Bitcoin goes into the first quarter of 2024 with two specific events set to determine price action in Q1 – a spot Bitcoin Exchange Traded Fund (ETF) and the run-up into the latest Bitcoin ‘halving’ event. While there is historical evidence of how Bitcoin trades into, and after, a halving event, the potential introduction of a slew of spot BTC ETFs and how it will affect price action is still unknown. If one stands back and looks at the possible impact of one, or both, of these events, the outlook for Bitcoin looks bright.

What is a Spot Bitcoin ETF?

A Spot Bitcoin Exchange Traded Fund (ETF) invests directly in physical Bitcoin rather than using Bitcoin futures contracts. The provider of the ETF buys and holds BTC on behalf of its customers to track its price movements. The ETF aims to match any BTC price movement or performance less fees and expenses. The ETF allows individuals and companies to gain exposure to Bitcoin price movement without having to trade on a cryptocurrency exchange or set up a digital wallet.

The ETF trades with a direct correlation with the underlying Bitcoin, unlike the Bitcoin futures ETFs which can trade differently to the cash price due to the rolling of the underlying contracts.

The US Securities and Exchange Commission (SEC) currently has 12 spot Bitcoin ETF applications sitting on their desk. These include applications from heavyweight institutional names including BlackRock, Fidelity, and Invesco. While the SEC is still looking at all 12 applications, the current market thinking is that a spot Bitcoin ETF may well be approved in early January 2024. Further, if one application is approved, the SEC may well approve all, current, 12 applications at the same time so no one ETF provider has a ‘first mover advantage’.

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What are the Potential Implications of a Spot Bitcoin ETF?

A spot BTC ETF would bring Bitcoin to a wide range of new and current investors, increasing mainstream adoption of an asset class that has long been unregulated and at times illiquid. Increased adoption would increase liquidity and reduce volatility, while a regulated product issued via some of the world’s largest fund managers would ease concerns over ‘bad actors’ acting with fraudulent intentions. While it is difficult to gauge the potential demand that these ETFs may stoke, it is possible that new demand for underlying Bitcoin from these ETFs will drive the price of the largest cryptocurrency by market capitalization much higher.

Bitcoin Halving – What Does It Mean?

Bitcoin halving is an event, that occurs approximately every four years and is programmed into Bitcoin’s code that cuts miners’ rewards for adding new blocks to the Bitcoin by 50%. This reduction in supply leads to increased scarcity and, if demand for Bitcoin remains constant or increases, drives the price of BTC higher. In 2012 the halving cut BTC mining rewards from 50 BTC to 25 BTC, in 2016 from 25 to 12.5 BTC, and in 2020 from 12.5 BTC to 6.25. In next year’s halving – expected in mid-April - the reward for mining a Bitcoin block will be cut to 3.125 BTC.

As Bitcoins become scarcer, due to reduced mining rewards, and with only 21 million Bitcoins hard-coded to be ever produced, a supply-demand imbalance has so far, driven the price of Bitcoin higher into, and more noticeably after the event.

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Historical Bitcoin Halving Price Action

November 28th, 2012

Halving Price - $13 --- 2013 Peak Price - $1,125

July 16th, 2016

Halving Price - $664 --- 2017 Peak Price - $19,798

May 11th, 2020

Halving Price - $9,168 --- 2021 Peak Price - $69,000

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