The State of Bitcoin Pre-Halving

During the first quarter of 2024, digital asset markets experienced significant growth. This expansion was primarily driven by the introduction of spot Bitcoin exchange traded funds (ETFs) in the US after a decade-long pursuit.

In contrast to previous quarters' uncertainties, this was a pivotal moment for the industry. Throughout this period, the total market capitalization of digital assets surpassed USD 2 trillion once again. Additionally, Bitcoin (BTC) achieved a new all-time high of USD 73K, marking a 66% increase year-to-date. 

In the past week, Bitcoin spot ETFs saw a significant increase in net inflow, totaling USD 845 million. This marks a notable surge compared to the previous week's net outflow of USD 887.6 million. Currently, the spot bitcoin ETF AUM stands at USD 57.1 billion.  

Figure 1: Spot bitcoin ETFs AUM 

Source: TrackInsights, The Block 

Currently, the most important question many bitcoin investors may be asking with the halving just two weeks away is: Where do we stand in Bitcoin’s broader market cycle?

The anticipation surrounding the halving and the remarkable success of ETFs have propelled Bitcoin's price to unprecedented heights. However, this achievement has been accompanied by increased volatility. So where do we stand in bitcoin’s market cycle? 

The MVRV Z-score metric paints a positive picture. This is a reliable onchain indicator for bitcoin. It compares bitcoin’s realized price or the cost basis of the network in aggregate, to the current marginal trading price for bitcoin.

This serves as a proxy for the amount of unrealized profits/losses the market is currently sitting in. Historically, buying/holding bitcoin below the 3.5 level has served well despite the brief drawdowns. At the time of writing, this metric is at the 2.4 level possibly indicating that the asset can go higher before we see a cycle top. 

Figure 2: Bitcoin’s MVRV Z-Score  

Source: Glassnode 

Stablecoin marketcap is also on the rise. Another important indicator to monitor is stablecoin flows, which act as a gauge for liquidity entering the market and overall interest in participating in crypto markets.

The supply of stablecoins continues to increase, with a current circulation of over USD 140 billion, up from their previous lows by more than USD 20 billion. This upward trend shows capital inflow into crypto markets. 

Figure 3: Aggregated Stablecoin Marketcap: USDT, USDC, DAI, BUSD and DAI 

Source: Glassnode 

As the bitcoin halving event draws near, it is also crucial to assess the miners’ market. Currently, the total hash rate of the Bitcoin network, measured by the 14-day moving average, stands at approximately 600 exahashes per second.  

Figure 4: Bitcoin Hashrate 

Source: Glassnode 

There is one more difficulty adjustment scheduled before the halving later this month. It is noteworthy that post-halving, miner revenue is expected to be similar to levels observed during the 2022 bear market bottom.

That proved to be a challenging period for miners since there was slowing demand for bitcoin transactions as well as due to the decline in bitcoin prices at the time. Going into the halving this month, it may not be as challenging as 2022 but this will undoubtedly pose a challenge for miners. 

Hence, miners are utilizing their profits to adapt their businesses for emerging opportunities. The larger miners are doing so by upgrading their hardware while the smaller ones are aggressively buying this not-so-performant hardware that is entering the secondary market.

Currently, almost every ASIC (application-specific integrated circuit) available for mining is highly profitable, underscoring the strength of Bitcoin bull markets in terms of mining profitability. March 2024 recorded the highest monthly revenues ever for the collective mining industry, exceeding USD 2 billion.  

Figure 5: Transaction Fees as a Percentage of Miner Revenue 

Source: Glassnode 

However, less than half of this revenue came from transaction fees. This could raise concerns for miners approaching the halving, as their revenues would increasingly depend on fees with emissions dropping to half of current levels. As more capital flows into Ethereum layer-2s and faster networks like Solana, monitoring the demand for transacting on the Bitcoin network becomes crucial.

Therefore, although past halving events have generally brought prosperity to Bitcoin, savvy miners would stay cautious. For further insights on the Bitcoin Halving and its implications for investors, read our research on the topic here.  

Challenges such as volatility and miner revenue uncertainty persist. The ideal scenario for the bitcoin network would be if in the coming weeks, most of the miner revenue starts coming from transaction fees rather than block rewards.

With technical upgrades and increasing demand for bitcoin inscriptions, we can anticipate this to come about as the cryptocurrency market evolves. Overall, we believe that the continued growth, adaptation and innovation within the digital asset and cryptocurrency markets offer a positive outlook for investors and industry stakeholders in the long term.

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