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Why Bitcoin will surpass $100,000 per coin in the next 18 months

The speed at which hodlers are accumulating Bitcoin is already 2.2 times faster than the speed at which new coins are being issued. Furthermore, the volume of the 'hot' supply that can be released by short-term holders (STH) is shrinking at a rapid pace. This reduces the amount of available coins to an all-time low. The trend will strengthen significantly following the approval of spot ETFs in the US and the halving event in 2024.

Since mid-2022, miners have been selling nearly all mined coins since mid-2022. At the moment, their pressure on the market is estimated to be $1 billion, and after the halving event, it will decrease to $0.5 billion per month, according to the Glassnode analytical agency.



As for the liquid and highly liquid supply (hot wallets, crypto exchange accounts, short-term holders' addresses), they have been actively reduced since March 2020. This is due to the flow of coins to long-term holders who have not parted with their coins for more than six months, and 57.1% of coins from the circulating supply remain haven't moved at all for more than two years.



Currently, STH and crypto exchanges account for 2.3 million BTC, which collectively accounts for a modest 23.8% of the circulating supply. When coupled with the growing volume of coins with no movement, this leads to a historically low level of available supply.



These conditions are a good Bitcoin growth booster.



But there's a supply shock waiting ahead due to the emergence of spot ETFs in the US and the Bitcoin halving event expected to take place in April 2024. To have a rough idea of ETF's impact, one can look at the accumulation volumes by the GBTC trust fund and Coinbase's storage service for institutional investors (both options have downsides against the expected ETFs). These decisions and the reduction of the Fed's key rate to zero were the main drivers behind Bitcoin's price growth in 2020-2021.



The inflow of institutional capital will coincide with the decline of new coins from 81,000 to 40,500 per quarter. If we just look at the halving by itself, such events have historically led to Bitcoin's price rising 460%-7745% in the first 12 months after the halving.



The overlapping of two such powerful factors and the high accumulation mood shown by most market participants can take Bitcoin past the $100,000 threshold in the next 18 months.

The Federal Reserve may be the fuel to the fire if it tightens its monetary policy, which would cause a recession and a decline of capital inflow into risky assets. However, the majority of economists agree that the regulator will loosen its grip in the near future.


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Altcoin season is underway

More positive sentiment in the crypto industry and the rise of Bitcoin tend to be signs that a good time for altcoins is near. In 2023, Bitcoin's price increased 2.3-fold, which was facilitated by talk about the imminent appearance of spot ETFs in the United States and several high-profile defeats in court for the SEC.



Crypto investors are to track the beginning of the altcoin season since the profitability of low-cap coins often compensates for the higher risks (especially when forming an investment portfolio). One sign of the transition period is increased volume in altcoin trading, which currently accounts for 60% of total trading volume.



Among altcoins, Solana inspires the most interest among investors. We previously discussed why that is. On American crypto exchanges, Solana is confidently leading the way, nearly reaching a trading volume of $15 billion in the spot market in 2023. However, it's still outperformed by Ethereum on international platforms.



In November, after a year of next to nothing, interest in this coin sharply increased after the investment giant BlackRock filed an application for a spot Ethereum ETF. As a result, the funding rate increased sharply. Note: A high funding rate indicates the dominance of bullish positions in the perpetual futures market.



The growing interest in altcoins led to Bitcoin's share decreasing from 54% to 52% in November. However, the trend may reverse if the positive factors don't come to be or don't have the expected impact. Analysts at JPMorgan recently published a sceptical report in which they crushed investors' hopes:

The emergence of spot ETFs will only lead to the flow of capital into them from current investment products (for example, Grayscale Bitcoin Trust) but will not create new demand.
Court losses for the SEC will not lead to a more pro-crypto regulatory environment. As the regulatory framework develops, the approach to crypto will only become stricter.
The effects of halving events are unpredictable, and the reduction in rewards is already priced in.


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Ordinals storm Polygon: 16 million transactions in 24 hours

The Ordinals protocol was initially developed for Bitcoin users to exchange digital objects within the network. The first wave of hype was around the minting of graphic objects that were later overtaken by BRC-20 quasi-tokens, which are inter-exchangeable coins like Shiba Inu in the Ethereum network.



