Embedded Files
Overview
Bitcoin is a digital money that functions independently of governments or financial institutions. The creator, Satoshi Nakamoto, invented it to solve the basic problem with traditional currencies: the inherently high requirement for trust in centralized middlemen. Bitcoin seeks to provide a more transparent and safe financial transaction system by doing away with this need for trust.
Bitcoin Halving
About every four years, there is a Bitcoin “halving” event that reduces the block reward—newly created Bitcoin awarded to miners—for confirming transactions by 50%. By limiting its quantity, this mechanism makes Bitcoin even more scarce. Basic economic fundamentals state that prices often increase when supply declines and demand either stays the same or increases. On April 17, 2024, the most recent halving occurred, lowering the block reward from 6.25 BTC to 3.125 BTC. The long-term monetary policy of Bitcoin depends on these halvings, which guarantee a steady and regulated rate of supply expansion.
Historically, each halving has influenced both miner behavior and market sentiment. After the previous three halvings (2012, 2016, and 2020), Bitcoin’s price eventually reached new all-time highs, with research indicating that its market value rose by an average of over 400% within 12 to 18 months of each event. While short-term volatility often accompanies these halvings, the predictable reduction in newly minted coins helps reinforce Bitcoin’s perception as a deflationary asset. As the block reward continues to diminish over time, miners tend to upgrade their hardware or consolidate resources to maintain profitability, highlighting the ongoing technological evolution underpinning the Bitcoin network.
Trump’s Return: A Boost for Bitcoin
The U.S. general election on November 4, 2024, resulting in Donald Trump’s return to the presidency, played a significant role in pushing Bitcoin’s price beyond the $100,000 milestone. The expectation was that the Trump administration would pursue policies more favorable to cryptocurrency, including reduced regulatory barriers and new initiatives to encourage adoption. Notably, the establishment of a “cryptocurrency presidential advisory council” signaled direct government support and awareness efforts.
Trump also announced that he would not permit the U.S. Federal Reserve to create its own digital currency, potentially allowing privately issued cryptocurrencies like Bitcoin to flourish. Additionally, his administration’s promises of lower tax rates could further incentivize investors to hold and trade cryptocurrencies. This tax relief, coupled with proposed exemptions from capital gains taxes on U.S.-based cryptocurrencies like Bitcoin and XRP, contrasts with the ongoing taxation of foreign-based projects like Ethereum.
Spot Bitcoin ETFs: A Game-Changer for Investors
In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the creation of spot Bitcoin exchange-traded funds (ETFs). Spot Bitcoin ETFs offer everyday investors a regulated and accessible way to gain exposure to Bitcoin’s price movements through their standard brokerage accounts. By granting institutional and retail investors a more familiar investment vehicle, these ETFs enhanced Bitcoin’s legitimacy in the mainstream financial system. The resulting increase in confidence and credibility helped drive Bitcoin’s price higher.
In the weeks following the SEC’s approval, several major financial institutions, including BlackRock and Fidelity, launched their own spot Bitcoin ETFs. Collectively, these funds attract billions of dollars in new capital within the first month, signaling robust market demand. According to data from leading research firms, spot Bitcoin ETF trading volumes during the opening weeks accounted for nearly 15% of total daily U.S. equity ETF volume, underscoring their immediate popularity. Retail investors, who often found cryptocurrency exchanges daunting, appreciated the simplicity of buying shares through a traditional brokerage, while institutional investors welcomed the greater regulatory clarity and custodial safeguards. This influx of participants not only boosted Bitcoin’s price on spot exchanges but also supported the development of a more comprehensive market infrastructure, including enhanced liquidity and improved pricing efficiency, further solidifying Bitcoin’s role as a credible alternative asset class.
The Future of Bitcoin
Even though Bitcoin's price fluctuates naturally, the future seems bright. Although market mood may have been boosted by the immediate post-election excitement, Bitcoin's future course will depend on how the policies are actually implemented.
Because of its popularity as an inflation hedge, monetary policies that are more relaxed, such low interest rates, may encourage the rise of bitcoin, while those that are more stringent may deter investment. The future of Bitcoin will also be influenced by elements like media coverage, public psychology (the desire to be a part of the "Bitcoin era"), and the growing integration of Bitcoin into daily transactions and the financial industry.
In the end, how these technological, cultural, legal, and economic aspects work out will determine Bitcoin's price and uptake.If supportive policies continue, mainstream acceptance broadens, and innovative financial products gain traction, Bitcoin could remain a prominent and influential force in the global financial landscape.
Written by Raj Shah
Published 30th Dec 2024
Page updated
Google Sites
Report abuse