#CryptoExplained: A Bitcoin ETF Could Trigger the Next Bull Run!

Spot Bitcoin ETF’s (exchange traded funds) are a way to invest in Bitcoin real time through traditional finance, similar to equity investments in stock. While Spot Bitcoin ETF’s have been approved in many countries, including Canada, the US has resisted because of the SEC’s (Security and Exchange Commision) hostile view of crypto. But last month Grayscale won a lawsuit against the SEC’s blocking of its ETF application, leading many in traditional finance to speculate that a US Spot Bitcoin ETF could be on the horizon. The influx of new demand thanks to these ETF’s coinciding with the Bitcoin halving, could lead to a bull run in 2024.

A spot Bitcoin ETF tracks the real time price of Bitcoin, so traditional investors can own the asset through a fund, and not worry about managing keys themselves or deal with risky exchange hacks. While many Bitcoiners see this as a violation of the principle “Not your keys, not your coin” most in the crypto industry see this as an opportunity for Bitcoin to go mainstream. A Bitcoin ETF would enable US retirement funds, and other regulated institutions to invest in bitcoin, and average americans would be able to get BTC exposure through their 401K accounts. 

The explosion in demand the ETF’s could create coupled with the Bitcoin halving could create conditions for a robust Bitcoin bull run and crypto market recovery.

The Bitcoin Halving

Roughly every 4 years, the production rate of bitcoin goes to half. This means that the reward the miners get for every block reduces by 50%, and therefore the total amount of new Bitcoin being added also reduces by 50%. And usually when this happens, the value of Bitcoin increases significantly. The halving, or halvening as it is also known, also triggers a bull run in the Bitcoin and crypto markets. 

There have been 3 Bitcoin halvings in the past:
Nov. 28, 2012, to 25 bitcoins – Closing Price per BTC $12
July 9, 2016, to 12.5 bitcoins – Closing Price per BTC $650
May 11, 2020, to 6.25 bitcoins – Closing Price per BTC $9670

A bull run correlated with the halving makes perfect economic sense. Demand for bitcoin has continued to increase, and a reduction in supply should theoretically drive prices up. A good analogy is the oil market. When OPEC nations decide to reduce oil production, the price of a barrel of oil always increases because the global supply of oil is reduced. The Bitcoin halving works the same way.

High interest rate environment

As of Sept 4 2023, the Fed funds rate stands at around 5.5% which is the highest since 2001. The fed funds rate has implications for borrowing costs and a high rate makes it more expensive to borrow money. This has reduced the amount of capital available in the market overall and therefore stock markets and the crypto market overall has seen significant declines in value. 

The current high interest rate environment is a response to high inflation in the US. Inflation has been tapering off so there could be a slight reduction in the rate next year. This rate or a higher rate could curb the Bitcoin bull market as there would be less capital to invest. However, if the rate is decreased even slightly there could be enough fuel to support a crypto market recovery.

Bitcoin Miner power

Bitcoin miners, who use expensive computers and lots of energy to produce Bitcoin ultimately hold significant market power. The current low Bitcoin price is hurting their business and pushing many with high energy costs into bankruptcy. Bitcoin miners who add much of the new supply of BTC to the market could support a price increase by choosing to sell at a higher price after the halving. They would have significant pressure to do so as the same amount of energy would now only produce half the bitcoin they are used to mining. Therefore, the mining community could drive prices higher simply by choosing to sell at higher prices. 

Perfect conditions for a bull run?

Bitcoin ETF’s, the Bitcoin halving, slightly lower interest rates, and miner support could drive bitcoin prices higher next year. Since Bitcoin usually drives the crypto market, it will likely lead to a general bull run as well. 

Regulations could be a dampener, but the SEC has declared Bitcoin a commodity and most jurisdictions have favorable Bitcoin regulation, with more coming this year. So it seems unlikely that regulatory bad news could dampen the market.

All in all conditions so far seem to be coalescing into a favorable environment for a Bitcoin bull run next year. If the ETF’s are approved early, the bull run could come sooner. But crypto is volatile, so we’ll just have to keep our fingers crossed.