Despite Bitcoin price volatility, factors point to BTC’s long-term success

Bitcoin’s long-awaited halving event concluded on April 20, cutting the asset’s block mining reward from 6.25 BTC to 3.125 BTC. 

It was the fourth time Bitcoin has undergone a halving since its inception, and substantial price surges have historically followed these events.

After the 2012 halving, Bitcoin’s value skyrocketed by an impressive 9,500%, while the 2016 halving saw a 3,000% increase over the following year. However, the price rally following the 2020 halving was more modest, with Bitcoin’s value rising by only 650%.

This time around, Bitcoin experienced a 110% price increase before the event amid immense volatility.

During the week before the halving, Bitcoin’s value dipped 17% from $72,000 to $60,000.

Moreover, as can be seen from the chart above, after the halving, Bitcoin’s price has not risen or stabilized but continued to wobble — rising to a price point of $67,000 on April 24, only to drop back to $62,500 just 72 hours later. 

On this issue of volatility, asset management company Bitwise recently advised investors to proceed with caution, suggesting that the halving was a “sell the news” event. JPMorgan and Deutsche Bank analysts seemed to concur with this sentiment, projecting that BTC could reach as low as $42,000 in the coming weeks.

ETF inflows suggest a price uptick for BTC

Since their launch in January 2024, United States-based spot Bitcoin exchange-traded funds (ETF) have seen remarkable growth. For example, BlackRock’s iShares Bitcoin Trust (IBIT) enjoyed a monumental 71-day streak of daily inflows, racking up nearly $15.5 billion in assets before finally recording zero net inflows on April 24. This milestone placed IBIT among the top 10 longest inflow streaks for any ETF in history.

Despite IBIT’s pause, other Bitcoin ETFs, such as Fidelity’s Wise Origin Bitcoin Fund and ARK Invest’s ARK 21Shares Bitcoin ETF, have continued attracting decent inflows over the same period. In fact, since their launch, U.S. spot Bitcoin ETFs have accumulated $12.3 billion in assets under management.

That said, it is important to acknowledge that inflows have somewhat slowed in the second quarter of 2024 compared to the first quarter’s peak of $6 billion in February. However, analysts remain bullish on continued demand. Matt Hougan, chief investment officer for Bitwise, believes BTC ETFs are “just getting started,” citing untapped potential from institutions still conducting due diligence and the lack of availability on major wealth management platforms like Morgan Stanley and Merrill Lynch.

Hougan predicts that Bitcoin ETFs could gather over $200 billion of inflows by the next halving in 2028, aligning with the historic growth trajectory of gold ETFs after their debut.

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Moreover, he believes central banks may begin allocating Bitcoin as a non-debt reserve asset, contributing to a projected Bitcoin price above $250,000 by 2028.

Alvin Kan, chief operating officer at Bitget Wallet, told Cointelegraph: “The regulatory clarity brought in through BTC ETFs stands to have a positive impact on the asset’s long-term growth. Spot BTC ETFs have the potential to drive regulatory arbitrage and aid in the legitimization and widespread adoption of Bitcoin and consequently cryptocurrencies as a whole.”

According to Arthur Hayes of Maelstrom Capital, market catalysts like next week’s U.S. Treasury refunding announcement — which could inject $1.4 trillion of liquidity — could buoy the crypto sector over the coming few months.

A look at Bitcoin’s burgeoning L2 ecosystem

Over the past year, the growth of Bitcoin’s layer-2 ecosystem has emerged as a key driver, potentially propelling the cryptocurrency to new heights in the future. Chief among these developments has been the recent Nakamoto upgrade to the Stacks network, a leading L2 built on Bitcoin.

The Nakamoto upgrade, which began its rollout shortly after Bitcoin’s latest halving, enhances transaction throughput and establishes finality for L2 transactions on Bitcoin’s base layer.

By enabling faster block processing times of around five seconds (compared to 10–30 minutes previously), Stacks aims to unlock Bitcoin’s programmability akin to Ethereum and Solana.

According to Muneeb Ali, Stacks’ co-founder, this advancement in L2 infrastructure will reignite interest in Bitcoin itself as users begin to separate BTC, the asset, from Bitcoin’s robust underlying rails.

With nearly $1 trillion in Bitcoin’s market cap representing idle capital awaiting meaningful utilization, Ali believes that L2s present an opportunity to create an “economic flywheel” around BTC through decentralized applications and smart contracts.

A similar outlook is shared by Iva Wisher, chief operating officer for Prom — a modular zero-knowledge Ethereum Virtual Machine layer-2 solution — who told Cointelegraph:

“L2s can bring multiple opportunities for expanding the capabilities of the Bitcoin protocol. Add to that the rising inflows into BTC ETFs, more mainstream financial institutions embracing Bitcoin and there’s plenty to be optimistic about.”

Beyond Stacks, the burgeoning Bitcoin L2 ecosystem has given rise to innovations like Ordinals and BRC-20 tokens, which saw a surge in interest following Bitcoin’s most recent all-time high. Ordinals introduce a way to inscribe digital artifacts directly onto individual satoshis, the smallest units of Bitcoin.

This innovation allows for the creation and ownership of nonfungible tokens (NFTs) without leaving the security and decentralization of the Bitcoin blockchain. Each ordinal inscription is unique, attaching data such as images, text or code to specific satoshis, making them collectible and potentially valuable.

On the other hand, BRC-20 tokens propose a standard for issuing fungible assets on the Bitcoin network, similar to Ethereum’s ERC-20 standard. They aim to expand Bitcoin’s utility by enabling the creation of decentralized finance (DeFi) applications, stablecoins and other financial instruments directly on Bitcoin’s blockchain.

Projects like Velar and Solv have already devised solutions that draw from these technologies and allow users to earn interest directly on their dormant BTC.

This experimentation is viewed as a positive force driving research and development around L2s, potentially setting the stage for an “L2 summer” of accelerated growth and competition within Bitcoin’s developer landscape.

Jack Vinijtrongjit, CEO of Web3 enterprise software company Saakuru Labs, told Cointelegraph: “L2s certainly add a layer of demands and use cases to the Bitcoin ecosystem. Their growth may disrupt the typical flow of funds into altcoins and keep retail investors from seeking better returns outside of the Bitcoin ecosystem.”

What lies ahead for BTC?

When asked about how Bitcoin’s price action will continue to unfold in the mid-to-long term, Vinijtrongjit said that he expects further corrections and a potential cooldown for the next two to three months while the market consolidates.

“This should not worry long-term investors, but those who may need short-term liquidity should be cautious and plan things out well to avoid any potential issue,” he added.

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Jakub Bojan, CEO of DeFi protocol Soil, told Cointelegraph that the next few months may see Bitcoin’s price fluctuate, depending on how the situation in the Middle East unfolds.

“If the ongoing Israel-Palestine conflict escalates, the financial market may opt for risk-off positions. However, historically, investors have witnessed positive price action in the months following halving events. Personally, I’m optimistic about the adoption and usage of BTC by traditional finance, which could have a positive long-term influence on price action,” he said.

Thus, as Bitcoin navigates the aftermath of its historic fourth halving, it finds itself at a pivotal juncture. While short-term volatility may persist, a confluence of factors — from surging ETF inflows to the emergence of a thriving L2 ecosystem — paints an optimistic picture of the cryptocurrency’s long-term trajectory.