Bitcoin halving is expected on April 19 or 20, and the Bitcoin community couldn’t be more excited. Historically, with each halving comes the start of a fresh bull cycle.

This phenomenon could be explained by Bitcoin’s diminishing supply rate and the constantly increasing adoption, which invites new investors bidding for higher prices.

While the economic theory makes sense, we must recognise that it isn’t the only driver to Bitcoin’s success. For Bitcoin to continue to grow in user base and become more valuable, three things must also be factored in – the development of more efficient mining machines, regulatory clarity, and a low interest rate environment.

What is Bitcoin halving?  Learn more in our guide.

Bitcoin mining

Bitcoin mining was initially designed by Satoshi to introduce a “minor inconvenience” so that attackers can't reverse, reorder, or corrupt existing transaction records. This allows transactions far into the past to be virtually set in stone for eternity. 

In the earlier days, it took no more than a home laptop to be able to mine Bitcoin and secure past transactions – which could earn you at least 50 BTC every day. Today, the computation requirements have become much higher and require specialised hardware that focuses only on mining Bitcoin. 

Bitcoin mining keeps Bitcoin decentralised, and it is a necessary part of Bitcoin’s value equation without the backing of any government. The complexity and cost of Bitcoin mining keeps hackers at bay because relying on law enforcement or the rule of law is not an option.

As of 2024, 50 per cent of mining power had come from renewable energy. A portion of that is excess renewable energy, which can’t be used by the power grid. In some regions, Bitcoin mining literally stabilises the renewables power grid.

Bitcoin spot ETFs

Institutional investors are responsible for allocating incredibly large amounts of client money to a portfolio of assets with the highest returns for the lowest volatility. This applies to all of them, from the most risk-seeking to the most risk-averse fund managers.

Bitcoin can be a small part of that portfolio, given that historically the asset’s extreme volatility has led to some of the best returns investors have seen. Even a 2-5% allocation had been suggested by a prominent fund manager as a great way to diversify into Bitcoin. 

For many years, fund managers have supported this idea, and wanted to offer more Bitcoin or crypto-related products to take a slice out of the potential larger gains their customers could enjoy. It’s just that regulatory bodies can be stringent in the name of protecting clients.

For example, Bitcoin custody is challenging and highly scrutinised. It’s easy for an individual to manage a single wallet of $5,000 in Bitcoin, but a fund manager handling a couple of million dollars using traditional Bitcoin wallets can be incredibly risky if not managed properly.

Recently, the United States finally joined the world in introducing Bitcoin spot ETFs, which is a way for investors to buy the asset indirectly through a more “traditional” system. This was made possible because the US Securities and Exchange Commission has made a set of clear guidelines for Bitcoin ETF issuers to follow and to stay compliant.

With the emergence of Bitcoin spot ETFs, anyone can delegate Bitcoin custody into the hands of specialised professionals. A fund manager can hold millions of dollars in Bitcoin on paper and have to trust that their Bitcoin is safely stored by the ETF issuers. 

As regulatory clarity increases, perceived risk lowers, and that can boost investors’ confidence into pouring in potentially hundreds of billions of US dollars into Bitcoin.

Central banks’ role in market

Bitcoin is a decentralised digital asset. Governments have tried and failed to shut down or slow the growth of Bitcoin because its software is run all over the world. It is virtually un censorable and demonstrates how it is possible for finance to be decoupled from government institutions.

But in terms of how Bitcoin performs in the market, investors are still treating it like a risk asset, similar to speculative and growth stocks common in the tech services sector. Speculative stocks are typically riskier because their share price is perceived to be more expensive than its “fair price” derived from its earnings report. Bitcoin, on the other hand, has no earnings report. So, how much money Bitcoin should be worth is anyone’s guess. 

Because Bitcoin and speculative stocks are seen as risk assets, they are sensitive to economic factors that determine how risky it is to invest in a given period. For example, if central banks around the world are increasing their interest rates, investors’ appetite for risk assets are typically muted because they’ve become uncertain about taking out loans to invest in a business or to buy other assets, like property or even crypto.

The opposite will occur. When central banks make it cheaper to take out loans, it becomes more attractive for people to borrow money for investment. It also makes it less attractive for risk-averse investors to keep money in a bank or even a “high yield” savings account as the high yields are given away when central banks lower their interest rates.

Three down, one to go

Apart from the looming Bitcoin halving, we’ve also seen a continuous development of more efficient mining rigs. We are also seeing Bitcoin enter traditional finance through Bitcoin spot ETF products and regulations are becoming increasingly clear, bolstering confidence to future investors.

There’s one thing left to count on. The biggest source of USD — the US Federal Reserve — is waiting for a sign to start cutting down its interest rate and spur a new cycle of economic growth in the US and the Bitcoin market.

It’s only a matter of time.

Further reading: Explore more topics on all things crypto.