Author: Faith Yakubu

A recent report from Fidelity Digital Assets highlights a substantial increase in the number of Bitcoin addresses holding at least $1,000 worth of Bitcoin (BTC). Fidelity’s analysts reveal that this segment soared to an unprecedented 10.6 million wallets in mid-March, marking a doubling from the 5.3 million addresses recorded in 2023.

The surge in Bitcoin addresses with smaller holdings suggests a widening distribution of the cryptocurrency and its growing adoption among the general populace, according to Fidelity’s analysts. Despite escalating prices, the data indicates that small addresses persistently accumulate and store Bitcoin, a trend Fidelity describes as positive growth.

Fidelity’s analysts offer an optimistic outlook for Bitcoin in the short term, based on various long-term data points. Out of the 16 metrics tracked, half were deemed positive, while a quarter were categorized as negative or neutral.

The report also delves into the amount of Bitcoin held on cryptocurrency exchanges, which continued its downward trajectory in the first quarter of 2024. The total amount plummeted by 4.2% to 2.3 million Bitcoin, approximately 30% lower than the peak of over 3 million Bitcoin held in 2020. However, Fidelity underscores that this decline in exchange-held Bitcoin does not necessarily imply an uptick in self-custody. Custodians like Fidelity are actively developing solutions that empower customers to retain control of their private keys while engaging in trading activities through exchanges.

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For 71 consecutive days, BlackRock Inc.’s Bitcoin fund experienced an impressive streak, accumulating nearly $18 billion in one of the most significant exchange-traded fund launches in history. However, investor interest has waned as the fervor surrounding cryptocurrencies subsided.

Data compiled by Bloomberg reveals that daily inflows into the ETF, identified by the ticker IBIT, dwindled to virtually zero on Wednesday. Throughout April, IBIT has garnered a net inflow of $1.5 billion.

IBIT’s achievement marks a notable shift in the crypto market sentiment, following the ETF-induced excitement that propelled Bitcoin to an all-time high of nearly $74,000 in March. Since then, the original cryptocurrency has declined by nearly 15%, and the much-anticipated “halving” event on April 20 failed to deliver an immediate boost.

Nevertheless, these new investment vehicles have left a significant mark on the crypto landscape. Collectively, they have attracted approximately $54 billion, introducing Bitcoin into the portfolios of potentially millions of investors. Hong Kong, positioning itself as a crypto-friendly jurisdiction, is preparing to debut its first listings of Bitcoin and Ether ETFs, with other markets likely to follow suit.

Despite the halt in net inflows, IBIT is swiftly closing the gap on Grayscale Bitcoin Trust, the current market leader. On Wednesday alone, approximately $130 million flowed out of GBTC, bringing total outflows for the year to $17 billion, according to Bloomberg data.

GBTC, identified by the ticker GBTC, imposes a management fee of 1.5%, the highest among the cohort of funds launched in early January. The launch of ETFs in Hong Kong may intensify the fee competition that has exerted pressure on GBTC.

Rebecca Sin, an ETF analyst at Bloomberg Intelligence, suggested that the launch of spot Bitcoin ETFs in Hong Kong, coupled with issuers waiving management fees, might lead to additional outflows, potentially indicating further changes in market dynamics.

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Bitcoin’s inflation rate has plummeted to a historic low of approximately 1.74% following the recent Bitcoin halving. With 93.3% of Bitcoin already mined, amounting to 19.6 million out of a possible 21 million BTC, the scarcity element is poised to escalate demand, potentially propelling the leading cryptocurrency’s price surge. In contrast, fiat currencies grapple with higher inflation rates due to governmental controls and economic policies. For instance, in 2023, countries like Argentina encountered exceptionally high inflation rates, hitting 161.0%, as per Inflation Data. The European Union reported more moderate levels, with the euro area’s annual inflation rate at 2.9% in December 2023.

The recent halving event is anticipated to further diminish Bitcoin’s inflation rate, impacting both its scarcity and investor sentiment. The trend suggests that each halving event, which halves the reward for mining new blocks, tends to bolster buyer interest due to reduced supply growth.

According to a report from CoinGecko, historical data reveals a consistent trend of significant growth in Bitcoin prices following each halving event. Following the first halving in 2012, Bitcoin’s price surged by an impressive 8,858%. Subsequent halvings witnessed diminishing returns, with increases of 294% and 540% respectively, yet the pattern of price spikes post-halving remains discernible. These events not only affect Bitcoin but also resonate across other leading cryptocurrencies, such as Ethereum, albeit with varying impacts due to differing supply mechanisms.

