Analyzing Bitcoin’s Odds of Hitting All-Time Highs
5 key catalysts pushing BTC to $70k
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This week, we attempt to answer the question everyone in crypto is asking: will Bitcoin hit a new all-time high? We explore five key catalysts that are likely to propel BTC higher over the next few months and even assign a probability to this outcome.
Remember: none of this is to be taken as financial advice. Please do your own research and attempt to come to your own conclusions.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin fees dropped by 35% despite its price reaching its highest in nearly two years
- Fees on Ethereum increased a whopping 61.5% as on-chain demand ramping up to its highest since the May 2023 meme token frenzy
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- $160M worth of BTC left CEXs, slightly less than the $240M in withdrawals from the previous week
- ETH recorded $500M in net outflows, but these also decelerated relative to the $1B in withdrawals last week as EigenLayer removed its deposit caps
Analyzing Bitcoin’s Odds of Hitting All-Time Highs
Bitcoin has broken out above $50k and surpassed a market cap of over $1T. BTC’s price is now up over 30% in the last three weeks. Given the recent momentum in Bitcoin, market participants are now asking themselves wen all-time highs?
It’s $69k high set in 2021 is now just 32% away, and bullish catalysts continue line up. There are five major catalysts in sight that could lead BTC to all-time highs before the summer. Namely, these are: the Halving, ETFs, Easing, Elections, Treasuries (HEEET).
Let’s look at these one by one to understand their implications regarding price action over the next few months. First off, how is the halving likely to impact Bitcoin?
The Halving’s Effect on Network Security — the implications of a reduction in Bitcoin’s security budget
- The Bitcoin halving is set to happen in mid-April 2024. In it, the amount of rewards issued to miners per block will be reduced from 6.25 BTC to 3.125 BTC
- Since miner revenues decrease by 50%, it is likely that Bitcoin’s hash rate (the aggregate amount of computation miners provide the blockchain) drops shortly after the halving
- In 2020 after the last halving, Bitcoin’s hash rate dropped by 30% within the two weeks. However, Bitcoin’s miner difficulty was also automatically reduced shortly thereafter, leading to new all-time highs in the hash rate just seven weeks after the halving even while BTC’s price had remained nearly unchanged
- With Bitcoin set to undergo its fourth halving, it is likely that miners are more prepared than ever for the reduction in issuance. For this reason, as well as the continued specialization in miner equipment, we predict Bitcoin’s all-time high to reach another all-time high just a month after the halving
With regards to Bitcoin’s price, a quick rebound in hash rate would help assure the security of the Bitcoin blockchain. Moreover, the reduction in issuance also translates to potentially less Bitcoin being sold by miners.
Reduced Selling Pressure?
- Bitcoin’s issuance inflation rate will be decreasing from 1.7% to just 0.85% per year after the halving
- Approximately 900 BTC are currently issued per day, representing just 0.1% of Bitcoin’s on-chain volume. While there will be marginally lower sell pressure as these newly-minted flows decrease, the larger impact may come from miners’ holdings
- Miner addresses are attributed 15% of Bitcoin’s on-chain volume last week, and hold 1.93M BTC in aggregate. Historically, as volume trends higher after the halving while miner rewards decrease, this results in less market impact
Then psychologically, many large players in the crypto market operate under the premise of four year cycles. Historically, the year following Bitcoin’s halving tends to have the strong performance. Given that this theory has become relatively widespread within crypto, it is likely many participants front-run this by buying earlier, making it increasingly likely that all-time highs will be hit faster than in previous bull cycles.
ETF Flows — The second catalyst for Bitcoin is likely to be the continuation of inflows coming from the spot ETFs
- Over $4B in new inflows have come into the Bitcoin ETF products just a month after their launch
- While GBTC outflows were temporarily larger than inflows into the new ETFs, this situation has reversed, with Blackrock’s IBIT recording one of the most successful ETF launches in history in terms of assets under management
- Demand for Bitcoin ETFs has particularly accelerated this week, recording an average of $350M in inflows per day
While it’s unclear how long the strong inflows will last, some are arguing that these may accelerate in Q2 as Bitcoin spot ETFs finish their first quarter trial and registered investment advisors can begin offering it more broadly. This could result in growing demand for Bitcoin, while supply issuance decreases post-halving, resulting in a potentially explosive dynamic for Bitcoin’s price.