Speculative interest was so strong that the load on the network led to a five-fold increase in the average fee, and miners set a new annual profitability record.



Bitcoin is a low-bandwidth network, so a massive exchange of quasi-tokens resulted in negative consequences. For quicker networks, Ordinals present a stress test. On 16 November, the number of transactions on the Polygon network brought on by minting and exchanging PRC-20 tokens jumped from an average of 2.3 million to 16.4 million, setting a new record.



Kudos to the network, as all transactions were processed error- and failure-free. But the fee at peak times increased more than a hundred-fold from a minimum of 30 gwei to 5,000 gwei.



The hype supports validators. Users spent $90 million per day to process transactions with PRC-20.



For ordinary users, such experiments result in higher costs and the risk of delayed transfers. As for the MATIC coin, PRC-20 minting didn't affect it in any way.



Ordinals continue to travel through networks, increasing the load on them and their commissions. The creator of the Ordinals protocol, Casey Rodarmore, previously admitted his frustration publicly, calling 99.9% of quasi-tokens spam.


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Investor demand for Solana sets new records

Interest in Solana has reached historic levels, surpassing the September 2021 record of 4.3%. Solana now accounts for 5.5% of total crypto turnover, which translates to $23.8bn each month.



There is increased interest from both traders and institutional investors. Over the last 12 months, institutional investors have poured $121 million into the coin. Solana has overtaken all altcoins combined both in terms of volumes and the annualised rate of capital inflows into exchange-traded funds.



Traders set an all-time record for the volume of open interest on the derivatives market – hitting $834m on 16 November. The previous record stood at $811, recorded in October 2021.



Off the back of such strong investment demand, Solana has grown six-fold to $60 in 2023.



The influx of capital is being driven by significant progress in the promotion of the blockchain: the Solana Pay payment gateway was added to Shopify's e-commerce platform, and VISA is pioneering the network as an interbank exchange tool. In both cases, we are talking about transactions being carried out in USD Coin (USDC). The list of supported coins may be expanded at a later date.

The fact that such large players have chosen Solana is explained by a high degree of decentralisation coupled with ultra-low commissions (less than $0.01) and high transaction completion speeds (up to 2 seconds).



According to Solana co-founder Anatoly Yakovenko, the real "curse" for the network was the number of frequent failures it experienced, which often resulted in a complete loss of functionality. However, Solana has been running smoothly since March, and a future update to the Solana blockchain's validator, Firedancer, will probably solve this problem completely.

Investment firm VanEck optimistically estimates that Solana will hit $3,211 by 2030. The baseline scenario assumes growth to $335.


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Buy the rumour: BNB price soars on back of insider info about pre-trial settlement

The largest crypto exchange has really struggled in 2023. In February, under pressure from the New York State Department of Financial Services, stablecoin issuer Paxos refused to mint BUSD for Binance. While in June, more than ten top managers quit the company after the SEC filed a lawsuit against the company.

Since June, the following staff have left Binance:

- Senior Director of Investigations Matthew Price
- Global Vice President of Marketing & Communications Steve Milton
- General Counsel Han Ng
- Chief Strategy Officer Patrick Hillmann
- Senior Vice President Stephen Christie
- Head of the Asia-Pacific Region Leon Fung
- Head of Product Mayur Kamat
- Vice President for Eastern Europe, Turkey, CIS, Australia and New Zealand Gleb Kostarev
- Executive Vice President Helen Hai
- US division CEO Brian Schroeder
- Vladimir Smerkis, Director for the CIS
- Jonathan Farnell, Head of Binance UK

At the same time, journalists were preparing the public for the imminent filing of criminal charges against the management and company CEO Changpeng Zhao (CZ) brought directly by the US Department of Justice for money laundering, financial fraud, helping to circumvent sanctions on Iran and Russia, and aiding and abetting the financing of terrorist organisations.

Regulatory pressure, an exodus of senior executives, and a negative news backdrop have dealt a severe blow to the market position of both the US and global divisions. In the spot market, the former's market share fell over the year from 8% to less than 1% and the latter's from 55% to 34%, respectively.



However, yesterday Bloomberg published information from an anonymous insider claiming that a tentative agreement on a pre-trial settlement has been reached between the Department of Justice and Binance. As part of the settlement, the crypto exchange will agree to pay a record $4bn fine and comply with a number of regulatory conditions. An official statement to this effect could well be issued by the end of November.