The completion of the fourth halving has triggered speculation within the cryptocurrency community regarding short-term market dynamics. Recently, Bitwise noted that while the month immediately following the halving typically witnesses a modest price decline, the subsequent year often heralds exponential gains. After the 2012 halving, Bitcoin experienced a meager 9% increase in the month post-halving, only to soar by a staggering 8,839% over the following year. Similar patterns were observed after the 2016 and 2020 halvings, with Bitcoin’s price witnessing significant surges in the year following each event.

Bitcoin’s market cap fluctuations around halving events provide valuable insights into consumer behavior during these critical periods. Initially pegged at $123.3 million during the first halving, the market cap swiftly surged to $947.4 million shortly thereafter. 

Similar patterns were observed in subsequent halvings, reflecting a tendency among Bitcoin holders to speculate around halving events, often opting to hold onto their assets in anticipation of value increases. The analysis of pre-and post-halving periods suggests a strong inclination toward holding Bitcoin, deemed to become more valuable as future supply constraints tighten post-halving.

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Runes, resembling BRC-20s, emerge as a significant protocol utilizing the Bitcoin network, claiming a substantial 68% share in Bitcoin transactions since the halving. However, Bitcoin miners face diminishing returns amidst this surge.

Similar to BRC-20s, Runes operates by compensating fees in Bitcoin to mint new tokens. Differing from Ordinals’ “inscription” account model, Runes utilizes the Unspent Transaction Output (UTXO) framework to imprint new tokens on the Bitcoin network. This methodology enables users to allocate unique identification numbers to individual satoshis, embedding them with diverse data directly into the Bitcoin blockchain.

Since its inception on April 20th, Runes has processed over 2.38 million transactions, as per data from a Dune Analytics dashboard shared by Crypto Koryo, a blockchain research firm. Pitted against Ordinary peer-to-peer Bitcoin transactions, BRC-20s, and Ordinals, Runes accounts for a significant portion of the total Bitcoin transaction volume.

On April 23rd, Runes witnessed its peak transaction volume, exceeding 750,000 transactions. However, the subsequent day witnessed a notable decline, with transactions dwindling to 312,000.

Much of the initial fervor stemmed from the halving event at block 840,000, where users vied for prime digital real estate in Bitcoin’s history, utilizing the Runes protocol to imprint “rare satoshis” on the block. Consequently, Runes contributed over $2.4 million in miner fees, constituting over 70% of the total fees on halving day.

Amidst declining mining rewards post-halving, from 6.25 BTC to 3.125 BTC, Runes Protocol was initially touted as a lifeline for struggling miners, offering a new avenue for income. Pseudonymous Ordinals developer Leonidas stated, “Runes degens have single-handedly offset the drop in miner rewards from the halving.” However, the sustainability of this assertion has been questioned, given the fluctuating daily total fees post-halving, ranging between 33% and 69%.

Community sentiment remains divided regarding whether Runes can provide a stable revenue stream for Bitcoin miners. Notably, the Bitcoin Miners’ Position Index (MPI) fluctuated between -1 to -0.15 post-halving, suggesting no significant movement in miners’ Bitcoin holdings and indicating no imminent sell-off.

While Runes may face challenges in sustaining its momentum, recent groundbreaking developments offer potential alternative revenue streams to mitigate the impact of the halving on miners.

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As the Dollar Index (DXY) experiences a recent pullback, crypto traders are banking on continued dollar weakness to fuel a resurgence in Bitcoin (BTC), although some banks hold a contrary view.

Recent trends have seen Bitcoin trading within the $60,000 to $70,000 range since mid-March, with the dollar’s bounce on the DXY contributing to this stabilization. However, a reversal in the DXY’s trajectory, coupled with expectations of a weaker dollar, has reignited optimism among Bitcoin bulls.

Mike Alfred, a value investor and managing partner at Alpine Fox LP, anticipates a turnaround in the DXY, projecting a move back towards 102-103, which he believes will coincide with a bitcoin rally towards $90,000 in the short term. While some banks foresee continued dollar strength, others see signs of a potential peak, with projections ranging between 107 and 110 for the DXY.

Societe Generale’s Cross Asset Research Team and Scotiabank are among those forecasting a resilient dollar, citing expectations of a prolonged hold on interest rates by the Federal Reserve. Additionally, the possibility of a U.S.-China trade war escalation, with proposed tariff hikes on Chinese imports, could further bolster the dollar, according to Barclays.

Despite divergent opinions, crypto traders remain focused on the potential impact of a weaker dollar, which historically correlates with increased risk-taking and a favorable environment for Bitcoin and the broader crypto market. As such, traders are closely monitoring shifts in the DXY and geopolitical developments that could influence the dollar’s trajectory in the coming weeks.

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