Will the 2024 Bitcoin halving increase family office interest in cryptocurrency?

Despite poor financial markets performance, rising inflation, interest rate hikes and the collapse of the FTX cryptocurrency exchange and subsequent conviction of its founder Sam Bankman-Fried, the price of Bitcoin nevertheless rose significantly in the closing quarter of 2023. 

According to the North America Family Office Report 2023 by Royal Bank Of Canada (RBC) and Campden Wealth, however, cryptocurrencies account for less than 0.5 percent of total assets under management (AUM), with 21 percent of family offices reporting holding cryptocurrencies (down from 35 percent reported in the previous year). Looking ahead, the report found that the percentage of family offices intending to reduce their holdings of cryptocurrency exceeds those planning to increase them, with non-holders showing no intention of initiating positions. 

While Bitcoin (BTC) has always had its loyal advocates, cryptocurrency as a whole hasn’t traditionally held much sway with family office investments, seen as it is a volatile asset class in need of effective regulation. However, with renewed interest in Bitcoin stoking hopes of a new bull market for crypto assets, could we be seeing a re-evaluation in allocation from family offices?

 

Bitcoin, and digital assets more broadly, are in an industry ripe for exponential growth.

 

“Now more than ever, it is unequivocally time to get into digital assets. Especially if you have never owned any Bitcoin before,” says Mostafa Al-Mashita, Co-Founder and Director of Sales & Trading at Secure Digital Markets, a brokerage firm providing spot trading services for digital currencies, such as Bitcoin and Ethereum.

“With the creation of the spot Bitcoin exchange-traded fund (ETF), it will be easier for capital allocators to get exposure to this asset class. For the first time ever, people can buy Bitcoin through the same onramps they would use to buy traditional equities.”

“Bitcoin, and digital assets more broadly, are in an industry ripe for exponential growth,” agrees Warren Rickards, Co-Founder and Managing Partner of digital asset hedge fund Flowtrack. “Historically, BTC has shown to be an incredible asset to own from a risk-adjusted return perspective. With potential tailwinds, such as a spot BTC ETF in the near future and the supply dynamic change brought on by the halving event in 2024, there is an argument to be made for BTC price appreciation over the coming years.”

As reported by The North America Family Office Report 2023, total cryptocurrency market capitalisation currently stands at approximately US $1.2 trillion, a significant decrease from its peak just shy of US $3 trillion in the winter of 2021.

This decline is believed to reflect investor disillusionment with the asset class, which is mirrored in the holdings of North American family offices. However, the landscape could well be changing, with the Bitcoin halving event due to arrive in April 2024 and exchange-traded funds (ETFs) on the horizon, crypto is catching the eye of investors of all shape, size and background.

“The Bitcoin halving is the single most strategically important factor in determining when to buy and sell Bitcoin,” says Michael Terpin, Founder and CEO of Transform Ventures, a venture capital investment and advisory firm providing capital and resources to blockchain and cryptocurrency projects with high-growth potential. “There is an established cycle of supply and demand that gets disrupted algorithmically every four year when the supply of new bitcoin gets cut in half overnight (imagine if OPED did that with oil what that would do to oil prices).”

Each previous halving event has heralded a significant run-up in price, with the restricted coin supply (currently standing at 6.25 Bitcoin per block and due to be cut to 3.125, according to The Times) countered by a subsequent rise in demand.

“Bitcoin has a fixed maximum supply of 21 million coins. The issuance is programmed to reduce production (mining) of new coins every cycle (210,000 blocks) that roughly corresponds to four years, by half - hence the name ‘halving’,” says Angel Versetti, Strategic Advisor of Syscoin (SYS), the world’s oldest smart contract blockchain that provides the data availability layer for AI and DeFi applications on Bitcoin. 

“In simple economic terms, it means that supply of new coins will shrink and ceteris paribus this drives equilibrium price higher. Expectation of supply reduction (and/or expectation of ETFs) may also increase demand, thus driving equilibrium price even higher.”

“Bitcoin halving remains one of the most anticipated events in the crypto industry,” says Adrian Fritz, Head of Research for EMEA at 21Shares, the world’s first and largest crypto exchange-traded products (ETP) issuer. “The supply shock caused by the halving, combined with the narrative that forms around it, has historically led to Bitcoin outperforming in the 12 months following the event. On average, it takes 172 days for BTC to surpass its previous all-time high (ATH) after the halving, and once the ATH is breached, it takes 308 days to reach a new cycle high. Considering the improved macroeconomic environment and increasing institutional interest, this cycle could likely repeat itself.”

