by Drake B. Meyer
Whether you believe in bitcoin or think it is a giant sham, there has recently been increased coverage and interest in the 15-year-old technology. But what is the cause of this reenergized coverage? Rallying prices reaching new record highs of nearly $74,000 are certainly contributing and these prices are affected by two key events.
The first event was the Securities and Exchange Commission’s approval of 11 bitcoin exchange-traded funds (ETFs) in January 2024 which allowed investors to join the crypto hype in a more palatable format. These ETFs operate through traditional exchanges which have established regulation. Legally, this marks a shift from regulators who previously denied over 20 applications for these types of funds in the past five years. However, in SEC Chair Gary Gensler’s statement at time of approval he indicated that approval of these ETFs holding bitcoin, a non-security commodity, “should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.” While regulations will likely continue to adapt as bitcoin gains in popularity, this approval allows for easier access for investors to capitalize on bitcoin without holding bitcoin themselves.
The other major event set to take place is the upcoming bitcoin halving. In simple terms, the “mining” process in bitcoin is where independent computing power on a decentralized network are rewarded for successfully verifying transactions on the blockchain (what is essentially a digital ledger). When the bitcoin protocol was first created and launched in 2009, the reward for this process was 50 bitcoin per block with a hard cap of 21 million bitcoin available to be mined (of which nearly 94% have been mined). The protocol was established to cut the reward amount in half every 210,000 blocks, or roughly every four years.
Bitcoin’s fourth halving event is set to occur around April 19, 2024, causing the mining reward to go from 6.25 per block to 3.125 per block, meaning the bitcoin supply mined each day will decrease from 900 to 450. This is the significance of the bitcoin protocol: it creates this half-life style of supply with a hard cap of 21 million total bitcoin that cannot be manipulated by any government or entity to impact supply. This makes bitcoin a scarce digital resource more similar to gold.
Historically, in the months surrounding each halving event, bitcoin price has increased. This halving could see an even greater rally due to the ETFs approval previously mentioned. Investors like Michael Saylor, founder of business intelligence firm MicroStrategy, see this as a great opportunity and predict that the next 10 years will be bitcoin’s gold rush as it is expected that 99% of all bitcoin will be mined by the end of 2034. But with increased excitement, potentially increased volatility and illicit actors could follow as individuals seek to cash out on the high prices.
As the value and number of people who hold bitcoin increases, working closely with experienced legal, accounting, and financial professionals will be critical for protection of your assets.
Drake B. Meyer, business law attorney with Danna McKitrick, P.C., advises clients on a variety of corporate and business transactions including entrepreneurial, real estate, and corporate formation and governance matters. He also represents individuals and businesses in litigation related to contracts, real estate, and other civil matters. Drake can be reached at 314.889.7161 or dmeyer@dmfirm.com.