Three factors that contribute to the rise in the price of bitcoin

The year 2023 has been referred to as the ‘crypto asset winter’. However, it is no exaggeration to say that this situation is no longer the case.

There are a number of positive factors for bitcoin in 2024, and depending on the situation in traditional and existing finance, the price could even go up.

So what are these factors? When could bitcoin's price rise? This special feature explains three factors that are likely to have a significant impact on the future rise in the price of bitcoin.

Footsteps of recession in the financial markets

The current crypto asset market is definitely emerging from its ‘winter period’. Footsteps of recession are being heard in traditional financial markets, and with rising geopolitical risks such as the uncertain outlook for the Middle East, it is hard to read when the market will collapse from underfoot.

Against this backdrop, the crypto asset market has been heating up over the approval of a bitcoin physical ETF in the US, with many crypto assets, including bitcoin, reaching new highs for the year in November. Bitcoin, in particular, is currently close to 5.8 million Japanese yen, and is on the verge of breaking its record high set in November 2021.

This article discusses why the market for bitcoin and other crypto assets is booming, and what the factors for future growth are.

Organising the current crypto asset market

First, we will explain the current situation of the crypto asset market with the latest trends. As mentioned earlier, the crypto-asset market is gaining momentum as the likelihood of the SEC (US Securities and Exchange Commission) approving a physical bitcoin ETF is increasing by the day.

The feasibility of a physical bitcoin ETF, which has been hampered by risks and the SEC's tightening of industry regulations, has been given a tailwind by a combination of factors.

In addition, LINK and XRP are notable for their gains in individual stocks. Chain Link has seen its price rise by as much as 100% over the past month on the back of its initiatives related to RWA (Real World Asset) tokens, which are currently attracting increasing attention, and its demonstration tests for trade transactions with major companies such as Sumitomo Corporation.

XRP's annual event ‘SWELL’ can be seen as an ‘annual’ price increase, but it was also boosted by the announcement of ‘Ripple Payments’, an advanced version of the existing RippleNet. In addition, many other crypto assets, particularly major altcoins, are also increasing in price.

Expectations for the approval of a physical bitcoin ETF have seen funds flow into bitcoin, while at the same time, speculative buying is taking place in anticipation of a lull in the overheating.

Policy rate unchanged

The Federal Reserve's decision to leave policy rates unchanged at its November FOMC (Federal Open Market Committee) meeting, and the growing expectation that it will cut rates next year, has also had a positive effect on the crypto asset market.

Given the significant inflows into high-tech stocks, institutional investors may increase the proportion of risk assets in their portfolios in the future.

On this basis, the crypto asset market is currently positive, especially for bitcoin.

Let us now delve into what the future holds and what factors will influence price fluctuations.

Three price drivers in bitcoin

The crypto asset market revolves, of course, around bitcoin. Therefore, it is first necessary to follow the trends related to bitcoin.

We will now discuss three factors that are likely to increase the price of bitcoin in the future.

Bitcoin physical ETF approval

The first is the ‘Bitcoin physical ETF approval timing’. At the time of writing, approval has not yet taken place, so this is the leading factor for price increases.

The first thing to consider is whether a bitcoin physical ETF will actually be approved, which we believe will almost certainly be the case.

The market also predicts that they will be approved at 75% during 2023 and 95% when extended to 2024. This is a result of the efforts of the applicant companies and the maturing of the crypto asset industry.

In the background, there has been a deterioration in the shape of the SEC. The biggest miscalculation has been the loss of two court cases.

Specifically, the trial over the securities issue of the crypto asset XRP, which had been pending with the US company Ripple since the end of 2020, and the trial over the conversion of the bitcoin mutual fund GBTC, currently offered by the crypto asset management giant Grayscale, into a physical ETF.

Although the Ripple trial ostensibly appears to be a painstakingly drawn-out battle between the two sides, it is a substantial defeat from the perspective of the SEC, which has been pursuing the case thoroughly and has portrayed it as a complete victory.

The dispute with Grayscale also ended in a complete defeat for the SEC. In particular, the court ruled that the SEC, and thus the organisation's chairman, Gary Gensler, had made ‘arbitrary decisions’, which was a disgrace to the face of a regulator that is supposed to maintain impartiality.

Gensler is in a difficult position, with calls for his dismissal from both the Democratic and Republican parties, as well as questions within the SEC about whether or not to approve a bitcoin physical ETF.