Following this news, the BNB crypto exchange coin was up 6% to $260.



Despite its declining market share, Binance remains a major player on the global stage. Therefore, reaching an agreement regulators will provide significant support to the crypto market (and BNB in particular) as it will offset the risk of significant turbulence caused by a drawn-out criminal case.


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83.6% of Bitcoin in circulation delivers unrealised profit

Currently, 16.4 out of a total 19.5 million Bitcoin in circulation are trading above their "starting" price. In other words, 83.6% of Bitcoin in circulation represent unrealised profits for their holders. The last time this level was reached was during the 2021 bull market.



The market has already gone through a bearish phase, where less than 58% of the coins issued were profitable (minus one standard deviation), and is now in a recovery phase that will continue from 58% until 90% of coins are profitable. Between 90% and the setting of a new all-time high (+1 std), a phase of euphoria will take place.



The strength of the current trend is well conveyed by accumulation sentiment, which remains at a maximum across all investors from shrimp (<1 BTC) to whales (≥1000 BTC). This is due to market participants' expectation of a full-fledged rally on the back of the approval of spot ETFs in the US.



It is also noteworthy that the volume of coins in the hands of short-term holders (STH) hit an absolute low of 2.3 million BTC. This indicates market participant's strengthening faith in a period of protracted growth, many of whom have stopped spending their coins and have therefore moved into the long-term holders (LTH) category of investors. The volume of coins in LTH hands hit an all-time high of 14.9 million BTC.



Despite the BTC price more than doubling in 2023, the number of people willing to part with their coins is vanishingly small.



If the expectations prove correct, this trend will be met by significant demand from institutional investors, and, come April, a reduction in the per-block mining reward.



Over the past 12 months, capital inflows into exchange-traded funds (ETFs) from institutional investors have already reached $1.2bn, half of which came in the past four weeks. If the ETF is approved, most analysts expect a hundred-fold increase in the indicator.


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Exodus of funds from Binance after deal with US government

Binance CEO Changpeng Zhao's guilty plea to violating US laws and striking a pre-trial settlement, which includes an industry-record $4bn fine, led to widely-anticipated turmoil in the markets. In the 24 hours that followed, nearly $200 million worth of long positions across all crypto instruments were liquidated, with BNB buyers accounting for $4.4 million of this total.



The flames were fanned by tongues wagging, proclaiming the imminent demise of Binance in the wake of an exorbitant fine. The negative backdrop caused BTC to fall by 6% in the first couple of hours and drove BNB down by 12% – to $235.



They based their argument on the significant net outflow of funds from the crypto exchange, which according to various estimates ranged from $700 million to $1.7 billion in just 24-hours. The large difference between the estimates lies in the difficulty of identifying all the wallets associated with Binance and also the different calculation methodologies employed.

The largest negative result was found by Nansen, who calculated the $1.7bn figure on 21 November. However, this large figure is due to the overlapping of both asset outflows and the fall in the value of reserves due to the general correction on the crypto market. As a result, the reserve had grown by $1.3bn the very next day. In other words, the direct outflow of assets was much more modest.



A clearer picture is provided by the DeFiLlama service, according to which Binance's reserves decreased by $1.5bn over two days, while the outflow for the same period amounted to $710m.



However, the current rate of outflows is unremarkable from a historical standpoint. In June, after the SEC filed a lawsuit, it exceeded $1 billion within a single day, and in January, amid the scandal around the BUSD stablecoin, it hit a record high for the year – $4.3 billion.

All this shows that talk of a mass exodus of customer funds is simply invalid; the crypto exchange is only facing localised difficulties, as is the case in the USA or Australia.

If we talk about objective indicators of the stability of reserves and the degree of customer confidence, we have previously cited the research by analytics agency Glassnode as an example.



Binance has demonstrated a high degree of reliability, second only to Coinbase by some metrics, and surpassing it in others.


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Censorship on the Bitcoin network

Bitcoin offers the highest degree of decentralisation and is considered to be free from censorship. However, a developer under the pseudonym 0xb10c discovered evidence of the censorship of sanctioned transactions by a leading mining pool.

