More and more institutional investors are attracted to Bitcoin, injecting over $1 billion into Bitcoin in just two months. This can be seen as a barometer of the recovery of cryptocurrencies, indicating the potential development trajectory of the market in 2023 and beyond. Bitcoin is gradually gaining recognition from institutional investors as a legitimate asset class with significant long-term growth potential. In addition, the combination of Bitcoin's limited supply and the upcoming halving event enhances its attractiveness, especially for investors seeking scarcity, and there is the potential launch of Bitcoin ETFs.
Institutional investment in Bitcoin exceeds $1 billion
CoinShares released its latest weekly report on November 13, emphasizing the narrative of funds flowing back into Bitcoin and altcoins. With the excitement building over the potential approval of the first U.S. ETF, Bitcoin, Ethereum, and some major altcoins are experiencing price increases.
According to TradingView data, the total cryptocurrency market capitalization has increased by $600 billion since November 2022. As detailed in the CoinShares report, funds for cryptocurrency investment products have significantly increased over the past two months. The report revealed, "Last week, the total inflow of funds into digital asset investment products was $293 million, pushing the seven-week inflow past the $1 billion mark. The year-to-date inflow total is $1.14 billion, marking the third-highest annual inflow on record."
A notable statistic highlights the revival of cryptocurrencies in 2023: the assets under management (AUM) of cryptocurrency exchange-traded products (ETPs) have nearly doubled since the beginning of the year, increasing by nearly 10% just last week.
CoinShares emphasized, "The total AUM has now reached $44.3 billion, marking the highest level since the major cryptocurrency fund closures in May 2022." The report also revealed that bullish sentiment dominated Bitcoin trading volume. The report stated, "The total inflow into Bitcoin last week was $240 million, pushing the year-to-date inflow total to $1.08 billion, while shorting Bitcoin saw an outflow of $7 million, indicating continued bullishness in the market."
Bitcoin's scalability to meet evolving demands
With the continuous growth of the cryptocurrency market, Ordinals have also become extremely popular. Previous articles from the veDAO Research Institute mentioned the network congestion caused by the surge in Ordinals trading, and as interest in BRC-20 tokens grows, Bitcoin transaction fees have also risen. After weeks of accumulation, average transaction fees have soared since the end of October, reaching a six-month high of over $16 on November 9. Fortunately, the evolving Bitcoin sidechains and scalability protocol ecosystem are expected to simplify Ordinals transactions and bring fees back to more manageable levels.
Over the 14 years since Bitcoin's inception, the volume of transaction data has surged, and the emergence of Ordinals is just the latest trend, putting pressure on the limited throughput of the blockchain. As researchers began to focus on Bitcoin's scalability challenges in the mid-2010s, the initial focus was on achieving faster and cheaper transactions. For example, the Lightning Network, launched in 2019 as a dedicated Layer2 network, aims to support peer-to-peer Bitcoin micropayments.
In the context of Ordinals, connecting BRC-20 tokens to more efficient sidechains can significantly reduce fees and create a smoother trading environment. For example, Bioniq uses the Internet Computer Protocol (ICP) to wrap Ordinals, allowing users to trade without incurring transaction fees. Similarly, Bitmos, a dedicated blockchain network built on Cosmos, aims to enhance the scalability of Ordinals projects. The platform is scheduled to launch next year, and a cross-chain bridge will allow users to create BRC-20 tokens that can freely move between Cosmos chains.
As Ordinals develop, bridging and scalability solutions may support new and more complex use cases for Bitcoin-based assets, which will also reflect on the dynamics of Bitcoin's supply.
Reassessing the dynamics of Bitcoin's supply
To address the growing interest, on-chain analytics company Glassnode has conducted an in-depth study to reassess the dynamics of Bitcoin's supply. According to Glassnode's latest report "The Week On-Chain," there are only five months left until the next halving event, and the amount of Bitcoin held for storage now exceeds the mined amount by 2.4 times. The upcoming fourth halving event holds significant fundamental and technical implications for Bitcoin. Glassnode noted that, considering the significant returns in previous cycles, this is a highly attractive event for investors.
The report includes multiple charts, with one showing the supply storage of long-term holders (LTH), entities holding tokens for 155 days or longer. Philip Swift, the founder of the statistical platform Look Into Bitcoin, emphasized that the presence of wallet entities, regardless of size, continues to increase, and on the 13th, he tweeted, "This is what adoption looks like."
How will the halving affect investments in 2024?
The next Bitcoin halving event will occur in April 2024, during which the amount of Bitcoin rewarded to miners will be halved. It is expected that this event will further reduce the supply of Bitcoin, potentially making the asset more attractive to investors.
In the past halving events, we have observed some meaningful trends. Firstly, after each halving, the price of Bitcoin has experienced a period of increase. Whether this trend will continue into the next halving is yet to be seen. Historically, Bitcoin's halving events have intensified the scarcity of cryptocurrencies, leading to upward price pressure, explaining the bull markets that followed each halving event.
After experiencing the crypto winter of 2022 and the economic downturn of 2023, the halving event of Bitcoin in 2024 is crucial. By slowing down the creation speed of Bitcoin, it will gradually limit the supply of Bitcoin over time, applying the same scarcity as gold. Bitcoin's halving promotes innovation and resilience in its native cryptocurrency, setting it apart from fiat currencies. The halving event in 2024 will affect the speed of new Bitcoin entering the market. The event will reduce the reward from 6.25 BTC to 3.125 BTC, and to maintain profitability, miners will need to find ways to optimize operations. This may prompt miners to increase efficiency.
Furthermore, we can also consider this issue from a longer timeline. In the early stages of Bitcoin, its price was relatively low and volatile. However, as time has passed and Bitcoin has become more widespread, its price has gradually risen. This means that while the halving event may have a certain impact on the price of Bitcoin, the long-term trend may depend more on market supply and demand, macroeconomic conditions, and the development of the Bitcoin ecosystem, among other factors.
Conclusion
Overall, the increasing institutional interest in Bitcoin is a positive signal for the cryptocurrency industry, indicating that institutional investors are increasingly accepting Bitcoin as a legitimate asset class. The next halving event may also have a positive impact on the price of Bitcoin, attracting more investors to the asset.
References:
https://insights.glassnode.com/the-week-onchain-week-46-2023/
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