Bitcoin Halving and the Rise of the Inscription Ecosystem

Guest Author: DaosViews

At the end of April this year, Bitcoin is set to enter another halving period. After this halving, the reward for each Bitcoin block will change from 6.25 to 3.125 bitcoins. The halving is always a significant and symbolic event for the crypto ecosystem. Grayscale®, a major player in the crypto world, has recently published an article entitled 2024 Halving: This Time It’s Actually Different that addresses this pivotal upcoming halving event.

In its article, Grayscale analyzes the forthcoming halving from four perspectives: The potential impact of supply changes, the role of miners, ongoing on-chain activity and the impact of Bitcoin ETFs on the crypto market. Ultimately, all these perspectives converge on one fundamental question: How will it affect Bitcoin’s future price trend?

Regarding the potential impact of supply changes, the article mainly mentions that each halving further increases Bitcoin's scarcity. The concept of "scarcity" depends upon the perspective from which it’s viewed. For instance, new supply indeed decreases. However, if we consider circulating supply, as long as Bitcoin still rewards block mining its circulating supply is continuously increasing.

This point is where Bitcoin differs from Ethereum: Ethereum has a burn mechanism, making its circulating supply potentially deflationary as on-chain activity increases, an effect which truly creates scarcity.

On the other hand, the “scarcity” brought about by Bitcoin halving is more of an emotional reaction. Even if it affects Bitcoin's price, the impact would be more of an emotional nature than a substantial one based on mechanics.

Regarding the role of miners, the Grayscale article highlights two challenges they face: the increasing cost of mining and the decreasing income from block rewards. To address these challenges, miners might have to sell not only the bitcoins they mine but potentially also their reserves. The article mentions that as early as the fourth quarter of last year (2023), some miners began selling their inventory to secure funds in anticipation of the upcoming halving.

Notably, with the rise of the Bitcoin inscription ecosystem in 2023, Bitcoin's on-chain activity has greatly increased, bringing substantial income to miners. The article points out three noteworthy data points:

• On November 20, 2023, Bitcoin's on-chain transaction fees surpassed those of Ethereum for the first time. 
• Since the appearance of the inscription ecosystem, over 20% of miners' income comes from inscription-related activities. 
• In November and December of 2023, Bitcoin surpassed Ethereum in the NFT trading sector, becoming the leader in NFT transactions.

These developments could have several direct consequences for the Bitcoin ecosystem:

• The challenges miners face in terms of income could be significantly alleviated. In the long term, this could stabilize miners' income, ensuring the security of the Bitcoin network.
• Additionally, it can be speculated that as the bull market approaches its climax and the NFT ecosystem explodes, the Bitcoin inscription ecosystem's Ordinals may see astonishing trading volumes. At that time, the top Ordinals within this ecosystem could also experience significant price bubbles.
• Lastly, the article expresses an extremely optimistic attitude toward the approval of Bitcoin ETFs, believing they will directly attract attention from investors, financial advisors and capital market allocators, ultimately greatly promoting Bitcoin's adoption and recognition by the mainstream market.

The article mentions one particularly noteworthy data point: Within 15 days after the first ETFs’ approval, the inflow of funds over three months absorbed the selling pressure that might be generated by Bitcoin’s upcoming halving. Thus, the article optimistically supports the view that the approval of ETFs will effectively mitigate selling pressure from miners.

Overall, Grayscale's article outlines the unique advantages of this Bitcoin halving as compared to previous ones, and asserts that these advantages will provide long-term support for Bitcoin's price trend. 

I’ve speculated in earlier articles that Bitcoin's price could potentially reach $100,000 in the next bull market. At the time of that assertion, Bitcoin didn’t yet have an inscription ecosystem. Now, with the Bitcoin ecosystem beginning to take shape and with external financial support, I maintain a certain optimism that Bitcoin could surpass $100,000 in the bull market.

#Bybit #TheCryptoArk