Bitcoin Halving, Interest Rate Speculation, and the Ascendance of Hard Assets Rock Digital Asset Market

Following the halving event, Bitcoin miners are facing a reduction in block rewards. However, supply dynamics suggest a potential increase in the asset's value, with Bitcoin now surpassing Gold in terms of issuance scarcity. Digital asset investors anticipate continued appreciation in value as key trends emerge in financial markets, despite the recent crypto market rebound being erased.

Digital Assets: Bitcoin Halving, Interest Rate Speculation, and the Rise of Hard Assets

Amidst the recent Bitcoin halving event, the digital asset industry grapples with shifting market dynamics and heightened uncertainty. While Bitcoin miners face a substantial reduction in block rewards, positive indicators emerge regarding the asset's supply and scarcity. Moreover, broader financial market trends suggest that hard assets could continue their upward trajectory.

Bitcoin Halving and Miner Revenues

On April 20, 2024, Bitcoin underwent its fourth halving, a significant event that reduces the block subsidy by 50%. This has led to a drop in the daily issuance of Bitcoin from 6.25 BTC to 3.125 BTC. Notably, miners collected over $100 million in revenue during the halving, marking the highest single-day total ever recorded.

However, the halving also means that miners must adapt to decreased block rewards. Gemini's Weekly Market Update highlights that this could potentially reshape the mining industry. Miners will need to explore alternative revenue streams or face reduced profitability.

Interest Rate Speculation and Bitcoin Volatility

In the broader financial landscape, speculators eagerly await the upcoming Federal Reserve meeting to gauge its stance on interest rates. US inflation rates have shown signs of easing, along with weakening demand in the manufacturing and service sectors. The crypto community hopes that the Fed will maintain current interest rates to foster price stability and mitigate volatility in the Bitcoin market.

Spot Bitcoin ETFs and Market Trends

Amidst the Bitcoin halving event, spot Bitcoin exchange-traded funds (ETFs) have experienced renewed interest. After a period of net outflows leading up to the halving, spot BTC ETFs in the US have rebounded. This indicates that investors are seeking exposure to Bitcoin without the complexities of direct ownership.

Blockchain Developments: Ripple Lawsuit, Tether Freeze

In the wider blockchain space, Ripple Labs continues to challenge the US Securities and Exchange Commission's (SEC) proposed $2 billion fine for allegedly selling its XRP cryptocurrency as an unregistered security. A group of crypto lobbyists has filed a lawsuit against the SEC, claiming that it is overstepping its authority.

Separately, Tether, the issuer of the USDT stablecoin, has announced that it will freeze any addresses linked to entities sanctioned by the US Office of Foreign Assets Control (OFAC). This move is in response to allegations that Venezuela's state oil company used USDT to circumvent US sanctions.

Macroeconomic Forces and Hard Asset Appreciation

Digital asset investor Anthony Pompliano underscores the growing national debt of the United States, which now exceeds $34.6 trillion. Despite this alarming figure, the government continues to run an estimated $2 trillion annual deficit. As a consequence, the annual interest expense on this debt has surged past $1 trillion.

Pompliano argues that the only viable path for the US is to continue borrowing money, leading to an expansion of the national debt, a devaluation of the US dollar, and an appreciation of hard assets. This dynamic is supported by the Kobeissi Letter, which highlights the exponential growth in annual interest expense on US debt since 2020.

Crypto Market Rebound and Spot ETFs in Asia

This week, crypto markets experienced a brief rebound, although these gains have since been erased. Earlier in the week, major cryptocurrencies saw a 5.8% weekly increase in total market capitalization. Bitcoin rose 4.9%, while Ethereum outperformed with a 5.2% gain.

In the US-listed spot Bitcoin ETF universe, net inflows have occurred in ex-GBTC ETFs. However, these inflows have been relatively modest compared to previous months. The SEC has extended its decision timeline for the Franklin Ether ETF to June 11, 2024, and the Grayscale Ethereum Trust to June 23, 2024.

While spot Bitcoin ETF flows diminish in the West, the East prepares to launch six crypto-based spot ETFs starting April 30th. These ETFs will allow investors to speculate on the price of Bitcoin and Ethereum without direct ownership. Unlike US spot Bitcoin ETFs, which are cash-only, Hong Kong's newly listed funds will be in-kind, potentially offering reduced complexity and costs for investors.

Bitcoin Halving and Issuance Scarcity

The recent Bitcoin halving has prompted a significant comparison to gold in terms of issuance scarcity. According to a Glassnode report, Bitcoin's steady-state issuance rate (0.83%) has become lower than gold's (around 2.3%), marking a milestone in the asset's history. This signifies a handover of the title of scarcest asset.

However, Glassnode notes that the impact of Bitcoin halving events on the available traded BTC supply may be diminishing. Miner revenues also exhibit a decreasing growth rate when measured in USD, but there is a net expansion in absolute size. Cumulative miner revenue has surpassed $3 billion over the past four years.

Hashrate Growth and Security Implications

Bitcoin's hashrate, a measure of the collective power of the mining community, has continued to surge, reaching an impressive 620 Exahash per second. Despite a slower growth rate across halving epochs, the absolute number of hashes per second keeps increasing. This trend suggests that either more ASIC rigs are being brought online or more efficient hashing ASIC hardware is being developed.

Regardless, the combined security budget for Bitcoin has proven sufficient to cover operational expenses and fuel further investment in both capital expenditures and operational domains, despite the 50% reduction in issuance with each halving.

Funding Rates and Spot Price Volatility

In the market dynamics, funding rates on perpetual contracts for both BTC and ETH have dipped into negative territory since the recent price downturn. This indicates that traders are aggressively taking short positions on perpetual contracts. However, despite these negative funding rates, prices have rebounded, suggesting that spot demand has driven recent price action.

The Talos market update concludes that if the spot price continues to rise, short sellers may be forced to unwind their short positions, potentially leading to further price increases. This dynamic underscores the intricate interplay between spot demand and market sentiment in the crypto asset space.