In 2023, we see many miners taking advantage of low mining rig prices for future expansion. Bitcoin’s rebound and breathing room after hashrate prices tightened in 2022 (with more than enough help) gave miners a chance to breathe out the bottom of hashrate prices in 2022. For mid- to high-cost miners who have been unprofitable for most of Q4 2022, a rebound in currency prices and the stability of computing power prices are crucial.
Today, as Bitcoin prices fall and computing power rises, miners are preparing for the brutal fourth halving era. Building on last year’s trends, mergers and acquisitions, consolidations, and asset squeeze sales are accelerating in 2023 as poorly positioned miners look for exit opportunities while well-positioned miners position themselves favorably for expansion. We expect the halving to accelerate these trends.

What new changes will there be in 2024?

1. Anticipated Approval of Spot Bitcoin ETFs by the SEC

The U.S. Securities and Exchange Commission (SEC) is on the brink of potentially approving several spot Bitcoin Exchange-Traded Funds (ETFs) in the forthcoming weeks. This move is expected to generate billions of dollars in additional demand, offering institutions a conduit to engage with Bitcoin through traditional financial products. The anticipation of these approvals is already influencing market dynamics, as evidenced by the trading patterns of the Grayscale Bitcoin Trust (GBTC). Notably, GBTC’s discount relative to Bitcoin has narrowed significantly – from nearly a 50% discount last year to under 10% as of December 2023. This shift underscores the growing institutional interest and the broader financial market’s increasing recognition of Bitcoin. Additionally, a chorus of analysts and asset managers closely connected to these developments have expressed their expectations for the imminent greenlighting of a spot Bitcoin ETF, highlighting a growing enthusiasm in the financial sector.

2. The Fourth Bitcoin Halving and its Market Implications

The fourth halving of Bitcoin’s supply, scheduled for April 2024, is poised to be a pivotal moment in the cryptocurrency’s history. Mirroring the patterns observed during the previous three halving events, which saw substantial increases in Bitcoin’s price, the asset has already marked a 150% year-to-date (YTD) gain. Historically, halvings have resulted in substantial market surges of 101x, 30x, and 8x respectively. The upcoming halving will reduce the daily production of Bitcoin by half, from the current rate of 900 Bitcoins per day. This reduction in supply is expected to alleviate downward price pressures and introduce a new level of scarcity for the digital asset. Consequently, Bitcoin’s stock-to-flow ratio – a measure of its scarcity – is set to double suddenly. This change is significant, as it will position Bitcoin as the world’s scarcest asset, surpassing gold for the first time, marking a historic shift in the landscape of valuable assets.

3. The Impact of Decreasing Liquidity Supply on Bitcoin’s Market Capitalization

The liquidity of Bitcoin is diminishing more rapidly as an increasing amount of the cryptocurrency migrates to wallets owned by illiquid entities. This trend involves a shift away from Bitcoin being predominantly held and traded on exchanges to more of it being stored in private custodies. This decrease in readily available liquidity means that the market impact of large purchases is amplified. For instance, when an entity invests $1 billion in Bitcoin, the overall market capitalization of Bitcoin escalates by an amount greater than the investment itself due to the resultant upward pressure on its price. This dynamic is a testament to the growing preference among Bitcoin holders for long-term holding over immediate trading, reflecting a maturing market and a more stable investor base.

4. FASB’s Adoption of Fair Value Accounting for Bitcoin

In a landmark decision, the U.S. Financial Accounting Standards Board (FASB), the body responsible for setting financial and accounting standards for American companies, voted in September 2023 to adopt fair value accounting practices for Bitcoin. This pivotal shift enables companies to report Bitcoin on their balance sheets at current market values, recognizing unrealized gains without categorizing the asset as intangible and adhering to an impairment model. This development is significant, as it could potentially boost the reported earnings and equity of companies whose Bitcoin assets appreciate. The adoption of fair value accounting for Bitcoin not only makes Bitcoin holdings more financially appealing to companies during periods of price increase but also symbolizes a form of legitimization of Bitcoin as an asset class. The FASB’s decision marks a crucial step in the integration of Bitcoin into mainstream financial reporting and reflects a growing recognition of its relevance in the corporate sector.

5. Regulatory Developments and the Satoshi Action Fund’s Expectations

The Satoshi Action Fund, a U.S.-based non-profit organization focused on educational initiatives, projects that the year 2024 will witness the enactment of Bitcoin-supportive regulations in as many as 10 states across the United States. This comes on the heels of 2023, which saw substantial regulatory progress in favor of Bitcoin. The anticipated regulatory clarity is expected to further bolster institutional investments, enhance consumer confidence, and catalyze entrepreneurial activities in the Bitcoin ecosystem. These developments, in turn, are likely to amplify demand for Bitcoin and expand its potential as an asset. The proactive stance of the Satoshi Action Fund in advocating for Bitcoin-friendly policies underscores the growing importance of regulatory acceptance in shaping the future of cryptocurrencies. As these regulatory frameworks evolve, they promise to bring greater stability, legitimacy, and growth to the Bitcoin market, paving the way for wider adoption and integration into the financial mainstream.

6. Increasing Decentralization in Bitcoin Mining

The decentralization of Bitcoin mining activities is anticipated to grow, further enhancing the network’s resilience and diversity. Remarkably, Bitcoin’s hash rate has soared to a historic peak of 500 EH/s, reinforcing its status as the most secure blockchain network in existence. This increase in hash rate not only signifies greater security but also reflects a more distributed and robust mining landscape, diminishing the risk of centralization and reinforcing the foundational principle of decentralization in the Bitcoin ecosystem.

7. Diminishing Volatility in Bitcoin

As Bitcoin continues to mature, a noticeable trend is the reduction in its price volatility. This stability is particularly significant for investors who weigh returns against volatility, employing metrics like the Sharpe or Sortino ratios. Bitcoin’s combination of high returns and decreasing volatility is enhancing its attractiveness to a broader range of investors, positioning it as a more stable and reliable investment option compared to its early years.

8. Scalability of Layer-2 Solutions: Lightning Network

Layer-2 solutions, particularly the Lightning Network, are achieving scalability milestones, significantly enhancing Bitcoin’s utility as a medium of exchange. The Lightning Network enables instant transactions with negligible fees, addressing one of the major challenges of using Bitcoin for everyday transactions. Since the summer of 2021, the adoption of the Lightning Network has increased tenfold, marking a substantial shift in Bitcoin’s functionality. With these advancements, Bitcoin in 2024 stands to be markedly different and more versatile than in previous years, expanding its utility beyond just an investment asset.

9. Positive Developments in Bitcoin Investments

In a significant turn of events, November 2023 saw Standard & Poor’s upgrade its credit rating, a nod to the early success of strategic Bitcoin investments. Additionally, by December 2023, the value of these Bitcoin investments turned positive for the first time, following two years of accumulation during one of the longest bear markets Bitcoin has faced. These developments underscore the growing recognition and legitimacy of Bitcoin as a viable investment asset in the traditional financial world.

10. Taproot Upgrade and Its Implications

The integration of the Taproot upgrade in November 2021 marked a significant technological advancement for the Bitcoin protocol. This upgrade facilitates the implementation of smart contracts directly on the Bitcoin blockchain. Taproot not only streamlines transaction efficiency but also unlocks the capacity to execute complex contract functions on the network. By leveraging Bitcoin’s decentralized, secure, and robust framework, this upgrade paves the way for innovative applications in decentralized finance (DeFi) and beyond. The impact of these developments, which began to surface in 2023, is expected to gain momentum and become a major milestone by 2024, opening new horizons for Bitcoin’s utility and applications.