Will BTC See Growth After the Upcoming Halving?
The next Bitcoin halving is slated for approximately April 20, 2024 (or has already occurred if you’re reading this at a later date). Historically, this event, which happens once every four years, has been followed by a period where BTC prices soar to new peaks. Will we see a repeat of this trend this time around? Let’s delve into it.
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A reminder: the halving reduces the reward for mining a block by half, to 3.125 BTC. This means Bitcoin miners will see their earnings decrease, but it also slows down the emission rate of the foremost cryptocurrency: the last BTC is expected to be mined around the year 2140.
What Was the Trend in the Past?
The chart below offers a glimpse into how Bitcoin's price reacted following the halving events in its past four-year cycles. It's critical to understand that each market scenario was unique, with various factors influencing the price each time.
BTC/USD Chart Source: TradingView
For example, the 2020-2021 halving period coincided with the global upheaval caused by the coronavirus pandemic. Initially, the pandemic triggered a significant drop in BTC's value, but the economy, teetering on the edge, was bolstered by the U.S. government's decision to initiate quantitative easing and reduce the federal funds rate to 0.25%.
Federal Reserve's Federal Funds Rate Chart Source: Investing.com
This injection of monetary liquidity had implications not just for cryptocurrency prices but also for the stock prices of major U.S. corporations, as evidenced by the S&P 500 index chart. This context is particularly pertinent given that the U.S. holds the title of the world's largest economy by nominal GDP, and the U.S. dollar is the most extensively circulated currency.
What’s the Current Situation?
This time, BTC reached new all-time highs more than a month before the halving event. The surge was driven by the launch of new investment products in the U.S. — specifically, spot Bitcoin ETFs, granting a new category of investors access to BTC and thus creating an additional influx of liquidity.
Contrary to the situation in 2020-2021, the Federal Reserve's interest rate now stands at a lofty 5.5%. Undoubtedly, this high rate could serve as a restraint on the market. While there might be a chance for a rate cut in 2024, it doesn't appear it will be substantial given the persistent inflation in the U.S. This issue was discussed in our latest article and also analyzed by Grayscale in their report.
Additionally, the current cycle is marked by a diverse and sometimes conflicting informational landscape. A case in point is the Genesis company, which initially rattled the market with news of its sale of over $1 billion worth of its GBTC shares (Grayscale's spot Bitcoin ETF), only to then use the proceeds from that sale to buy physical BTC. The market is also experiencing turbulence due to significant outflows from spot Bitcoin ETFs.
What can we anticipate?
Apart from the U.S. federal interest rate, there remain several deterrents and uncertainties. It's uncertain whether the trend of investors pulling out from GBTC shares will persist. It should be acknowledged that, as of this writing, the BTC managed by Grayscale's ETF is valued at over $20 billion.
Moreover, large BTC sales could be conducted by the U.S. government, which possesses cryptocurrencies seized in significant legal actions. Remarkably, the U.S. government ranks among the largest Bitcoin holders, with assets exceeding $11 billion.
Additionally, about 142,000 BTC (valued at more than $9 billion currently) are set to be allocated to the creditors of MtGox — the crypto exchange that filed for bankruptcy back in 2014. There's a likelihood that these BTCs will be put on the market.
U.S. Spot Bitcoin ETF Inflows Chart Source: sosovalue.xyz
Looking ahead, the period following the 2024 halving might spring some surprises, including market corrections, especially affecting short-term investors who follow the “sell in May and go away” strategy. Yet, it seems too soon to declare the end of the bull market.
It's essential to bear in mind that historically, halvings have led to a surge in prices, though not instantly. The psychological impact, prompting people to invest due to the halving event or the setting of new record highs, will significantly influence the market's direction. Whether this will serve as a bullish catalyst for the market or instead tempt market makers to exploit the situation for their gain will soon become clear.
This article is not meant to serve as financial advice and should not be used as the basis for making investment decisions. Always conduct thorough personal research.
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