindles US$100,000 milestone optimism

Investing in gold, equities and bonds never required investors to “self-custodise” their assets, something holders of Bitcoin and Ethereum had to think about while considering counterparty risks.

Stephen Richardson, managing director of financial markets at Fireblocks. Photo: Fireblocks

See also: Bitcoin retreats from US$100,000 in worst spell since Trump’s win

“There was a lot of complexity,” says Richardson. However, with the approval of spot Bitcoin ETFs, investors now have access to an investment product that looks familiar to them in terms of asset allocation, he adds. Such regulatory clarity and the growing recommendation by financial advisers to allocate between 1% and 3% of investment portfolios to crypto assets have resulted in spot Bitcoin ETFs becoming the fastest-growing ETFs in history.

Independent Reserve Singapore’s CEO Lasanka Perera says the US SEC’s approval of spot Bitcoin ETFs is a major win for the cryptocurrency industry. “Some of the largest wealth management firms in the world with the largest sales and marketing budgets are competing to sell Bitcoin and grow their assets under management (AUM), broadening Bitcoin’s appeal to a wider range of investors and supercharging the demand for Bitcoin.

“ETFs were recently purchasing Bitcoins at a rate of 12–15 times higher than the daily mining output of 900 Bitcoins [in mid-March],” he adds.

The growing popularity of spot Bitcoin ETFs is undeniable. In 1Q2024, over US$11 billion ($14.8 billion) of inflows into US SEC-approved spot Bitcoin ETFs were recorded.

These ETFs are provided by some of the biggest fund managers including Fidelity, BlackRock and Invesco. In comparison, gold-backed ETFs recorded outflows this year of US$5.7 billion as at February, according to the World Gold Council.

Research by crypto platform BitMEX reveals that Blackrock’s iShares Bitcoin Trust (IBIT) is the biggest gainer, recording inflows of over US$13.9 billion from Jan 1 to March 28. Meanwhile, Grayscale Bitcoin Trust —  one of the first securities solely and passively invested in Bitcoin Cash launched in 2013 — recorded net outflows of US$14.7 billion during the same period due to its high fees.

How long will the run last?

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While inflows have been encouraging so far, the full potential of spot Bitcoin ETFs has yet to be uncovered, as it is currently only available to the US market.

Closer to home, the Hong Kong Exchanges and Clearing (HKEX) launched crypto ETFs in December 2022 with maiden offerings CSOP Bitcoin Futures ETF and CSOP Ether Futures ETF. A year later, it issued guidelines for the approval of spot crypto funds.

On April 10, Reuters reported that spot Bitcoin ETFs could be launched in Hong Kong this month, with the first approvals likely to be announced next week. Four mainland Chinese and Hong Kong asset managers have submitted applications to launch the ETFs and the Hong Kong units of China Asset Management are among the applicants, according to Reuters.

In South Korea, authorities in January said it did not plan to regulate sales of Bitcoin futures ETFs. However, in March, the governor of its Financial Supervisory Service said there were internal discussions on whether to allow the sale of spot Bitcoin ETFs in the country.

“Say what you will but the US has always had people looking up to them [in terms of] what is okay and not okay to do, because of their large regulatory reach,” says Fireblocks’ Richardson.

On the other hand, Singapore’s Monetary Authority of Singapore (MAS) has been very clear that this is not a product they want for retail investors. Following the approval by the US SEC, MAS cautioned retail investors against participating in the trading of spot Bitcoin ETFs in overseas markets, reiterating their highly volatile and speculative nature.

Almost as if to prove MAS right, the price of Bitcoin began tumbling just as quickly as they rose. In mid-March, prices fell to below US$68,000 before levelling at US$70,623 by April 11 in anticipation of a delay by the US Fed to cut interest rates.

Who then stands to win and lose from the approval of a spot Bitcoin ETF? Richardson, who helps customers engage in Web 3.0 projects, believes there are two likely opposing outcomes. First, trading volumes and retail interest in crypto are expected to return in numbers.

At the time when spot Bitcoin ETF was awaiting approval, many global exchanges witnessed volume increases driven by retail demand, he says. During the recent run, Fireblocks’ clients saw significantly higher trading volume and revenue.

On the other hand, Richardson says retail investors might not feel the need to use crypto exchanges anymore as there is no longer an incentive to create a native wallet and get onboard an exchange just to access digital assets.

