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Bitcoin is on the brink of a big market shift due to the upcoming "halving" event that will halve its supply issuance. Some predict that this halving could deplete Bitcoin reserves on crypto exchanges within nine months. Despite a current market downturn and a recent drop in Bitcoin prices, analysts are still optimistic about a potential surge in Bitcoin's value after the halving. The halving is also prompting a shift towards more sustainable mining practices, with an increased focus on renewable energy sources. There are also ongoing debates about the performance of Bitcoin ETFs, with some experiencing days of zero inflows, which analysts point out are a common occurrence in the ETF industry.
Dramatic Drop in Bitcoin Supply Looms
Bitcoin is poised for a major transformation in its market dynamics due to the upcoming "halving" event, which will cut its supply issuance by 50%. This reduction, combined with steady demand from U.S. Bitcoin exchange-traded funds (ETFs), is projected to dry up Bitcoin reserves on cryptocurrency exchanges within nine months.
According to a recent report by Bybit, the world's third-largest crypto exchange, centralized exchanges are rapidly losing their Bitcoin reserves, which have fallen to a near three-year low of 1.94 million BTC. If the current inflow of $500 million daily to Bitcoin Spot ETFs continues, about 7,142 bitcoins would leave exchange reserves each day. This rate of outflow indicates that it will take just nine months to exhaust all of the remaining reserves.
The dwindling supply also comes amidst a broader market downturn, with BTC prices falling over 10% in the past week. Despite the current price drop to around $63,760, Bybit is still optimistic about Bitcoin's price prospects. The exchange anticipates that the reduced supply, coupled with ongoing demand, will not only boost the crypto king’s prices before the halving but could also drive them to new highs after the halving as the market adjusts to the tighter supply conditions.
Bitcoin to Hit $1 Million?
Others also believe BTC’s price will surge, but not necessarily because of the halving. During a recent panel at WebSummit Rio titled "Bitcoin’s Revenge: Is Web3 Making a Comeback?” Yat Siu, founder of Animoca Brands, shared his belief that Bitcoin could eventually surpass the $1 million mark. Siu argued that Bitcoin's value would stem not from its role as a store of value but as a status symbol in the digital economy.
The panel also featured Ripple president Monica Long, who shared her thoughts on the importance of focusing on the real utility and development of the crypto market rather than just its price. Long also praised Brazil for its progressive stance towards crypto development, and complimented the country's clear regulatory framework and the engagement of traditional financial institutions like Itaú in the crypto space.
There were also discussions about the empowering potential of Web3 technology, especially for those traditionally marginalized in financial systems. The conversation also touched on the increasing maturity and institutional adoption of Web3 companies, which Long pointed out was more evident during this market cycle compared to previous ones.
Siu pointed out the transformative impact of financial inclusion through blockchain and Web3 gaming, particularly in regions like the Philippines and parts of Latin America where many lack basic educational or financial services. He stressed that through cryptocurrency and gaming, people are becoming part of the new financial system, gaining financial literacy in the process.
Lastly, Long discussed the growing interest in blockchain from banks and payment companies, noting that efforts to integrate blockchain into global finance are gaining momentum. She also mentioned the expanding landscape of Bitcoin ETFs in various global markets, which could certainly suggest a robust future for regulated crypto market exposure.
Bitcoin Halving Spurs Shift Towards Greener Mining
The upcoming Bitcoin halving is set to reduce the block rewards from 6.25 BTC to 3.125 BTC, a change that is expected to have big implications for the profitability of Bitcoin mining operations. As the hash rate of Bitcoin continues to climb, the reduced rewards are likely to pressure mining companies to optimize their capital efficiency. According to Matteo Greco, a research analyst at Fineqia International, this pressure will drive mining firms towards cheaper and more sustainable energy sources, potentially increasing the use of renewable energy in the sector.