In their research, the developer looks at blocks mined by the ViaBTC, Foundry USA, and F2Pool pools. All of them excluded transactions with addresses on the US Treasury Department's Office of Foreign Assets Control (OFAC) sanctions list.



As 0xb10c investigated, they discovered that ViaBTC and Foundry USA pools excluded transactions for objective reasons. Moreover, both pools later processed transfers with the same sanctioned addresses.

However, regarding F2Pool, the researcher came to an unambiguous conclusion about the presence of a filtering mechanism. Particularly surprising to them was the fact that the pool most loyal to US oversight bodies was one registered in Asia, not the US. On an annualised basis, F2Pool accounts for 13.7% of the total Bitcoin mined.



It's worth explaining here that miners tend to unite because, when efforts are consolidated, the profitability for each participant increases. Therefore, most independent miners prefer to cooperate by forming pools. However, in the case of such enabled filtering, the miners simply skip the transaction, without even being aware of the filters and irrespective of the degree of remuneration.

This explains the wave of discontent from the community, which has criticised the management of F2Pool.



Any manifestations of censorship are, first of all, a blow to the ideology of Bitcoin, which was created for freedom from the dictates of individual institutions of power.



F2Pool co-founder Chun Wang responded to the investigation and wave of outrage by posting the following tweet, which he swiftly deleted:

"Why do you feel surprised when I refuse to confirm transactions for those criminals, dictators and terrorists? I have every right not to confirm any transactions from Vladimir Putin and Xi Jinping, don't I?"



This only poured fuel on the fire. Amid widespread criticism, he backtracked, penning a new tweet about temporarily shutting down the filtering. That post was also deleted.

Users decided to remind Wang of the basic principles of BTC that make the coin so unique and sought after:

- The issuance is limited to 21 million coins, and the asset must not depreciate due to inflation.
- There should be no censorship. No one should interfere with the confirmation or execution of transactions.
- The code is open-source.
- There should be no restrictions on network usage.
- There should be no authorisations or requirements to share personal data.
- All coins are interchangeable and equal.
- Transactions are irreversible once they have been recorded in the ledger.


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JPMorgan: BNB to win in the long term

Binance's share of the spot market in 2023 has fallen from 57% in February to 32% in November. The US division, which at its peak had an 8% share of the regional market, must cease to exist under an agreement with the US Department of Justice. An independent overseer will stay at the global headquarters for three years to assess compliance with US and international laws.



The company must also pay an industry-record fine of $4.3 billion. This amount may increase, as the agreement with the Department of Justice was concluded without the SEC's participation. The regulator has issues with the crypto exchange because it deals with securities without having the appropriate licence. The SEC considers BNB to be a security, and court proceedings are still ahead.

The decline in market share, ongoing legal woes and loss of US market share have consequently affected the value of the cryptocurrency exchange's coin. BNB's price lost 6% in 2023 amid Bitcoin's doubling in value.



However, the confrontation between Binance and the US government has had two positive outcomes. First, there is no longer a risk of the crypto exchange going bankrupt and repeating what happened to FTX. The fine amount is sizeable but not a critical blow for the largest player in the cryptocurrency market. At the same time, the crypto exchange won't face charges that could damage its business.

As JPMorgan analysts wrote in a note to investors, "Binance's market share loss will be more moderate in the future and will probably reverse once the effects of the agreement are resolved".

Traders are already opening predominantly bullish positions in the derivatives market, causing the funding rate to rise and open interest to reach three-month highs.



Secondly, the departure of the crypto exchange that irritated American regulators so much opens the way for the approval of spot ETFs. The inflow of American investments will be directed toward more 'law-abiding' companies. However, legal action against Coinbase is still ongoing, and the SEC again has claims against Kraken, despite reaching a pre-trial agreement in February and the exchange paying a $30 million fine.

According to the Glassnode analytical agency, the emergence of spot Bitcoin ETFs will attract $60.6 billion from stock and bond ETFs and $9.9 billion from the gold market. The number of investors who consider Bitcoin to be 'digital gold' increases every year, and the current correlation between financial instruments is 0.65.



Riding Bitcoin's coattails, altcoins will also see higher interest. They currently account for 47.4% of the crypto market's total capitalisation.


