The Web3 Watch: Bitcoin Edition

The crypto community is buzzing about the 4th Bitcoin Halving, but we're all about as clueless as a cat at a dog show. Is Bitcoin headed for $50k 📉or $100k 📈? Find out in this edition of The Web3 Watch, where we decode this rollercoaster of a market 🎢

Bitcoin’s total supply is fixed at 21 million, with approximately 19.6 million already being mined/in circulation. Mining is the process of maintaining and securing the Bitcoin blockchain, and as a reward, Bitcoins are generated/minted and claimed by the miners(specialized computers that perform mining).

The minting of Bitcoins as a reward is the only way new Bitcoins are created in the system. Initially, each block mined rewarded 50 Bitcoins. However, approximately every four years, this reward undergoes a "halving," meaning it is reduced by half. This mechanism aims to control inflation and maintain scarcity in the Bitcoin ecosystem. The reward has halved four times since Bitcoin's inception in 2008, with the latest halving occurring in 2024, reducing the reward to 3.125 Bitcoins per block [50-->25(1st halving)-->12.5-->6.25-->3.125(4th halving)].

Halving makes sense if we look at its anti-inflationary mechanism, less supply = more demand, but it raises a major question:

Why will miners mine if the reward keeps getting halved every 4 years? (Remember that Miners are responsible for the security and maintenance of Bitcoin, Also that mining is a cost and energy-intensive process)

As always, Satoshi had an answer😅

Satoshi had 2 major assumptions while designing Bitcoin-

1. Increment in the Bitcoin price will overpower the reward slashing. This assumption has proven to be correct to date, Bitcoin price from the last halving in 2020 has risen to $65000 from $20000, a more than 3x rise overpowering the rewards getting halved.

2. Transaction Fees: Satoshi envisioned that the major incentive for Miners would shift from Block rewards to Transaction fees. This is where Satoshi’s vision lacked a bit, At present, transaction fees make up only a small proportion of a miner’s revenues—following the 2024 halving, miners mint around 428 BTC (about $28.3 million) a day, but earn between 60 and 100 BTC ($3.9 million to $6.6 million) in daily transaction fees. That means transaction fees currently make up as little as 14% of a miner’s revenue—but in 2140, that’ll shoot up to 100%.😓

Thanks to the super-strong and driven Bitcoin community and its Core devs, we might have a solution for this-

Released by Casey Rodarmor, the creator of the Ordinals protocol that lets users create NFT-like inscriptions on the Bitcoin blockchain, Runes allows users to create fungible tokens on top of the Bitcoin blockchain, just like Ethereum and Solana.

Runes is an improvement over already existing BRC-20 and Ordinals and an attempt at a more efficient way of creating tokens on the Bitcoin network.

Runes will make it easier to launch meme coins, reward points, and utility tokens on top of Bitcoin.

Similar to Ordinals and BRC-20, Runes is expected to attract a wider audience in the Bitcoin ecosystem and increase the number of transactions on the Bitcoin blockchain. More transactions mean More rewards for the miners.

Runes launched on the 840,000th Block, following the Bitcoin halving, However, the early days of Runes have been filled with Ups and Downs.

In the initial aftermath of halving, the Runes launch, and the competition among users to get their transaction in the 1st block after halving has led to the fees spike to an average of over $170 per transaction. But, this didn’t last long and the transaction fees have significantly come down to about $10 post-halving.

Although, this Rollercoaster might not end that soon.

This time....it's different⚡

1. Crypto adoption between 2020 Halving and 2024 Halving: ⌛✂⌛
The rate of new Bitcoin creation has slowed, but demand has surged. With the global crypto user base expanding by approximately 400 million since 2020 halving, reaching an estimated 580 million users by the end of 2023 according to Crypto.com, and around 219 million people estimated to own Bitcoin by 2024 (about 2.7% of the global population), up 208% from four years ago, based on Crypto.com's calculations. This growth underscores the increasing adoption and interest in cryptocurrencies worldwide.

2. Pre-halving Bitcoin rally: 📈
“Esa pehli baar hua hai 12 saalo main”  that the price has seen extraordinary growth pre-halving. For example, Bitcoin took 10 months to break its previous all-time high of $20,000 after the 2020 halving. This time, however, the situation is different. We are sitting at $65,000💰

3. Miners ‘better shaped’ for halving this time 💪🏻

According to Chris Kuiper director  of research at Fidelity Digital Assets’ “In comparison to the previous halving, it appears miners are in better shape overall in terms of lower levels of debt and potentially better control over their costs, such as electricity,”

Bitcoin mining energy consumption has doubled since the third halving in May 2020, reaching 99 TWH on April 18, 2024. However, the percentage of Bitcoin network’s energy consumption powered by renewable sources has also increased, from 39% in September 2020 to 54.5% in January 2024.

4. Bitcoin Spot ETF!!
Earlier this year, the crypto world witnessed the first-ever Bitcoin Spot ETF, thanks to Blackrock. This move gave institutional investors exposure to the industry, resulting in a lot of money flowing into BTC.

Before the Bitcoin Halving, Bitcoin spot ETFs endured a consecutive five-day withdrawal streak, paralleled by Ethereum ETFs. Data from Farside Investors reveals that United States' spot Bitcoin ETFs witnessed a cumulative outflow of $319 million starting from April 12, continuing for four days leading up to the Halving.

💸 Miner Earnings Post-Halving 💸

The recent Bitcoin halving, reducing block rewards from 6.25 to 3.125, aims to curb supply growth, impacting miners' earnings. Despite this, miners have seen an increase in revenue per block due to a surge in transaction fees, hinting at network demand. This shift prompts considerations of miner behavior and Bitcoin's future stability.

The rise in transaction fees may stimulate the development of solutions like the Lightning Network, focusing on cost reduction and transaction acceleration. As the crypto landscape adapts post-halving, attention shifts to network security and the evolving role of transaction fees.

Potential $5 Billion Bitcoin Sell-Off Post-Halving

After the Bitcoin Halving, experts predict that miners could sell off significant amounts of BTC, potentially worth up to $5 billion. This selling pressure may persist for four to six months, causing Bitcoin's price to remain mostly unchanged, similar to previous halving cycles.

Markus Thielen of 10x Research warns that altcoins may suffer due to Bitcoin's post-halving adjustments. Although many expect a rally, historical trends suggest that altcoin surges may lag behind Bitcoin's movements by about six months.

Thielen speculates that Marathon, a major Bitcoin miner, may gradually sell off its inventory after the halving to avoid revenue shocks. This could flood the market with additional supply and, combined with similar strategies from other miners, potentially result in significant daily BTC sell-offs. This could reverse the pre-halving supply/demand dynamics.

Despite the anticipation surrounding the halving, doubts remain about its impact, with some experts cautioning against overly optimistic expectations. Billionaire Arthur Hayes and Coinbase both express concerns about market timing and potential negative price actions surrounding the halving.

There is a lot happening... some crazy market trends...some crazy speculations.

But...whatever happens, lets hold our bags and enjoy this Rollercoaster ride😎😎