While some investors may prefer a fund structure over investing directly via exchanges, Perera clarifies that platforms like Independent Reserve were not negatively impacted. In fact, trading volumes in Singapore and Australia exploded, he says.

“Bitcoin is global money that is unstoppable and cannot be confiscated that has worked non-stop 24/7 for 15 years and is far superior to holding an ETF that only trades US hours. Institutions that are not set up to hold Bitcoins in custody or hold private keys buy the ETF while everyone else buys the real thing,” he explains.

Likewise, Hassan Ahmed, country director for Singapore at Coinbase, says he has “overall seen an increase in traffic on the platform”, most likely driven by the recent “good news” in the sector.

Hassan Ahmed, country director for Singapore at Coinbase. Photo: Coinbase

Coinbase is the custodian of record for most major spot Bitcoin ETFs and therefore participates directly in the ETF inflows. Ahmed notes that Coinbase users have “a lot of curiosity” about other crypto assets and continue to turn to Coinbase for additional trading.

Coinhako, one of the oldest crypto exchanges in the region that was founded in 2014, saw a “significant spike” in trading volumes in February.

“Retail trading volume was up 94% from 3Q2023 to 4Q2023, and 155% from 4Q2023 to 1Q2024. In March alone, we processed over $2 billion in trading volume on both our retail and institutional businesses collectively,” says Yusho Liu, CEO of Coinhako.

Liu adds that current indicators suggest that this uptrend may only be in its nascent stage.

Down the road, Fireblocks’ Richardson says that exchanges will likely focus on providing the top 10 cryptocurrencies on their platform. They might then begin to think about different products — from staking through access to decentralised finance or DeFi — further down the value chain that has a more native ecosystem as a response to the perceived popularity of spot Bitcoin ETFs.

Countdown to halving

As Bitcoin’s price reaches new heights, attention is turning to its upcoming “halving” and whether the event is playing a role in its ascent.

On April 20, the phenomenon that takes place once every four years is set to occur, when the block reward — the financial incentive Bitcoin miners receive for successfully mining a block of the cryptocurrency — falls by half its value.

Halving is part of Bitcoin’s underlying blockchain technology and happens every 210,000 blocks. As the next block height is fast reaching 840,000, the Bitcoin block reward will drop from 6.25 BTC to 3.125 BTC per block.

As a result, there will be a slowdown in the release of Bitcoins in circulation, capping the total supply of Bitcoins at 21 million. Thus far, about 19 million Bitcoins have been mined.

Historically, Bitcoin’s halving has caused cryptocurrency rallies. Over the last three halvings in 2012, 2016, and 2020, Bitcoin saw short price corrections followed by a prolonged bull run of between six and 12 months. After the last halving in 2020, the value of Bitcoin rose by 366% and 559% over the next six and 12 months, respectively.

The difference this time round, Perera from Independent Reserve highlights, is that Bitcoin smashed its all-time high even before the halving. He attributes this price movement to the pandemic, which accelerated the loss of trust in governments and fiat currencies as the supply of money increased by 40%. The reduced supply, coupled with spot ETFs blowing open the floodgates of institutional capital to buy Bitcoin at scale, is surely leading to an exciting few years to come, says Perera.

Many analysts, researchers and high-profile individuals in the crypto space have since projected very bullish estimates on the price movements of Bitcoin post-halving. Binance’s new CEO Richard Teng, who took over from founder Zhao Changpeng, expects Bitcoin to blow past the US$80,000 mark by the end of this year.

Anthony Scaramucci, a former adviser to Donald Trump, predicts Bitcoin could hit $100,000 post-halving.

Standard Chartered’s head of FX research Geoff Kendrick expects Bitcoin to “overshoot” to a high of around US$250,000 this year if ETF inflows continue apace.

Kendrick, unusually bullish on this asset class relative to other mainstream financial industry pundits, uses three measures to assess where Bitcoin prices might go. First is the gold analogy. This is based on gold price moves after US gold exchange-traded products were introduced, Kendrick estimates that Bitcoin could rise to US$200,000 apiece. The second is two-asset (gold and Bitcoin) optimisation, which suggests a level of around US$190,000 apiece, based on an optimised 80% gold at current prices and a 20% Bitcoin portfolio.

