What’s next for Bitcoin’s fundamentals?

Author: Jack Inabinet, Bankless; Compiler: Songxue, Golden Finance

As 2024 begins, Bitcoin’s fundamentals appear to be as strong as ever, and cryptocurrency analysts are almost unanimously bullish on BTC!

With the deadline for approval of spot Bitcoin ETFs set for next Wednesday, industry insiders are optimistic that the launch of these instruments will pave the way for tens of billions of dollars to flow into Bitcoin in the coming years.

Additionally, market participants are optimistic about the next halving, which will occur in April and will reduce the inflationary Bitcoin block subsidy by 50%, historically , which will lead to a decrease in mining machine sales, causing the price of BTC to surge.

While just two different Bitcoin catalysts would be enough to set the stage for Bitcoin price appreciation, expected rate cuts next year have traders salivating, who expect a more favorable macro environment to push Bitcoin to new all-time highs .

Having said that, Bitcoin’s bull case hasn’t been shy about showing recently. However, before you enjoy the huge gains that 2024 could bring, there are some important caveats to remember...

1. Demand must materialize

Spot Cryptocurrency ETFs for Americans Although novel, these derivatives already exist in Canada and Europe, where adoption has been mixed.

Since the end of September, the number of BTC managed by Canada’s Purpose spot Bitcoin ETF has increased by 50% to 35,000, a significant increase. Meanwhile, European issuer Jacobi has amassed a paltry $1.7 million in AUM since launching in November.

Global investors face the same investment narrative as Americans, and their lack of demand for spot Bitcoin products may indicate that U.S. inflows may not be impressive.

For the approval of a Bitcoin ETF to have an immediate positive impact, issuers seeking to gain exposure to BTC must take advantage of New demand from outside investors; however, it is unclear whether such demand exists.

In the long run, making investing in Bitcoin easier Acting as a bullish catalyst for the asset. Still, if the ETF is approved and the resulting direct inflows disappoint, bulls could fall into a trading error.

2. History is for reference only

Although previous halvings were bullish, this does not mean that future halvings will be the same.

Just as the small reduction in Ethereum issuance after the merger failed to drive Ethereum prices higher in the following months (the Ethereum/Bitcoin ratio has fallen by 30% since then Above), the reduction in Bitcoin issuance after this halving cannot guarantee a positive impact on the price of Bitcoin.

While reducing selling pressure by reducing block rewards will undoubtedly be somewhat bullish on the price of Bitcoin impact, but the impact of this halving will be significantly lessened compared to previous halvings; Don’t be surprised if the price appreciation pattern we expected after Bitcoin’s halving does not materialize.

3. Interest rate cuts are not automatically bullish

Many people confuse lower interest rates with loose economic conditions, but this is only one factor in the macroeconomics.

All else being equal, lower interest rates do lower the required rate of return and make risky investments, such as cryptocurrencies, appear more attractive. Nonetheless, it is important to remember that historically,rate cuts have been a monetary response to a deteriorating economy.

The biggest risk for any investor, regardless of asset class, is the market, and it's unclear whether falling interest rates will be enough to combat an economy showing signs of recession.

Cryptocurrencies do not exist during a prolonged economic contraction and peak interest rates indicate that the worst The recession remains.