Analysis, Bitcoin

Where Bitcoin Goes Next

It's a new bull market for Bitcoin, but some big questions remain!
Jack Inabinet Jack Inabinet Jan 3, 20243 min read
4
0
Where Bitcoin Goes Next

As 2024 commences, Bitcoin's fundamental narratives appear to be as strong as ever, and crypto analysts are near unanimous in their BTC bullishness!

With the spot BTC ETF approval deadline next Wednesday, industry insiders are optimistic that introducing these instruments will pave the way for tens of billions of dollars flowing into BTC over the coming years.

Additionally, market participants are bullish on the next halving, an event in April that will reduce the inflationary Bitcoin block subsidy by 50% and has historically translated to decreased miner sales that allow BTC prices to rocket.

While two distinct Bitcoin catalysts alone are enough to set the scene for BTC price appreciation, projected interest rate cuts next year have traders salivating in anticipation that a more conducive macro environment will allow Bitcoin to break out to new all-time highs.

All that said, the bull case for Bitcoin has not been shy in presenting itself lately. Yet there are some important caveats to remember before you unquestioningly ape BTC to enjoy the monstrous gains that may be in store for 2024…

1. Demand Must Materialize

Spot crypto ETFs are novel for Americans, but these instruments already exist in Canada and Europe, where they've seen mixed adoption.

Canada's Purpose spot Bitcoin ETF has increased BTC under management by 50% to 35k since late September, a respectable increase. Meanwhile, European issuer Jacobi has only managed to amass a paltry $1.7M in AUM since launching in November.

Global investors are exposed to the same investment narratives as Americans, and their lack of demand for spot BTC products could indicate that US inflows may be underwhelming.

For the Bitcoin ETF approval to be an immediate positive, issuers must tap novel demand from external investors seeking to acquire BTC exposure; however, it's unclear if this demand exists.

Over the long term, making it easier to invest in Bitcoin will be a bullish catalyst for the asset. Still, bulls risk getting caught on the wrong side of the trade if ETF approval comes and the resulting immediate inflows disappoint.

2. History Merely Rhymes

Simply because previous halvings have been bullish does not mean that future ones will be.

Just as a marginal reduction in Ether issuance post-Merge failed to move the needle for Ether price in the months that followed (the ETH/BTC Ratio has declined over 30% since), a reduction in BTC issuance from this halving is not guaranteed to have a positive impact on BTC price.

While reducing sell pressure by decreasing block emissions will undoubtedly have some amount of bullish effect on Bitcoin's price, this halving will have a significantly diminished impact compared to those that came before it; don't be surprised if the post-halving pattern of Bitcoin price appreciation that we expect doesn't appear.

3. Rate Cuts Aren't Automatically Bullish

Lower interest rates are conflated by many with easing economic conditions, but they're only one input in the macro story.

Ceteris paribus, it is true that lower interest rates reduce the required rate of return and make risky investments (like crypto) appear more attractive. Still, it is crucial to remember that rate cuts have historically been the monetary response to a deteriorating economy.

No matter the asset class, any investor's most significant risk is the market, and it remains unclear whether falling interest rates will be enough to combat an economy demonstrating signs of decline.

Crypto has not existed during prolonged economic contraction, and peaking interest rates suggest that the worst of the downturn remains ahead. 

4
0
No Responses