Will the Next Bitcoin Halving Be Another Hype Cycle?
Now that spot bitcoin exchange-traded funds (ETFs) are live in the U.S., market watchers are looking for the next potentially bullish event to drive cryptocurrency gains. Following the U.S. Security and Exchange Commission’s (SEC) long-awaited decision to approve these financial products, bitcoin ETFs have simultaneously overperformed and underwhelmed expectations – representing the pluses and minuses of a market driven by hype.
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The top three bitcoin ETFs have seen well over half a billion dollars worth of capital inflows (not counting Grayscale’s $22 billion fund, which was converted over from the existing GBTC trust and has seen sizable outflows), signifying the significant customer demand for traditional on-ramps into bitcoin (BTC). In the weeks leading up to the date of approval, Wednesday, Jan. 10, bitcoin rallied to a recent high of ~$48,000.
Many analysts and traders are now hoping the upcoming bitcoin halving — when the rate of new bitcoins issued to network validators (aka miners) is slashed — could be a similar catalyst for crypto prices. There is a longstanding debate whether these programmatically triggered events that occur once every four years are “priced in.”
The approval of bitcoin ETF’s last week may give some indication of what’s to come for the next bitcoin hype cycle. The listing of 11 new bitcoin funds was a clear moment to sell, at least in hindsight, and bitcoin has since sagged ~12% to $42,250 today. It remains too early to say whether bitcoin ETFs will draw in billions of new dollars and investors, a prediction that hangs on actual demand for bitcoin.
See also: Bitcoin Traders Eye Support at $40K as ETF Contrarian Bets Prove Right
Meanwhile, the bitcoin halving (sometimes halvening) narrative is a supply-side story: bitcoin’s price could pop after the supply of new coins entering the market becomes constrained, assuming use of the Bitcoin network remains steady or increases.
To some extent, the bitcoin halving narrative is a post-hoc rationalization for the fact that bitcoin has in fact gone on a tear in the months after every halving so far. For instance, six months after the network’s second halving in 2016 (when the emissions of new coins per block fell from 25 to 12.5 BTC), bitcoin crossed the $1,000 threshold for the first time. A similar rally happened in 2020, when bitcoin set a new all-time high.
But there’s little to suggest that these price increases are directly related to the halving, outside of the increased bullish sentiment and media coverage that typically precedes the event. CoinShares, in its latest “Mining Report” noted that there’s a “peak in hashrate growth often occurs about four months before the halving, likely due to a ‘Bitcoin rush,’” which could represent positive sentiment.
Except the economic logic around a bitcoin supply shock is a bit shaky, considering that the supply of new bitcoins will actually continue to increase for the next century or so, at which point all 21 million bitcoins will have been mined. Satoshi Nakamoto designed the Bitcoin network to subsidize miners through these rewards to stimulate adoption, hoping that over time transaction fees will grow large enough to sustain network security and validation.
CoinShares doesn’t offer a price prediction in its report, which instead makes the case that bitcoin mining will grow more competitive after the halving, knocking out the least efficient miners. While Bitcoin has become 90% more efficient since the last halving, hashrate (which represents the amount of computing power put towards network security) and cost structures have also increased.
In fact, the current bitcoin mining difficulty is at historic highs, with computing power jumping over 100% in 2023. CoinShares predicts this to fall off after the halving with a “miner exodus.” The company also said the “average cost of production per coin” could normalize at just under $38,000 post-halving, given the complicated interrelation between hardware and electricity costs, difficulty levels and the cost structures that determine whether certain miners are making or losing money, which determines how many miners are on the network.
What exactly does this mean for bitcoin price predictions? Well somewhat contradictorily, if bitcoin prices remain above $40,000 it may actually drive miner returns lower. CoinShares doesn’t offer this prediction as such, but given that miners are often the largest sellers of bitcoin, reduced profitability may also create selling pressure from that group.
Why is Bitcoin price up today?
Introduction:
The world of cryptocurrency has once again captured the attention of investors and enthusiasts alike as Bitcoin’s price experiences a noteworthy surge. Speculations are rife, and market participants are keen on understanding the underlying factors contributing to this sudden uptick. In this comprehensive analysis, we will delve into various elements shaping the current surge in Bitcoin price.
Market Sentiment:
The cryptocurrency market is heavily influenced by sentiment, and today is no exception. Positive market sentiment, often fueled by news, social media chatter, and overall optimism, can trigger increased buying activity. Traders closely monitor these sentiment indicators to gauge the prevailing mood within the market and make informed decisions.
Institutional Participation:
The growing involvement of institutional players in the cryptocurrency space has been a key narrative in recent years. Today’s surge may be linked to increased institutional adoption of Bitcoin. Major financial institutions, hedge funds, and corporations are recognizing Bitcoin as a legitimate investment asset, injecting confidence into the market and driving up demand.
Macro-Economic Influences:
Global economic conditions play a pivotal role in shaping Bitcoin’s price movements. As a decentralized and non-traditional store of value, Bitcoin often attracts attention during periods of economic uncertainty or when traditional markets face challenges. Factors such as inflation concerns, monetary policy decisions, and geopolitical tensions can lead investors to seek refuge in Bitcoin, thus influencing its price.
Technical Analysis:
Traders and analysts often turn to technical indicators and chart patterns to forecast price movements. The realm of technical analysis provides valuable insights into potential trends, support and resistance levels, and key turning points. By scrutinizing these indicators, market participants attempt to make predictions about the direction of Bitcoin’s price, contributing to overall market dynamics.
Regulatory Developments:
The regulatory landscape surrounding cryptocurrencies is ever-evolving and can significantly impact market sentiment. Positive regulatory developments, such as clearer guidelines or supportive stances from authorities, tend to boost confidence among investors. Conversely, regulatory uncertainties or unfavorable decisions can create apprehension, affecting the market adversely.
Market Liquidity and Volume:
Liquidity and trading volume are critical components influencing price movements. A surge in trading volume, particularly with heightened buying activity, can propel Bitcoin’s price upwards. Conversely, low liquidity or substantial sell orders may lead to sharp declines. Analyzing market depth and volume patterns provides valuable insights into the strength and sustainability of the current price movement.
Speculation and FOMO:
Cryptocurrency markets are no strangers to speculation and the fear of missing out (FOMO). Traders and investors, driven by the anticipation of future gains, may enter the market en masse, creating a self-fulfilling prophecy. However, it’s important to acknowledge the inherent risks of speculative behavior, as it can lead to volatile market conditions and abrupt corrections.
Conclusion:
In conclusion, the surge in Bitcoin’s price today is likely the result of a confluence of factors. Positive market sentiment, institutional adoption, macro-economic influences, technical analysis, regulatory developments, market liquidity, and speculative behavior all play integral roles in shaping the cryptocurrency landscape. As investors navigate this dynamic market, staying well-informed and exercising prudence is paramount, given the inherent volatility and unpredictability associated with Bitcoin and the broader cryptocurrency market.
