What a difference a year can make. Last year, Bitcoin (BTC-USD) lost nearly two-thirds of its value, and skeptics were ready to leave it for dead. This year, Bitcoin has come roaring back with a torrid gain of 128% in 2023. While 2023 has been a momentous year for the largest cryptocurrency by market cap, it can head even higher next year based on two potential catalysts that could both occur in early 2024: its upcoming halving and the potential for the approval of a spot Bitcoin ETF. I’m bullish on BTC.
Get Ready for The Halving
Bitcoin’s next halving event is expected to occur in April 2024. What does the halving entail?
Halvings are scheduled events that take place every four years, in which the reward for mining a new block of Bitcoin is cut in half. Right now, Bitcoin miners receive a reward of 6.25 new Bitcoins for each block that they mine. After the halving, this reward will be reduced to 3.125 BTC.
There are only 21 million Bitcoins that will ever exist, and this fixed supply is one of Bitcoin’s primary selling points. Unlike fiat currencies, which governments and central banks can always print more of, Bitcoin is a finite resource. The halving helps to curb Bitcoin’s inflation rate and ensures that Bitcoin becomes increasingly scarce over time, which should theoretically increase its value over time.
To be clear, nothing is guaranteed, but past halvings have typically ushered in significant bull markets for Bitcoin. During the first Bitcoin halving in 2012, the block reward decreased from 50 BTC to 25 BTC, and the price of Bitcoin increased from about $12 before the halving to over $960 one year later.
During the second Bitcoin halving in 2016, the reward decreased from 25 BTC to 12.5 BTC, and the price of Bitcoin nearly quadrupled one year later, from $663 to about $2,500.
Lastly, during the most recent halving, which occurred in 2020, the block reward decreased from 12.5 BTC to 6.25 BTC, and the price of Bitcoin went parabolic, rising from about $8,500 before the halving to an all-time high of around $69,000 in November of 2021.
The price of Bitcoin came down considerably from this all-time high, and past results are no guarantee of future results. However, this illustrates the effect that past halvings have had on the price of Bitcoin. Based on these results, it’s easy to see why crypto market participants are enthusiastic about the next halving.
Impact of a Potential Spot Bitcoin ETF Approval
It’s not just the halving that could serve as a catalyst for Bitcoin in 2024. Some market observers believe that the approval of a spot Bitcoin ETF by the SEC is becoming increasingly likely and that it will come in early 2024.
BlackRock (NYSE:BLK) kicked off the excitement this summer with its spot Bitcoin ETF filing and was soon followed by a mix of traditional finance giants like Fidelity and Invesco (NYSE:IVZ), tech-centric ARK Invest, and Grayscale Bitcoin Trust (OTC:GBTC), which is seeking to convert its trust into an ETF. Bloomberg ETF analysts Eric Balchunas and James Seyffart have forecasted a 90% likelihood that a spot Bitcoin ETF will be approved for trading by January 2024.
Balchunas has noted that ARK Invest, BlackRock, and others are updating their S1 filings, which could be a good sign, as it means that these issuers are getting their applications in shape for approval. Balchunas and other observers have also noted that BlackRock and others have been meeting with the SEC to hash out details and that this dialogue is another good sign.
It should be pointed out that this is all speculation at this point, but the developments do seem encouraging.
To be clear, speculation and excitement about the possibility of such an ETF has already driven the price of Bitcoin higher in 2024. The current Bitcoin rally really kicked into overdrive this summer after news of BlackRock’s filing broke.
While this could potentially make an approval a “buy the rumor, sell the news” event in the short term, over the long term, a spot Bitcoin ETF would usher in a new era for Bitcoin.
Millions of U.S. investors would be able to gain direct exposure to Bitcoin through their brokerage or retirement accounts for the first time, making the process of gaining Bitcoin exposure as simple as buying a stock or an ETF.
This would open up access to Bitcoin to investors who are interested in it or bullish on its long-term potential but who don’t want to manage their own Bitcoin wallet or open up a dedicated crypto brokerage account with Coinbase (NASDAQ:COIN) or another provider. These ETFs could also bring more institutional investors into Bitcoin.
Furthermore, ETFs from recognizable and trusted blue-chip names in the traditional finance world, like BlackRock, Fidelity, and others who have filed, would make many investors feel more comfortable with Bitcoin and boost its credibility with mainstream, non-crypto investors.
Looking Ahead to 2024
Bitcoin has had an epic run in 2023, but 2024 could see it add to these gains based on two major potential catalysts: the Bitcoin halving, which has historically led to bullish price action for Bitcoin, and the possibility of the launch of a spot Bitcoin ETF, which would potentially open Bitcoin up to a whole new pool of investors and bring it even further into the mainstream.
Bitcoin and other cryptocurrencies can be risky and volatile investments, so they are not for the faint of heart. I own Bitcoin and am bullish on it. For long-term, risk-tolerant investors, I like the idea of adding some diversification to portfolios by adding some Bitcoin ahead of these events.