Getting into bitcoin? You’re not alone. Spot bitcoin exchange-traded products, which hit the investment ecosystem in early 2024, have added significant AUM in a short period of time. Spot bitcoin ETPs’ ability to offer investors exposure to bitcoin has spiked interest in the cryptocurrency. Amid that interest, however, new investors may be asking questions about the Bitcoin halving and other aspects of bitcoin’s future.
See more: Fidelity Investments Launches Spot Bitcoin ETP
What does the Bitcoin halving entail? Essentially, it occurs when the reward for mining is split in half. Every four years or so, the reward for mining bitcoin drops. The combination of Bitcoin’s hard supply cap of 21 million and the reduction of bitcoin issuances helps ensure asset scarcity. This, in turn, influences supply-demand dynamics.
Where mining bitcoin in 2013 offered 25 bitcoin, the current reward sits at 6.25 bitcoin. Crucially, there is an estimation for the next halving to occur in April 2024, dropping the reward to 3.125 bitcoin.
The Impact of the Bitcoin Halving
So, what does that mean for investors considering an investment in bitcoin and the broader Bitcoin landscape? Significant media discourse tends to occur as the halving nears. As it nears, the U.S. dollar price, historically, has notably risen. More importantly, the Bitcoin halving helps to tamp down on inflation for Bitcoin’s supply. While the price may rise in U.S. dollars, as a result, the goal is to maintain bitcoin’s value as a currency itself.
Per analysis from EY, however, the halving may actually cause problems for bitcoin’s price if reduced rewards disincentivize more mining. What’s more, per that analysis, fewer miners make the overall blockchain more vulnerable to malevolent actions by a single miner.
For investors, then, the Bitcoin halving represents both a means to keep the currency healthy and as a potential opportunity. When the next halving occurs, it’s possible that the price of the currency in U.S. dollars may fluctuate.
As such, investors may want to consider spot bitcoin strategies. Fidelity Investments, for example, offers its own spot bitcoin strategy, the Fidelity Wise Origin Bitcoin Fund (FBTC). Outside of FBTC, the Fidelity Crypto Industry and Digital Payments ETF (FDIG) may appeal. The strategy owns stocks in the Bitcoin ecosystem, which could potentially benefit from an increase In Bitcoin’s price.
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Disclosure Information
The Fidelity® Wise Origin® Bitcoin Fund material must be preceded or accompanied by a prospectus. Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses.
FBTC is not an investment company registered under the Investment Company Act of 1940 (the “1940 Act”) and is not subject to regulation under the Commodity Exchange Act of 1936 (the “CEA”). As a result, shareholders of FBTC do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or the protections afforded by the CEA.
Digital assets are highly volatile, and their market movements are very difficult to predict. Various market forces may impact their value including, but not limited to, supply and demand, investors’ faith and their willingness to purchase it using traditional currencies, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates, an evolving legislative and regulatory environment in the U.S. and abroad, and other economic trends. Investors also face other risks, including significant and negative price swings, flash crashes, and fraud and cybersecurity risks. Digital assets may also be more susceptible to market manipulation than securities.
The performance of FBTC will not reflect the specific return an investor would realize if the investor actually purchased bitcoin. Investors in FBTC will not have any rights that bitcoin holders have and will not have the right to receive any redemption proceeds in bitcoin.
Additional Information
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest-rate, currency-exchange-rate, economic, and political risks. The value of securities of small to medium size, less well-known issuers can perform differently from the market as a whole and other types of stocks and can be more volatile than that of larger issuers. Cryptocurrency and blockchain companies are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.
Although the fund’s underlying index uses a rules-based proprietary index methodology that seeks to identify such companies, there is no guarantee that this methodology will be successful. Digital payments processing companies are subject to various risks, including those associated with intense competition, changes in regulation, economic conditions, deterioration in credit markets, impairment of intellectual property rights, disruptions in service, and cybersecurity attacks and other types of theft. Although the fund’s underlying index uses a rules-based proprietary index methodology that seeks to identify such companies, there is no guarantee that this methodology will be successful. Sector funds can be more volatile because of their narrow concentration in a specific industry.
The value of securities of small to medium size, less well-known issuers can perform differently from the market as a whole and other types of stocks and can be more volatile than that of larger issuers. The fund may have additional volatility because it can invest a significant portion of assets in securities of a small number of individual issuers. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV).
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
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