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Investments in crypto funds at highest level since 2021

Ahead of the emergence of spot Bitcoin ETFs in the US, institutional investors have doubled down on investments in cryptocurrencies. In the past week alone, they invested $346 million in exchange-traded crypto funds, the largest inflow of funds since late 2021. In total, they've invested $1.7 billion during the year.



Bitcoin is leading with a wide gap, accounting for $1.6 billion or 93% of the total volume. Solana is second with $138 million in investments during the year. We gave a detailed explanation of the altcoin's popularity here (https://stormgain.com/blog/solana-breaks-records-for-investment-interest).



Investors from the United States represented the first wave of demand for cryptocurrencies. They're now joined by investors from Canada and Germany. The total volume of crypto assets under management has reached an 18-month high of $45.4 billion.



The increased attention of institutional investors is also seeing an open interest on the CME, where it grew from $1.3 billion to $4.1 billion over the course of a year. This is close to the high in 2021 when the figure reached $5.5 billion.



Investor activity is associated with the potential emergence of spot ETFs in the United States, which will attract a significant amount of investment and cause Bitcoin's price to strengthen.



The chances of ETFs being approved increased after an agreement between Binance and the US Department of Justice since the crypto exchange's exit reduces the risks of capital outflow from the country. The American division's strong dependence on the parent company was one aspect that received much criticism.

Galaxy Research estimates that ETFs will raise $14.4 billion in the first year and $125 billion to $450 billion over the long term.



The flow of investments will lead to the cryptocurrency's price rising by 6.2% in the first month after the ETF's launch and by 74% during the year. If the funds are approved today, Bitcoin could be worth $64,000 by December 2024.


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Validators are leaving Ethereum

Contrary to developers' expectations, the number of validators in November didn't reach 1 million. Instead, it started to decline. From May to September, the number of departing validators averaged 380 validators per day, but that number was compensated for by an influx of new ones. Since October, however, 1,018 validators per day have been leaving.



Currently, the network has 880,000 active validators, and the waiting time in the connection queue has decreased from 21 days in September to less than one day.



In November, a decrease in staking pool volume was seen for the first time since the Shanghai hardfork allowed withdrawals from staking.



American crypto exchanges have been among the top platforms in terms of the outflow of funds in the last two months.



Kraken previously reached a settlement with the SEC, agreeing to pay a $30 million fine and close its staking services to retail investors. The current outflow is either due to qualified investors fleeing (the settlement didn't apply to them) or Kraken's failure to meet its obligations in full, which is the reason for another complaint that the regulator filed in November.

"$30m buys you about 10 months before the SEC comes around to extort you again," Kraken CEO Jesse Powell said in response to the new lawsuit.

Coinbase is second in terms of outflow after it refused to agree to a similar demand by the SEC to close access to staking. This site's massive outflow of investors from Ethereum is probably caused by the low yield of validators at 3.8% APY, which is significantly inferior to low-risk investments in US Treasury bonds. The annual yield on Treasury bonds is currently 5.2%.

The second reason is Ethereum's sluggish growth compared to both Bitcoin and a host of altcoins. Ethereum is 26% behind the leading cryptocurrency, and the ability to make passive income does little to compensate for this gap. Investors' last hopes this year were associated with the launch of an ETF for Ethereum futures in the United States in October, but those hopes didn't pan out.



Investors' general disappointment is also confirmed by the fact that Lido Finance is now in third place for the amount of outflow. It now accounts for 69% of the queue of outgoing validators.



The decline in overall investment attractiveness is also linked to the SEC transferring Ethereum to the category of securities immediately after the network transitioned to PoS, the growth of centralisation, censorship in the network and the dominance of Lido Finance in the staking pool.


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Investments in crypto ETFs grew by 120% over the year

The current year is becoming a transition period between bearish 2022 and bullish 2024. This can be seen in the change in the sentiment among institutional investors (companies with investments of $1 million or more). This group of participants increased their investments in crypto ETFs by 120% in 2023, bringing the total to $43.3 billion.



Bitcoin remains the absolute leader among institutional investors. During the year, the volume of funds under management in Bitcoin funds increased by 140% to $32.3 billion. There was also significant interest in Solana. We covered the reasons why previously (https://stormgain.com/blog/solana-breaks-records-for-investment-interest).



Ethereum, on the other hand, has seen capital outflow for a while now, and only in recent weeks has the situation started to improve. The annual dynamics are still negative, though.