Against this political background, approval of a bitcoin physical ETF is now only a matter of time. Naturally, the SEC has the right to refuse the application, but in view of the court defeat and other factors, a more detailed explanation is required than ever before.

In particular, it should be difficult for the SEC to reject any of the 12 ETFs, including BlackRock's, that have been applied for at the moment, unless there is a good reason, as they have all been adjusted in response to the SEC's requests.

Bitcoin's half-life

The second factor is the ‘bitcoin half-life’. Bitcoin experiences a ‘half-life’ every four years, when the rate of new bitcoin issuance is halved, and 2024 will be the year in which this occurs.

Bitcoin's half-life has occurred three times before, and has been a major factor in price increases on each occasion. The main reason for this is the combination of supply and demand as the speed of new issuance is halved.

At the moment, 6.25 BTC is granted to miners as new issues as a result of mining.

When this is halved, the quantity of new bitcoins on the market will decrease, which is said to increase scarcity.

Immediately after the half-life or a few months later, there is a temporary tendency for profit-taking and selling by unprofitable miners, but over the long term bitcoin continues to rise.

The fourth half-life is scheduled for March/April 2024, so there is a possibility that buying will be concentrated until then.

Impact of interest rate hikes

The third factor is the impact of interest rate cuts and demand for buying as a safe-haven asset. Firstly, as mentioned above, interest rate cuts are likely to start in 2024.

A rate cut would make it relatively easier for institutional investors to take on risk, and they may focus on bitcoin in conjunction with investments in high-tech stocks.

Related to this, if monetary easing were to occur again, the price of bitcoin could rise significantly, as it did in 2020-2021.

The reason why the word monetary easing is mentioned is paradoxically the reason why interest rates are being cut. The US economy has been in a heady situation as a result of excessive tightening of the economy, including frequent interest rate hikes.

One example of a notable impact of interest rate hikes is the collapse of Silicon Valley Bank in March 2023.

It has been pointed out that high-tech companies, start-ups and banks may fail in the future due to the various effects of higher interest rates, and monetary easing policies may be incorporated to prevent this from happening again to the extent that inflation does not rise too high again.

It should be noted, however, that this is wishful thinking and a possibility. In addition to this, bitcoin has the potential to shine again as an asset of retreat in the future.

Currently, there is a gradual movement to move some assets into bitcoin and gold due to the chaotic situation in the Middle East. Traditionally, hedging with US Treasuries or the Japanese yen has been the standard practice, but both are unstable, and some investors are looking for alternative assets.

This is where bitcoin comes in. Just as bitcoin was once bought during the Cyprus crisis, there could be a growing trend to hedge assets in bitcoin.

This is because the US is currently in a situation of economic and political weakness, and indeed, conflicting countries are increasingly seeking to break away from US dollar dominance.

As long as the US dollar is the world's reserve currency, significant assets could be frozen in the event of a conflict with the West. In light of this, it would not be surprising if the move to hold currencies and assets other than the US dollar and US-related currencies accelerates even now.

And if no alternative currency to the US dollar can be found at the moment, bitcoin could very well be the focus of attention. In times of global instability, volatile assets tend to be shunned.

However, with the volatility of the global situation and the events that have been feared so far, institutional investors will need to change their minds.

Short Column

Crypto asset markets today and possible reasons for Bitcoin's rise and fall

After reaching a high in 2021, bitcoin continued its downward trend before bottoming out in November last year.

And although the price has risen slightly since the beginning of this year, trading volumes have remained sluggish, as if investors were not interested in the crypto asset market.

Then, in the early autumn, the increased expectations of approval of a physical bitcoin ETF by the US SEC triggered a return of investors to the crypto asset market, which has continued to move significantly higher.

The ETF was the trigger, but a combination of other factors, such as next year's half-life and the unwinding of short positions by short-term investors who expected a decline in the short term, are also contributing to the current market trend.

There are currently opinions from various experts that bitcoin will reach $100,000 by the end of the year, but such opinions should not be taken as overconfidence.

However, investors who once fled their money from bitcoin to stablecoin are now in a position where they may want to buy.

Where it has fallen, it is assumed that it will be bought as a time to push back up, so the market will change to a firm ground.

Profile.

Sho Nakashima

Representative Director and FX and virtual currency trader, Mmenu Japan Co.

Director of the Japan Carbon Neutral Organisation

Sho Nakashima has a background in FX, futures and options trading as a student, and immersed himself in investing for four years, mainly in FX. After that, he aimed to work in the market sector of the financial industry and obtained a qualification as a securities analyst.

Twitter: @sweetstrader3



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