Bitcoin’s fourth halving event was completed on April 20th – exactly thirty days ago – and many are wondering if the digital asset’s price will repeat its usual post-halving upward trend or if this time will be different.
The event is a pre-programmed reduction in the supply of new coins that occurs every 210,000 blocks, or roughly every four years. Historically, bitcoin’s price has experienced what Matthew Sigel, head of digital assets research at investment management firm VanEck, called “explosive gains” within 180 days of the reduction, which could be seen at least 30 days after the halving.
Learn more: Bitcoin Halving: What Is It & How Is It Determined?
But this year has been anything but normal. Not only did Bitcoin undergo a fourth halving, but in atypical fashion, it also set a new all-time high of nearly $74,000 roughly a month prior to the event. One of the primary reasons for that record price was the historical approval of eleven spot bitcoin exchange traded funds (ETFs) in January. Last year, digital asset service provider Galaxy estimated the total addressable market size of a U.S. spot bitcoin ETF to be about $14 trillion in the first year of launch.
And now, with today’s bitcoin (BTC) price at $67,000 – slightly higher than the $65,000 price one day after its fourth reduction – it appears bitcoin may once again follow its historic pattern – onward and upward. But with the halving, all-time high, and ETF launches all past us—and leaving aside the price gains that could come with wider adoption of the ETFs themselves—what other factors could impact bitcoin’s price going forward?
“2024 to date has seen price action analysts primarily discussing catalysts that focus on headlines, institutional engagement metrics, and ETF flows, in addition to the negative supply shock induced by [the] halving,” Christopher Calicott, managing director at Bitcoin venture capital firm Trammell Venture Partners told Unchained.
“What everyone seems to be uninterested in discussing at the moment, is the meaningful long-term trend: persistent and accelerating global adoption of bitcoin,” he added.
Accelerating Bitcoin Adoption
One thing that has historically set Bitcoin apart from other cryptocurrencies is its narrow focus on being either digital money or digital gold. The network’s community has earned a reputation of being conservative and risk-averse in its approach to protocol development.
All of that changed last year with the controversial introduction of the Ordinals protocol – a way of creating Bitcoin-native non-fungible tokens (NFTs). Despite resistance from the likes of highly respected contributor Luke Dashjr and others, the Ordinals protocol has persisted and even paved the way for related projects such as fungible token standards like BRC-20 and more recently, Runes.
Learn more: What Are Runes? A Guide to the New Fungible Token Protocol on Bitcoin
“I’m not sure creating a new fungible token protocol for Bitcoin is a good idea,” Ordinals and Runes creator Casey Rodarmor wrote last year, before going on to explain why he launched Runes in the first place.
“Creating a good fungible token protocol for Bitcoin might bring significant transaction fee revenue, developer mindshare, and users to Bitcoin,” Rodarmor wrote.
Indeed Runes, which was launched in tandem with the Bitcoin halving, seems to have been largely responsible for the record-setting $108 million in transaction revenue generated by miners that day.
Read more: Runes’ Share of Bitcoin Fees Has Dropped Sharply One Month After Launch
Last year, Ordinals and BRC-20 activity sent Bitcoin transaction fees soaring to the point of exceeding the standard 6.25 BTC block subsidy at the time.
In each instance however, these sudden spikes seem to quickly dissipate, although current fees remain elevated compared to 2022, with today’s fees per block averaging a little more than $7,000 at the time of reporting, compared to roughly $4,700 per block on the same day in 2022, according to data from mempool.io.
Bitcoin’s Layer 2 Renaissance
The launch of Ordinals has significantly increased Bitcoin transaction volume, raising scalability concerns.
One response to those concerns has been a flurry in layer 2 network development. Bitcoin already has a functioning layer 2 solution called Lightning; designed to make transactions cheaper and faster. But some have decried it as a failure, and a host of alternative solutions are currently in the pipeline.
Unchained recently reported on this layer 2 phenomenon, which some consider to be a “renaissance” in Bitcoin development.
BitVM is one such renaissance project that seeks to introduce smart contracts to Bitcoin. The project’s website says “BitVM enables a free market of second layers, potentially scaling Bitcoin to billions of users.”
Robin Linus, the inventor of BitVM, told Unchained that he is working on a closely related layer 2 protocol called zkCoins that will use a BitVM bridge to potentially improve Bitcoin’s throughput from 7 transactions per second (TPS) to more than 100 TPS. It would also come with significant privacy benefits.
If in fact BitVM can scale Bitcoin to even a fraction of the “billions of users,” it expects to onboard, and at the same time increase the dominant blockchain’s capacity 14-fold via the ambitious zkCoins project, the resultant demand would likely buoy the price of BTC significantly.
To put this into perspective, consider that only 80-130 million people are estimated to hold bitcoin as of June 2023, according to bitcoin financial services firm River.
“I believe this is the most exciting application of BitVM bridges,” Linus said. “Together with Blockstream Research, I am working on a concrete implementation. Our white paper will be released at the end of this month.”
Linus’s last sentence is key – most Bitcoin layer 2 solutions (with the exception of mature platforms such as Lightning and Blockstream’s Liquid Network) are still in the ideation stage and may never reach implementation.
Post-Halving Layer 2 Builder’s Premium?
The jury is still out on whether bitcoin will once again go on a post-halving rally.
But investors will have a better indication of that in mid-October – around 180 days after the halving.
And if it does repeat that trend, projects like Ordinals, Runes, and BitVM that focus on building new functionality on top of the oldest blockchain, could be key in fueling that upward trajectory.
Calicott called bitcoin “the asset for saving and…the network for building,” adding that, “The technical components of the Bitcoin stack that are accelerating buildability are a force that will be reckoned with.”