As you can see from the table above, $1.1 billion of the $1.7 billion invested over the year came in the last month. This is due to the increased chances of approval of a Bitcoin spot ETF in the US.

First, a pre-trial agreement has been reached with Binance with a $4.3 billion fine and the crypto exchange leaving the US. Under these circumstances, it'll be easier for the SEC to approve ETFs, as dissatisfaction with the crypto exchange has been dragging on since 2018. Second, the SEC held a series of meetings with applicants in November to allow them to edit applications in line with requirements. This dialogue is perceived by market participants as a signal that ETF approval is soon to come.

Most applications will likely be approved in bulk on or before 10 January 2024. This is the deadline for approval of the joint application from ARK Invest and 21Shares. If the SEC rejects it, it'll have to justify its decision. The regulator previously lost to Grayscale on appeal, where, in similar circumstances, a court found the SEC's actions to be "arbitrary and capricious".



Due to the high chances of the emergence of the long-awaited financial instrument, institutional investors have ramped up their investments. Bitcoin continues its victorious 2023 march, having grown 2.3-fold in value.



The emergence of ETFs will allow investment and pension funds, as well as insurance companies and other US financial market participants (which have legal restrictions) to invest in cryptocurrency. According to various estimates, in the first year after the launch of ETFs, there will be $14 to $100 billion in new investments, and Bitcoin's price will rise to between $70,000 and $100,000.


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Bitcoin gets an additional boost from the Fed

Bitcoin is overtaking traditional financial instruments by a significant margin. BTC's price has seen a 150% increase in less than 12 months, while the Bloomberg World Stock Market Index has risen 15%, and gold gained 14% over the same time.



Bitcoin's price is rising due to two anticipated events. First is approval to launch spot Bitcoin ETFs in the US. There are currently 12 applications, and the number continues to grow. The applicants include the world's largest financial services companies, BlackRock and Fidelity, which have over $10 trillion in assets under management.



An ETF will raise capital from institutional investors who can't interact with cryptocurrency directly. This would include pension funds and insurance companies, first and foremost. Institutional investors are likely to allocate part of their funds to cryptocurrencies to diversify their portfolios, and 1% of BlackRock's assets already accounts for 12.5% of Bitcoin's total capitalisation.

The boost from the emergence of ETFs in the US is hard to exaggerate. For example, the US accounts for 42.5% of the $109 trillion global stock market.



Bitcoin's halving event and the reduction of the supply rate is the second anticipated event. The deflationary mechanism contrasts with excessive money printing by governments to cover rising costs. Each time halving has occurred, it's led to Bitcoin experiencing a rally.



The third factor of growth is the strengthening of the belief that the US Federal Reserve has reached the end of its interest rate hike cycle. The reason was the latest speech by Federal Reserve Chairman Jerome Powell, in which he discussed the success of the regulator's monetary policy and the gradual decline in inflation. Powell's favourite indicator, core inflation, has fallen to 2.5% over the past six months. This is close to the Fed's 2% target rate. Nevertheless, the Fed Chairman gave a clear signal that this isn't a reason for a rate reversal just yet, saying:

"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so".

The market reacted to his words in its own way, and a number of media outlets interpreted Powell's speech as a signal that the key interest rate would decline rapidly. Gold and stock indices shot upwards, and Bitcoin gained 10% in this month alone to reach $41,500 per coin.



This assumption among market participants isn't groundless. According to the minutes of the regulator's meetings, the majority of FOMC members expect the first rate cut to happen as early as next year. The Fed's reversal will further increase investors' interest in risky assets.


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Bitcoin bears are hit by train again

The desire to catch the reversal from the round level contrary to the main trends sometimes leads traders to significant losses. Over the last day, sellers on the perpetual futures market who were counting on the reversal from $40,000 lost $84 million. Previously, they incurred significant losses when the price surpassed $35,000.



Among institutional investors, there are also desperate players investing in short crypto funds who derive profit when the asset's value decreases. While $0.9 million was withdrawn from such funds two weeks before, the inflow totalled $3.6 million last week.

The share of bears in this group of investors was only 2.7% of the total inflow to Bitcoin funds.