Easing — The Federal Reserve’s restrictive stance on interest rates in 2022 set the grounds for a bear market, not only crypto but in all risk assets. As inflation has come down to 3% from nearly 10%, market participants are now anticipating the Fed to facilitate financial conditions, lowering interest rates and potentially reactivating quantitative easing. This anticipation is likely a main driver behind the recent rally in both Bitcoin and stocks.
Front-Running the Fed — Previous bear markets in equities used to bottom shortly after the Fed began cutting rates; now that this play has become obvious, market participants continue to buy in anticipation of eventual rate cuts
- Despite last month’s CPI print being slightly higher than expected, the stock market continues setting new all-time highs
- This time, Bitcoin’s price action has moved more closely with stocks, leading to its correlation with the Nasdaq and the S&P 500 to a two-month high
- Whether it happens in March or as late as the summer, the forecasted rate cuts are being priced in and leading markets higher
- As interest rates begin to decrease, it will become cheaper to borrow, supporting more liquidity into financial markets which ultimately tends to benefit prices of Bitcoin and stocks alike
Elections — To make matters more interesting, the Fed’s bias towards the democratic party might sway them into further support of the economy
- Though the Fed is supposed to be an independent apolitical institution, the political donations from its employees has consistently favored the democratic party over the last few years
- With presidential elections coming in November 2024, there is an implicit incentive for the Fed to prop up the economy to increase Biden’s odds of reelection
- While the Biden cabinet has been relatively anti-crypto, the months leading up to the election would likely be favorable to crypto as stronger economic conditions facilitate an environment for markets to rise
- Moreover, prediction markets in Polymarket are currently giving Biden just 33% odds to win reelection, making Trump who has been significantly more crypto-friendly the most probable outcome
Then, finally, we have the potential for institutional treasuries to increase their Bitcoin holdings.
Treasuries — Institutional treasuries could be a non-obvious driver for Bitcoin in the next few months
- In 2020 as Bitcoin rebounded post-Covid crash, traditional finance giants like Paul Tudor Jones first began being vocal about BTC’s potential
- With the spot ETFs now making it easier than ever for Wall Street to access Bitcoin, it is likely that more hedge funds will accumulate Bitcoin in the upcoming quarters
- Registered investment advisors may also see increased demand from their clients, given the strong performance of the spot ETFs
- This could result in a small percentage of corporate treasuries beginning to allocate to Bitcoin and the broader crypto space
- While this narrative may be less concrete within the US thus far, an increasing amount of companies in Asia and South America have adopted Bitcoin for part of their treasuries. Now that the ETF legitimizes Bitcoin in the US, this pattern may expand nationally
Conclusion: Given these five catalysts (Halving, ETFs, Easing, Elections and Treasuries), we give Bitcoin 85% odds of hitting all-time highs within the next six months.
Bonus: What could go wrong? With the current tailwinds, it is easy to be bullish on Bitcoin, but what could prevent it from not hitting new highs in 2024?
- Many of the catalysts mentioned are at least partially priced in, particularly the first three mentioned. If one of these failed to materialize (e.g. the Fed does not end up easing conditions as expected), then it is likely that Bitcoin could face a 10%+ correction
- Geopolitical conflict — while wars in Gaza and Ukraine haven’t spread out globally, there is a possibility that these begin to expand. If Western economies or China become more directly involved, the uncertainty would likely result in a major sell-off at least in the short-term
- Unexpected selling pressure — if major crypto institutions were to fail, Satoshi-era addresses become active again or there is a major hack/vulnerability in Bitcoin, it is possible for selling pressure to surmount the current tailwinds at least temporarily. This currently seems unlikely, but could be a potential unknown weighing down on the market
