The two crypto events to shape bitcoin’s price path in 2024
By: Octa
- In January, the US Securities and Exchange Commission (SEC) approved 11 bitcoin exchange-traded funds (BTC ETFs), prompting a surge in price above $70 000.
- Two months later, these ETFs had acquired more than $20 billion worth of bitcoin.
- The upcoming “halving” in April will reduce new supply of bitcoin to the market by half, an event that happens every four years and has historically been associated with a bull market.
The US Securities and Exchange Commission’s (SEC) January approval of 11 spot exchange traded funds (ETFs) was a landmark event, which allowed institutions to gain access to the world’s best performing asset of the last decade.
It was widely predicted that this would trigger a bull run – and so it has. BTC’s price is up roughly 70% since the ETF announcement, as ETF funds managed by names such as BlackRock, Fidelity and Grayscale started delivering what their clients have been demanding for years – exposure to this new, volatile but exciting asset class.
This is likely to open the door to other cryptocurrency ETFs, with ether (ETH) next on the drafting board.
The SEC eventually relented after 10 years of badgering by the big financial operators on Wall Street. Prior to the ETF approvals, institutions had limited ways to acquire exposure to BTC, mostly via the Grayscale Trust, where they were constrained by lock-up periods, illiquidity and high costs. The Grayscale Trust traded for years at a discount to its net asset value, hence the pressure from investors to convert to an ETF giving them fairer exposure to the bitcoin price.
Buying a bitcoin ETF does not give you direct access and custody of the BTC. You are buying shares in a fund, not the actual BTC.
Good for investors, not for traders
“Investing in these ETFs is ideal for those with a buy-and-hold investment strategy, though this is not particularly suitable for traders”, says Kar Yong Ang, analyst at Octa.
“Investing in spot bitcoin ETFs is different from buying BTC directly for several reasons. Firstly, investors who invest in bitcoin ETFs do not own bitcoins directly. Secondly, financial companies will charge a commission for trading and managing bitcoin ETFs.
“In contrast, people who buy bitcoins directly through brokers only pay a transaction fee, and there are no investment management costs”.
Many traders are on the hunt for volatile assets like BTC, which can rise and fall up to 10% in a day. Add leverage to that, and the potential for big profits (or losses) multiply.
Bitcoin’s price ramped from $42 000 in January when the spot ETFs were approved to $71 000 in early March, much of this driven by the massive institutional flows entering the newly-christened ETFs.
The halving
Another event propelling the price upward is the “halving” which happens every four years when the rate of coin issuance is cut in half. This is built into the bitcoin protocol as a way to ensure scarcity – one the key principles underpinning any sound form of money.
There will never be more than 21 million BTC in issue, and all previous halving events have been associated with sometimes dramatic increases in price.
Bitcoin’s two-year performance over previous three halving:
2012: 30 000%
2016: 786%
2020: 712%
There are many predictions and forecasts for bitcoin, with some analysts putting the price at $220k by 2025 and ultimately $1 million.
For traders, it is risky to take aggressive short positions during a bull market such as we are currently experiencing. These bull markets generally persist for six months or more after the halving.
Bear in mind, however, that BTC is extremely volatile and is prone to sharp price drops – as much as 70% in the last bear market which ran from November 2022 to January 2023.
It is precisely because of these volatile price movements that traders have come to love bitcoin, which has taken its place alongside forex as a staple of the trading community.