Bitcoin has been widely criticized for its energy consumption and reliance on fossil fuels. However, recent data suggests a shift towards sustainability, with over 54.5% of the network's energy now derived from renewable sources as of January 2024. This information comes from the Bitcoin ESG Forecast, authored by Daniel Batten, managing partner of CH4 Capital. Batten’s findings indicate that the mechanisms governing Bitcoin mining are pushing the industry towards greater efficiency, which in turn enhances network security, reduces carbon emissions, and promotes the development of sustainable block confirmation methods.
In China, despite a formal ban on Bitcoin mining, the country still contributes approximately 15% to the global Bitcoin hash rate. Batten's report points out that there is no longer any coal-based off-grid mining in China, as these activities are easily detectable and interfere with national emission goals. Instead, Chinese miners are increasingly relying on hydroelectric power, particularly during the wet months in regions like Xi’an, Wuhan, Beijing, and Xining.
Furthermore, Batten revealed that many retail miners in China continue to mine Bitcoin at a loss, primarily as a strategy to convert Chinese yuan into U.S. dollars. By purchasing mining equipment and paying for electricity, these miners are able to create Bitcoin, which can then be exchanged for USD, offering a financial escape route from the Chinese financial system.
Iraq Eyes Bitcoin Mining?
Other countries might also be looking at getting into BTC mining. Iraq’s Deputy Prime Minister, Muhammad Ali Tamim, recently engaged in high-level discussions with U.S. Secretary of State Antony Blinken as part of the U.S.-Iraq Higher Coordinating Committee meeting. During the meeting, Tamim expressed Iraq’s commitment to reducing its reliance on fossil fuels and its intentions to harness technology for environmental and energy advancements. Specifically, Iraq plans to capture and utilize flare gas, a harmful byproduct of oil extraction prevalent in Iraq’s oil fields, particularly the Rumaila field, which is the largest producer of flare gas globally.
Currently, the economic challenges and remote locations of oil fields make it pretty difficult for Iraq to efficiently convert flare gas into useful energy. However, the country is making strides to change this, with plans to end gas flaring by 2027 and capture up to 60% of flare gas today.
The notion of using captured flare gas has sparked some interest in the crypto community. There is now speculation that Iraq could follow the footsteps of companies like the Texas-based Giga, which uses flare gas to power Bitcoin mining operations. This approach not only offers a method to deal with environmental pollutants but also presents an opportunity for Iraq to generate electricity, potentially easing the country’s energy demands and financial burdens.
Additionally, Iraq could explore the creation of carbon credits by capturing flare gas, a move that would not only demonstrate its environmental commitments but also engage in the international carbon credit market.
Bitcoin ETFs
Meanwhile, there have been some concerns about ‘zero flows’ Bitcoin ETFs. Bitcoin ETFs, which have seen days of zero inflows, are not indicating a failure but rather a norm across the sector, according to Bloomberg ETF analyst James Seyffart. Seyffart clarified that it's common for the majority of the roughly 3,500 ETFs in the U.S. to report no inflows on a given day. He revealed that on a specific day, 2,903 ETFs recorded zero inflows. This trend is typical for ETFs, which only record new inflows or outflows when there's a big mismatch between supply and demand, warranting the issuance or destruction of fund shares known as "creation units."
The size of these creation units can vary greatly across different ETFs, with spot Bitcoin ETFs issuing shares in blocks ranging from 5,000 to 50,000. Despite concerns voiced by market commentators about low inflows into Bitcoin ETFs, Seyffart reassured people that these patterns are very normal. For instance, BlackRock’s Bitcoin ETF was the only one to see inflows for two consecutive days between Apr. 12 and Apr. 15.
In the broader landscape of U.S. spot Bitcoin products, net outflows have been more common, with notable selling from the Grayscale Bitcoin Trust (GBTC) heavily outweighing inflows into newer funds. Recent data shows major outflows from GBTC and the ARK 21Shares Bitcoin ETF, with combined net outflows from all ETFs reaching tens of millions in the days leading up to Apr. 16.
The backdrop to this market activity includes a downtrend in Bitcoin's price, which has fallen quite a bit over the past week, amid escalating geopolitical tensions in the Middle East and the anticipation of the upcoming Bitcoin halving event.
