Understanding the 2024 Bitcoin Halving: What It Means for You

Posted on 14/11/2023 | 1292 Views

Currently, we're witnessing a remarkable tightening in Bitcoin's supply, reaching levels previously unseen. This constriction of supply might be signalling a bullish market sentiment, suggesting that holders are bracing for higher future valuations. It's a pattern that speaks volumes about the confidence and expectations of those deeply invested in Bitcoin.

Delving into the specifics of this supply dynamic, today we focus on two key aspects: 'available supply' and 'supply storage'. Interestingly, 'supply storage' by long-term investors has been outstripping new issuance by over 200%. This trend is influential in shaping Bitcoin's market valuation. When we explore the relationship between Bitcoin's Market Cap and Realised Cap, it becomes evident that current capital inflows into Bitcoin are having a significantly amplified impact on its valuation, magnified by the tightness in supply. 

The halving event, a critical part of Bitcoin's design, occurs roughly every 210,000 blocks and is a game-changer for miners and investors. Its primary effect is halving the rate at which new Bitcoins are created, essentially cutting the miner rewards by 50%. 

Based on the current average intervals between blocks, we're looking at approximately 158 days until the halving. This puts the expected date of the fourth Bitcoin halving around 23 April 2024. 

Bitcoin mining comes with its own set of financial challenges. High Capital Expenditure (CAPEX) and Operational Expenditure (OPEX) are integral to sustaining the mining process. Historically, this has led miners to distribute a significant portion of their BTC earnings to cover these hefty costs.

Currently, the Bitcoin mining industry is experiencing a noteworthy financial dynamic. The Year-To-Date (YTD) high for USD value issued to miners from the newly mined Bitcoin supply stands at approximately $1 billion per month. This represents a substantial capital inflow challenge for the industry, as miners need to manage these earnings to ensure profitability and sustainability.

Looking ahead to the post-2024 halving scenario, the dynamics are set to shift considerably. The halving event will reduce the monthly inflow to miners to around $500 million, a figure reminiscent of the $450 million per month distribution pressure experienced around the time of the FTX lows a year ago. This impending change will inevitably impact miners' revenue streams, necessitating strategic adjustments and potentially reshaping the mining landscape. Miners and the market at large will likely start preparing for this shift, anticipating the reduced earnings and adjusting their strategies accordingly to maintain a stable and profitable mining ecosystem.

In the following sections, we will delve into three on-chain analyses of the upcoming halving which give insight to price dynamics for 2024.

  1. Available and Active Supply
  2. Supply Storage and Saving
  3. Capital Flows & Market Valuation

Short-Term Holder Supply, encompassing coins held for up to 155 days, is at multi-year lows, currently standing at 2.33M BTC. These coins are statistically more likely to be spent soon, indicating potential market activity.

For a more granular view, we can examine coins younger than one month, accounting for 1.39M BTC. These figures suggest recent and potentially more active trading. Additionally, the Futures Open Interest, amounting to 0.41M BTC, adds another layer, representing a form of 'supply exposure' in derivative markets.

Combining these bits of data, we can estimate that approximately 5% to 10% of Bitcoin's circulating supply is actively involved in day-to-day trading activities. This relatively small but significant portion of Bitcoin's total supply is what makes it most dynamic and responsive to the ongoing changes in the market.

There has also been a consistent decline in the 'available supply' of Bitcoin, a trend that has been ongoing for several years and has notably accelerated since the major market sell-off in June 2022. This sell-off was influenced by impactful events like the LUNA-UST collapse and the 3AC crisis.

In contrast, there has been a significant increase in the 'stored or saved' supply of Bitcoin. This divergence is analysed through various heuristics. The 'Stored supply' includes Long-Term Holder Supply, which is coins held for more than 155 days, represented in dark blue. The Illiquid Supply, denoting wallets with a limited spending history, is shown in light blue. The Vaulted Supply, encompassing deep HODL and lost supplies as per Cointime Economics, is depicted in green below.

This divergence is indicative of a shift in market dynamics. There's a noticeable migration of coins away from exchange balances and active trading, moving instead towards cold storage, custody solutions, and wallets held by long-term investors. This shift suggests a growing preference among market participants for long-term holding over immediate trading or speculative activities.

 

 

Focusing on Bitcoin investors, it's evident that long-term holders often adhere to a 'buy low, sell high' strategy. This involves realising profit by revaluing coins from a lower to a higher cost basis, such as buying at $6k in 2018 and selling at $60k in 2021. Transactions of this nature require a significantly larger amount of capital to acquire the same volume of coins, influencing market dynamics.

To wrap up, as we approach the pivotal fourth Bitcoin halving event, its significance cannot be overstated. This milestone, blending fundamental, technical, and philosophical elements, has historically captured the attention of investors, buoyed by the impressive returns witnessed in previous halving cycles.

Across the board, metrics consistently indicate that the 'available supply' of Bitcoin is at an all-time low. This suggests a strong holding sentiment within the market, with 'supply storage' rates notably surpassing the current rate of new Bitcoin issuance. The ratio of supply being stored compared to what is being issued is as high as 2.4 times, highlighting the extensive holding behaviour prevalent among investors.

For those looking to invest in Bitcoin, understanding these dynamics becomes crucial, especially in the context of the upcoming halving. The confluence of a low available supply, high storage rates, and the impending halving event could significantly impact Bitcoin's price and market behaviour. This presents potential opportunities for investors who are tuned into these market nuances.

 

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