Bitcoin Gets The Nod
State of Bitcoin
Historical Halving cycles:
The bitcoin halving is officially insight, expected to occur in late April 2024. Unlike bitcoins competitors for money like the US dollar or British pound, its monetary policy is programmatic, simple, immutable and transparent to its holders.
The upcoming halving will reduce the block subsidy to 3.125 BTC a block, trimming bitcoins issuance rate to 0.9%. The above chart illustrates the core bitcoin story, supply programmatically reduces over time whilst wallet growth (adoption) shows no sign of slowing down.
We have now firmly entered the third 500 day phase of the bitcoin halving cycle, which historically has coincided with the early phase of a new bull market. Historically prices bottom out between 750 and 1000 days into a halving cycle. For now our read is that we have bottomed and are in the early stages of the rally into the next halving event.
Perhaps it's too simple of a framework, but the halving seems to produce the conditions necessary for prices to adjust upwards, with the first 500 days of the cycle holding the bulk of gains.
With this framework in mind we would expect the BTC price to hit its next peak in July 2025. With the next bear market occurring between July 2025 and Aug 2026. Obviously the sample size here is small and history isn't necessarily a predictor but it's certainly worth keeping in mind given its previous accuracy and consistency.
Supply Held for Longer Than 1 Year
One of the most fascinating aspects of bitcoin is its almost religious holder base, this can be seen in the % of bitcoin supply held for longer than a year, which stands at 68% of circulating supply.
Another interesting observation is the accumulation and distribution pattern of long term holders, it seems accumulation peaks coincide with price bottoms and distribution troughs coincide with price topping out.
This cycle seems to rhyme closely with previous cycles, accumulation has been increasing since November 2021 price peaks. Comparable with similar accumulation phases such as early 2014 to early 2016 which led to the 2017 bull market and early 2018 to late 2018 which led to the 2020/21 bull market.
Supply on Exchanges
Bitcoin supply on centralised exchanges continues to come off highs made in March 2020, a clear sign that bitcoin investors are becoming less trusting of “bank-like” centralised exchange venues.
With only 11% (~$69bn) of circulating bitcoin left on exchanges and a decreasing issuance rate, it makes you wonder where the likes of Blackrock and Fidelity are going to source BTC to fill their ETF products. Perhaps the more obvious thing will have to happen, price will have to adjust significantly to the upside to incentivise longer term holders to bring liquidity back to exchanges.
Given the long term holder base has ridden a 70%+ drawdown since late 2021, one would imagine it will take quite a price rise to convince these highly convicted holders to become sellers.
Bitcoin Gets The Nod
One of the biggest hurdles we've encountered in promoting Bitcoin investment has been its 'wild west' reputation, with a notable lack of comprehensive regulation. Now, however, we are witnessing a significant shift. Regulatory discussions and cleanup efforts are underway, which will help dispel these concerns and pave the way for a full-fledged Bitcoin bull market.
In addition, large institutions such as BlackRock, Fidelity, and Citadel Securities are beginning to embrace Bitcoin. Given these firms alone control over $14 trillion in assets under management, even a modest 1% allocation to Bitcoin would translate to an infusion of $140 billion into the Bitcoin market. This increased demand, coupled with a constricting supply, sets the stage for a promising rise in Bitcoin's value.
There's no denying it, Bitcoin is no longer just a technology discussion - it has firmly made its mark in the political arena. A testament to this change in attitude are quotes from representatives on both sides of the aisle. As Republican Ron DeSantis puts it, there is ‘Everyone has the right to do Bitcoin,’ a sentiment echoed by Vivek Ramaswamy, who asserts that 'Bitcoin should not be regulated as a security.' Even Democrat Robert F. Kennedy Jr. acknowledges Bitcoin as 'A major innovation engine'.
Adding another dimension, both Ramaswamy and Kennedy have announced they will accept campaign donations in Bitcoin. This not only signifies growing political acceptance, but also a level of comfort with the technology. Even the IMF have changed their tune on the topic, suggesting countries look inward to identify the source of demand for crypto instead of outright banning it.
“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run. The region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.” - Economists representing the IMF
On the global front, China recently published a Web3 whitepaper. While not exclusively focused on cryptocurrencies, it certainly indicates a warming sentiment towards the technology from even the most authoritarian government bodies.
In today's rapidly evolving landscape, maintaining neutrality towards Bitcoin is increasingly untenable. Not having a view on Bitcoin in 2023 is like not having a view on the internet in 2002.
So, what is the market failing to see today that will require prices to rerate significantly going forward:
- Under-appreciation of the effect of the halving.
- Peak accumulation and increasing illiquidity of BTC, with rising institutional demand.
- A republican victory in the US presidential race.
- Financial institutions truly embracing bitcoin as digital gold, due to clear macroeconomic concerns with developed market currencies.
- Peak regulatory anxiety, already in the rear view mirror.
- Continued push by the East to create a multi polar monetary system.
- Continued increase in the markets' anxiety around the government's ability to manage their ballooning debt burdens.
While it’s easier to look away, seeking to understand is the only path to a more enlightened and empowered world. Bitcoin, Ethereum and distributed ledger technology are complex systems that require due diligence to comprehend and operate in. Etherbridge lowers the barriers to understanding this fast-growing digital economy.
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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments. Collective Investment Schemes (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up. Past performance, forecasts or commentary is not necessarily a guide to future performance. As neither Lima Capital LLC nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor’s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and should not be construed as advice.