Excluding a possible bounce from the round level and an imbalance in favour of the bulls in margin trading, the only valid arguments for the current sell-off could be the expectation of the SEC's denial to launch ETFs or a sudden rate hike by the Fed.

The probability of the second event is minimal as inflation is gradually declining, and an excessively high interest rate may result in a recession. As for the SEC, the regulator may once again move the deadline for approving spot ETFs. However, a complete rejection of the new product launch is nearly off the table due to the SEC's loss on Grayscale's appeal, where the judges deemed the SEC's approach to be "arbitrary and capricious". The case was about transforming the trust fund into a spot Bitcoin ETF, and appeal deadlines have expired. The "automatic" switch will happen in March.

Growing expectations of an upcoming switch have caused the fund's share discount to the underlying asset to drop from 46.1% to 8.7% this year.



Another example of increased interest from institutional investors (who have been the leading investment force for Bitcoin since 2020) is the setting of a new high in inflows into the largest BITO futures ETF and the tripling of shares of leading cryptocurrency companies (e.g., MicroStrategy or Marathon Digital) this year. Due to the lack of an easy-to-operate spot ETF, institutional investors are investing in related products.



In 2023, Bitcoin is going strong with the expectation of positive developments. Investment volumes are rising, more people are sending coins to cold wallets, and cryptocurrency exchanges' reserves are continuing to melt away. In these conditions, playing short looks quite risky.




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Hype or recognition: Why Bitcoin is rising

Despite the overwhelming amount of objective statistical data, some experts and economists still see Bitcoin's growth as hype and "speculative madness". For example, economist and CEO of brokerage company Euro Pacific Capital Peter Schiff argues that Bitcoin's growth in 2023 is caused by speculation around spot ETFs:

"The surge in Bitcoin's value… could be its 'swan song', indicating a significant decline".

He is supported by John Reed Stark, a former SEC official:

"Crypto prices go up for two reasons: First, because there is no regulatory oversight to prevent market manipulation and Second, because people are able to sell hyped, FOMO'd and overpriced crypto to a 'greater fool'...[The same goes for speculation about] the reported 90% likelihood of the SEC's approval of a bitcoin spot ETF".

For the past two months, the talk about Bitcoin has revolved around ETFs, which would provide access to the crypto to market participants in the US who can't work directly with it due to legal restrictions (e.g., insurance companies and pension funds). Even allocating a small part of their investment portfolios would lead to solid growth in Bitcoin's price due to its modest capitalisation.

Twelve companies with a total of over $20 trillion of assets under management have applied to the SEC to create ETFs. Bitcoin's entire market capitalisation is $0.8 trillion. These companies will offer existing customers the chance to diversify their investments with crypto and attract new ones.



If the SEC refuses to approve the ETFs, which is unlikely after Grayscale won an appeal in June and the appeal period elapsed, it would likely lead to a correction in BTC's price as the resulting capital inflows from institutional investors would decrease. Their activation is clearly evidenced by the growth in open interest on the Chicago Mercantile Exchange, which has outperformed Binance this year.



The correction won't be Bitcoin's "black swan", however, since the hype around ETF only accounts for the growth seen in the last two months. Objective interest in Bitcoin has been present throughout 2023. Firstly, this year, crypto exchanges' reserves have declined by 8% to 2.01 million BTC. This signals that more holders are increasingly moving coins to cold wallets for long-term storage.



Secondly, the trading volume on the spot and derivatives markets still hasn't surpassed the March figures when the bankruptcy of some US banks led to a boost in interest in Bitcoin. Moreover, spot trading volumes are growing faster than derivatives trading volumes. This again emphasises long-term rather than speculative demand.



Thirdly, the reserves of long-term holders are growing, while short-term holders, on the contrary, have reduced their share to all-time lows as a result of opting for 'quick' profits.



The trend to reduce circulating supply has been going on since 2020, as more and more coins settle in wallets for longer periods. BTC's upcoming halving event will strengthen this trend even more.

ETFs will certainly create a strong momentum for Bitcoin, likely leading to a record update as early as next year.



But even without ETFs, Bitcoin has enough reasons to maintain its momentum. Crypto adoption is growing every year as more people discover crypto's benefits, and there's talk of its demise or 'tulip fever' decreases. That said, supply is limited to 21 million coins, which creates a supply shortage and leads to higher value as demand increases.


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