Moneycontrol Pro Panorama | A bull case for Bitcoin

Alongside increasing demand for Bitcoin, a looming supply-side challenge is expected to intensify from April 20, 2024.

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With equity markets taking a pause, attention in the financial world has shifted to cryptocurrencies. A significant surge in cryptocurrencies, especially Bitcoin, has been anticipated ever since US authorities permitted exchange-traded funds (ETFs) in the spot market.

Bitcoin reached a 2-year high on Tuesday, surpassing $57,000 and rallying over 10 percent in two sessions, fuelled by indications of substantial cryptocurrency purchases by major players. The surge was bolstered by an announcement on Monday from crypto investor and software firm MicroStrategy, revealing its recent acquisition of approximately 3,000 bitcoins for $155 million.

Since their public debut on January 11, 2024, nine ETFs have accumulated 300,000 Bitcoins valued at $17 billion in less than two months. These holdings represent nearly 1.5 percent of Bitcoin's total supply of 21 million BTC.

There are several factors contributing to Bitcoin's rally. As the largest and oldest cryptocurrency, Bitcoin continues to attract new investors despite its high trading price. The approval of ETFs has further fuelled demand for the crypto asset.

However, alongside increasing demand for Bitcoin, a looming supply-side challenge is expected to intensify from April 20, 2024. This date marks the much-anticipated Bitcoin halving event.

Halving is a unique process specific to Bitcoin, occurring roughly every four years. It was designed by Bitcoin's creator, Satoshi Nakamoto, to reduce the issuance of new coins gradually. Each time miners add a new block, new Bitcoins are issued. Halving ensures that Bitcoin issuance decreases until it reaches Nakamoto's intended target. The first halving cut Bitcoin block rewards from 50 Bitcoins to 25, the second to 12.5, and the third to 6.25. The fourth halving will slash miner rewards to 3.125 Bitcoin, worth about $178,000 at current prices.

The impact of halving the price of Bitcoin is particularly note-worthy. Following previous halving events in November 2012, July 2016, and May 2020, Bitcoin experienced significant price rallies of 2,330 per cent, 2,876 per cent, and a 611 per cent surge, respectively, within months. This has heightened anticipation among crypto enthusiasts for the upcoming event.

Further adding to the bullish sentiment, veteran trader Peter Brandt has revised his Bitcoin target from $120,000 to $200,000. Additionally, analysts at Bernstein recently noted in a memo that the current Bitcoin price action appears stronger before halving, suggesting momentum may be sustained throughout the year.

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Shishir Asthana
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