The third and last is a linear extrapolation of the correlation between ETF inflows and the price of Bitcoin. ETF inflows have been the largest driver of the price of Bitcoin since its inception, Kendrick notes. These inflows are likely to be sticky, which means the risk of a sharp position unwind is lower than open interest would suggest.

Post-halving, the new Bitcoin supply will fall to 450 per day. The same amount of ETF buying will be equivalent to five times the new supply. By bringing these flow and demand-supply concepts together, StanChart discovered that the US$11.2 billion inflows into spot Bitcoin ETFs since inception coincided with an increase of roughly US$25,000 in the price of Bitcoin. Thus, a linear extrapolation of this suggests that if ETF inflows reach the firm’s mid-point estimate of US$75 billion, the price of Bitcoin would reach the US$250,000 level.

Meanwhile, crypto tax software platform CoinLedger predicts that Bitcoin could reach US$84,145 in the three months after halving, followed by US$115,733 after six months and US$361,152 after 12 months subsequently. The potential future prices were crunched by using data of historic average increases over past halvings, assuming a Bitcoin price of US$69,000 at the time of the next halving.

CoinLedger notes that it is extremely unlikely for Bitcoin to reach the 12-month price prediction, highlighting that many analysts estimate figures between US$150,000 and US$250,000 apiece in 2025.

What’s next?

Being the cryptocurrency with the largest market capitalisation, it is inevitable that Bitcoin leads the price performance of other cryptocurrencies — also known as “altcoin” — such as Ethereum, XRP and Cardano. Despite having different fundamentals and functions, the high correlation between Bitcoin and altcoins is expected to continue, as evident in the historical price movement.

But Markus Thielen, Matrixport’s head of research and strategy, sees it playing out differently. He points out that Bitcoin’s dominance still stands at 52% of the total market cap of coins, showing how “unimportant” the altcoin sector is. “We would expect the correlation between Bitcoin and altcoin to break down as we do not have a clear narrative for this fifth bull market while we can easily pinpoint investment flows into Bitcoin,” says Thielen.

“Importantly, Bitcoin has proved to be an excellent macro asset in terms of interest rate volatility and fiscal irresponsibility of which we are currently seeing plenty with the US government debt increasing by a rate of 140 days of Bitcoin’s market capitalisation. Bitcoin has become a hedge against even more fiscal spending,” he adds.

After halving, the next event to closely watch is the development of US SEC’s approval of spot Ethereum ETFs, with the final application deadline on May 23, Perera says. Ethereum reached an all-time high of US$4,878.26 on Nov 10, 2021. This year, Ethereum traded at a peak of US$4070.60 on March 12 and is currently trading at around US$3,300 apiece.

Independent Reserve Singapore’s CEO Lasanka Perera. Photo: Independent Reserve

Continuing to be upbeat on Bitcoin’s trajectory, Perera highlights Bitcoin’s recent overtaking of silver as the eighth-largest asset on the planet. “To me, Bitcoin has always been the future of money; it’s a global and borderless currency available to everyone. It is more portable, fungible, and divisible; it is scarce and will benefit society far more than gold,” says Perera.

“My read of the market is optimistic; I believe Bitcoin will eventually surpass the gold market capitalisation of US$14 trillion. When that happens, the price of one Bitcoin will be approximately worth US$700,000,” he adds.

Similarly positive, Thielen expects Bitcoin to retain its cyclicality, driven by different narratives, macro events and political considerations. In a longer-term view, he says the US elections could have a big impact on the price of Bitcoin as leading candidates reveal more spending programmes.

According to a poll conducted by market research firm Public Opinion Strategies and investment firm Paradigm, 48% of US crypto owners plan to vote for Donald Trump and 39% plan to vote for Joe Biden, with the remaining 13% undecided.

Among crypto owners, 43% recall voting for Biden in 2020 while just 39% voted for Trump. Paradigm believes this shift may be due to actions taken by some agencies in the Biden administration.

Thielen is also excited to see institutional investors adding Bitcoin to their asset allocation strategies, supported by Bitcoin’s higher market capitalisation. When Bitcoin was enjoying its previous bull run, stuffy private bank executives had been known to proclaim they would not touch this asset with a 10-foot pole. “Not only has the investor interest changed over the last decade but what Bitcoin is has also changed over the years. Therefore, the current narrative that Bitcoin is digital gold plays well into the hands of institutional investors.” 

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