In the crypto world, it’s rare to say “this time is different” and really mean it. Yet, with Bitcoin’s fourth halving already behind us, if history is any indicator, the original cryptocurrency should see a major runup within 9 to 12 months.
Bitcoin prices typically climb for several months after a halving event. But this time around, the market's expectations for the halving are a bit different.
According to Morgan McCarthy, a research analyst at Kaiko, the market response following the recent halving has been subdued, contrasting the surges in Bitcoin's price seen in 2012, 2016, and 2020.
These increases have historically been attributed to reduced supply and heightened anticipation, yet each halving has occurred under differing market conditions. Specifically, this is the first time Bitcoin has seen a rally before the scheduled reduction in block rewards.
Bitcoin's halving, an event occurring roughly every four years or after 210,000 blocks, reduces the rate at which new Bitcoins are generated by halving the miners' rewards. The recent halving decreased rewards from 6.25 to 3.125 BTC per block. Originally designed to control inflation and extend the currency’s issuance over a century, halvings are major events that theoretically should increase Bitcoin’s value due to decreased supply.
McCarthy believes that the most recent halving unfolds in a distinct economic landscape characterized by higher interest rates and global financial uncertainties. Unlike the near-zero interest rates during previous halvings, today's higher rates offer investors alternative, safer returns compared to the high-risk crypto market.
Moreover, Bitcoin's reaction to the halving may already be priced in, considering the Efficient Market Hypothesis which suggests that asset prices reflect all available information. Given the predictable nature of halvings, many investors might have adjusted their strategies accordingly.
Liquidity, fees, and trading volumes
Another notable development has been the increase in transaction fees, especially following the launch of new protocols on the Bitcoin network, such as Runes by Ordinals creator Casey Rodamor. These protocols are increasing demand for block space, which has driven fees to near-record levels, influencing miner revenue and affecting their selling behaviors.
Liquidity conditions have gotten a boost since the U.S. approved spot Bitcoin ETFs, which has helped stabilize the market and might buffer against price swings. However, trading volumes during weekends and overnight are still on the decline, pointing out the ongoing struggles to keep market activity consistent.
Looking ahead, the long-term impact of this halving will likely depend on a combination of factors including global economic conditions, regulatory developments, and technological advancements within the Bitcoin ecosystem. While the halving reduces supply, increasing demand in the face of robust liquidity and new market entrants via spot ETFs will be crucial for any bull run.