Author: Daniel Polotsky, founder of CoinFlip Source: coindesk Translation: Shan Oppa, Jinse Finance
The Bitcoin halving is right around the corner, and there’s no doubt that we appear to be on the verge of major change. While everyone’s eyes are fixed on Bitcoin’s (BTC) price surge and the possibility of new record highs, the ripple effects are far-reaching. They will touch every corner of the cryptocurrency market and may even mark the end of the four-year bull/bear market cycle for cryptocurrencies.
However, it’s not just about the numbers; it’s about the potential for a massive shift in how we perceive and interact with digital currencies. Get ready – this could be the beginning of a whole new era for cryptocurrencies.
The rise of Bitcoin
Bitcoin’s value has soared recently on the back of the upcoming halving event in April and the approval of a spot Bitcoin exchange-traded fund (ETF) in the U.S. and major financial institutions such as BlackRock publicly entering the space. Interest from institutional investors led to unprecedented demand, with Bitcoin hitting a new all-time high above $73,000 on March 13. This was likely driven by record inflows into ETFs, including $1.045 billion on March 12.
This shift marks the broader recognition of cryptocurrencies as a legitimate asset class and marks the beginning of a new phase in institutional investment. It also further enhances Bitcoin’s credibility and accessibility to retail investors.
These milestones allow investors to gain exposure to Bitcoin without the complexities that come with direct ownership. Increased liquidity and stability will likely continue to attract a wider range of investors, driving wider mainstream adoption and further fueling the current surge in Bitcoin valuations.
Of course, there are still bears in the market. However, with Bitcoin price predictions ranging from $150,000 to $250,000, the Bitcoin market is about to see an influx of institutional capital. This will herald a potential shift in its historical cycle dynamics, driving new levels of growth and innovation across multiple digital asset sectors.
Things are unpredictable, and there are always pros and cons.
While the cryptocurrency market is showing clear upward momentum, several factors could disrupt this trajectory. Continued inflation could prompt tighter monetary policy, affecting riskier assets like cryptocurrencies. Slow economic growth could also erode investor confidence and divert attention away from speculative investments.
Another short-term problem lies with the Bitcoin mining industry. The upcoming 2024 halving event is expected to trigger major consolidation and defaults as cash-strapped miners struggle to cope with shrinking profit margins and high operating costs. This could force them to sell Bitcoin if they enter bankruptcy proceedings, thus curbing price increases. Additionally, regulatory scrutiny and a lack of funding pose challenges that could put downward pressure on prices.
The uncertainty surrounding the 2024 elections adds another layer of unpredictability. Political outcomes could lead to various regulatory changes and potential shifts in the U.S. government’s stance on cryptocurrencies. While a Republican administration may provide a more favorable regulatory environment, Democrats may also become more welcoming to the industry due to their alignment with the industry on values such as financial inclusion and environmental sustainability. This could foster bipartisan, bilateral support for cryptocurrency regulation.
Is the cryptocurrency boom/bust cycle over?
However, the unexpected secondary effects of the halving event may be the most enticing. While halvings have historically been a driver of bull cycles, the impact of halvings may be overshadowed by the other factors mentioned above, such as staggering net ETF inflows. Total net ETF inflows have exceeded $15 billion.
Strategic intervention by institutional and retail ETF investors under the guidance of financial advisors more experienced in “buying the dip” could be an effective factor in suppressing the halving and driving the market forward.
This means that the typical four-year bull/bear market cycle of cryptocurrencies may be coming to an end, no longer seemingly closely tied to the Bitcoin halving event, but heading towards a relatively stable upward growth trajectory, with ETF inflows becoming the main catalyst for cryptocurrency popularity. It is worth noting that this is the first time that Bitcoin prices have surged before a halving, and previous years of Bitcoin price surges have occurred after halvings.
This shift could have far-reaching consequences for the entire industry. Initially, the ethos of cryptocurrencies was rooted in a counter-cultural resistance to centralized currencies and institutions, with the slogan “without your keys, it’s not your coins.” It now appears that the dominant force in cryptocurrencies may soon be controlled by a handful of institutions, with ownership dispersed among individuals without access to their own keys—the opposite of the original ideal of decentralization.
The tilt toward institutional ownership could lead to a larger event: sovereign nations holding Bitcoin. More countries may follow El Salvador's lead and start a race to accumulate cryptocurrencies, which could trigger a global supercycle of mainstream adoption.
The change could also cause a departure from the cryptocurrency market’s traditionally intense boom-bust cycles, creating a more stable environment for growth and development within the industry.
While fewer retail investors will experience the euphoria of a bull market, the good news is that they will also avoid the harsh reality of buying at the top and suffering huge losses when the market plummets.
This new stability could give cryptocurrency companies and projects the opportunity to focus on sustainable long-term development, rather than predicting market cycles and facing extreme disadvantages during the Crypto Winter.
As investors and enthusiasts prepare for the intense volatility to come, it's clear that the market is on the verge of unprecedented growth and a potential fundamental paradigm shift. While this is both gratifying and slightly sad, the coming period can be seen as cryptocurrencies emerging from their infancy, marking a major evolution in their history. Before saying goodbye, we should all be ready to celebrate its "last hurray".