 

The halving will bring in new waves of capital, interest, and adoption of Bitcoin and blockchain technology.

 

With the latest halving expected when the number of blocks produced on the Bitcoin blockchain hits 840,000, there will inevitably be increased media and investor interest. Not least because of the encouraging results of previous halving events in 2012, 2016 and 2020.

“Simply put, the halving kicks off a new cycle where there are fewer Bitcoin available for the next four years or so,” says Michael Terpin. “

Presuming demand is still increasing (which it has been), this leads to a supply shock once the miners have adjusted to the realities of each bitcoin costing twice as much to mine as previously (and the bitcoin algorithm adjusts over time to accommodate this). The parabolic uptick happens when the prior cycle’s all-time-high has been reached, as there is no resistance above that price. After the first halving, this took four months. After the most recent halving in 2020, it took seven months. We are now nearly two-thirds of the way to the prior all-time high, so it’s likely it will be reached before the end of 2024. When a new all-time high is reached, it generally means the market is overbought and that’s when ’Bitcoin Fall’ begins. Within a year or so, the bottom is reached for that part of the cycle and ’Bitcoin Winter’ begins the slow climb back - which ends with the next halving (in this case, early 2028) [discover Michael Terpin's The Four Seasons of Bitcoin report here].”

“In the past, the price impact of the halving has typically been slightly positive in the year of the halving and very positive in the year following,” says Warren Rickards. “Out of the three halving events in Bitcoin’s history, this pattern has remained consistent.”

Despite that afore-mentioned perception of volatility, for such a young and potentially life-changing asset class, crypto has a strong reputation for bouncing back and going on to smash its own previous records. Following the 2020 halving event, Bitcoin more than tripled its top valuation over the year following the 2016 halving. Investors will be hoping for a similar 3X rise following the 2024 halving.

“In 2012, the price at the halving was $12 and it went to nearly $1,200 a year later,” says Michael Terpin. “In 2016-17, the halving price went up 30x from $670 to nearly $20,000. In 2020-21, the halving price went from $8,700 to nearly $70,000 (more than 8x). My projection for this halving, using the diminishing returns of each halving thus far, is about 3X the price of Bitcoin at the April 2024 halving.

“The best time to have invested was early 2023, when the price was under $20k, but given the above price projections, buying Bitcoin under $50k should still likely allow for a 2-3x return in under two years, which certainly beats most other asset classes. Altcoins, which are much harder to predict and have slightly difference cycles, historically yield even more gains but with substantially more risk.”

While BTC’s proponents are wary of external macroeconomic forces having an effect post-2024 halving, there’s a strong belief that the market will react positively – investment bank Standard Chartered has forecast that the Bitcoin price will reach the $100,000 mark by the end of 2024 (according to The Times), a far remove from some cynics’ ‘go to zero’ expectations.

“My best prediction is a self-fulfilling prophecy of a parabolic growth cycle, like the previous cycles,” says Angel Versetti. “Each cycle was driven by a new set of players: enthusiasts for cycle 1 in 2012, the addition of wider retail for cycle 2 in 2016, the inclusion of pioneer institutions for cycle 3 in 2020, and the add-on of mainstream institutions for cycle 4 in 2024.”

“The halving and the anticipated spot Bitcoin ETF are two very powerful macroeconomic triggers that will bring in new waves of capital, interest, and adoption of Bitcoin and blockchain technology,” says Mostafa Al-Mashita. “The next Bitcoin halving, along with the Bitcoin ETF (expected approval in January 2024), will, I believe, propel Bitcoin back to its all-time high in 2021 and surge past those levels over the course of this next cycle.”

“For the year 2024, the macroeconomic environment seems to be significantly improving,” says Adrian Fritz. “Inflation is cooling off in most countries, and central banks appear to be halting their aggressive interest rate hikes to combat inflation. This would favour riskier assets such as technology stocks and crypto assets. Moreover, a potential Bitcoin Spot ETF would open the door for institutional capital, a new wave of demand that the crypto space has not seen or even been able to capture before. Another fascinating indicator is the so-called long-term holders. More than 70% of the total Bitcoin supply hasn't moved for more than a year, meaning a significant portion of the supply is illiquid, as Bitcoin holders see no reason to sell their assets. Given the improved macroeconomic environment, the halving, and the increasing institutional interest, the stars are currently aligned favorably for Bitcoin.”