With spot bitcoin ETFs defying expectations with billions of dollars in inflows during their first weeks of existence, bitcoin had unprecedented momentum ahead of the fourth bitcoin halving event. However, ETF inflows slowed in the run-up to the halving. Four industry experts explain what makes this bitcoin halving unique.
Bitcoin spot price has risen 4% since the halving event. Spot bitcoin ETFs saw net outflows in the five days before the halving. MARA stock is down 17% year-to-date, but up 18% post-halving.
What is the halving of the Bitcoin?
Bitcoin miners solve complex cryptographic challenges that add new blocks to the network. When a new block is created, new bitcoins are also created, and these are paid to the miner as a ‘block reward’.
In 2009, the block reward was 50 bitcoins. However, this figure is halved every time 210,000 new blocks are added. This happens approximately every four years and is referred to as a ‘halving’.
The first three bitcoin halvings took place on November 28, 2012, July 9, 2016, and May 11, 2020. The most recent occurred on April 19. The 2024 halving reduced the block reward to 3,125 bitcoins.
In addition to reducing the rate at which new bitcoins enter circulation, halving the block reward also strains the miners themselves and could make it difficult for smaller outfits to stay in business, which in turn puts pressure on the supply of new bitcoins.
This creates a disinflationary influence on bitcoin’s price over the long term. Historically, bitcoin prices have tended to peak 12-18 months after a halving event.
Larger miners tend to have the scale and resources to withstand these short-term pressures. For Marathon Digital [MARA]it’s business as usual since April’s half-term.
“Post-halving, we saw a huge spike in transaction fees,” Adam Swick, Head of Growth at Marathon, told OPTO. “These increased transaction fees have almost offset the halving at this stage.”
While conceding that it is unclear how long the increased fees will last, Swick said the halving “has not affected MARA’s day-to-day operations as we remain focused on operating the most efficient fleet of miners in the most optimal way .”
What’s different about this year’s halving?
Bitcoin was already in the news in the months leading up to this halving. In January, the US Securities and Exchange Commission approved the launch of spotbitcoin ETFs, which track the spotbitcoin price (as opposed to bitcoin futures).
“This halving was a bit unique as the ETF approval preceded the halving,” Swick said.
The launches of these ETFs have been among the most successful in history. In their first 21 trading days, the funds attracted about $2.8 billion in net inflows, according to data from Bloomberg.
“The enthusiasm of the first few weeks has gone beyond even the most optimistic expectations,” Noelle Acheson, author of the Crypto is Macro Now newsletter, told OPTO.
The billions of dollars poured into spot bitcoin ETFs (which acquire and hold bitcoins) fueled the demand for bitcoin. The price of bitcoin rose by 37% between January 11 (when the ETFs were launched) and April 18 (the day before the halving). It would appear that similar inflows to the ETFs in the future may be associated with a similar rise in the cryptocurrency’s price.
However, it should be noted that initial positivity waned in the build-up to the halving. Five consecutive days of net outflows from the funds preceded it, peaking at $165 million on April 17, according to data from Coinglass.
“I believe that most of the inflows to this point have been from self-directed retail investors,” Michael Zhao, research associate at Grayscale Investments, told OPTO.
“US spot bitcoin ETFs have been the fastest growing ETFs in history, so inflows are expected to slow relative to the first few weeks.”
“It’s natural that the initial excitement would wear off,” Acheson said. “Another reason why flows have been delayed is the market mood. The recalibration of interest rate expectations fed some weakness into the BTC market, and active investors largely took a break.”
Flow returned to positive on April 19 and remained positive for the next two days. The consensus seems to be that spot bitcoin ETFs will continue to be a tailwind of the bitcoin price going forward.
“Interest is far from over,” according to Acheson, “as many registered investment advisor platforms are still on board.”
“We expect additional waves of inflows, especially with increased education of financial advisors and increased access across financial platforms, especially as wirehouses do diligence on bitcoin,” Zhao said.
“I have the highest degree of confidence in the long-term trajectory,” Matt Hougan, Chief Investment Officer at Bitwise Asset Management, told OPTO. “There are trillions of dollars of professionally managed capital accessing bitcoin for the first time ever. I think this is going to create a long-term bid for the asset.”
Bitcoin’s pre- and post-halving price movements
The timing of the spot bitcoin ETF approval undoubtedly made this halving unique in bitcoin’s history. As Zhao put it: “Typically, bitcoin’s price goes up a few months after the halving. Due to the peculiar nature of the flow this cycle, bitcoin’s price began to rise before the halving.
“As a result, people started referring to this cycle as a ‘left-handed’ cycle, meaning that the cycle started earlier than everyone expected.”
Acheson added that the halving “focuses attention on bitcoin’s hard supply cap, at a time when currency dilution is becoming a global problem”.
The slowdown in ETF flows was accompanied by a drop in the bitcoin price in the run-up to the halving.
Zhao attributed this to greater market sentiment. “Bitcoin’s price movements appear to be highly correlated with movements of the broader stock market and other risk assets,” he told OPTO.
“Given geopolitical tensions in the Middle East that escalated on the evening of April 18, both traditional stocks measured by the S&P 500 index and bitcoin fell sharply.” However, he noted that bitcoin recovered from this drop relatively quickly.
Hougan echoed this positivity. “Bitcoin is trading in a healthy way right now,” he said. “Broadly speaking, it has chopped sideways in a narrow trend between $60,000 and $70,000, eating away at its strong run at the start of this year.”
Bitcoin rose 4% between April 19 and April 23, closing at $66,407.27.
“I was particularly pleased with the relatively strong performance after halftime,” says Hougan.
“There’s always a sell-the-news concern when you have a highly anticipated event, but that’s not what we’ve seen. Instead, we saw a quiet ‘buy the news’ action. I love it.”
However, Acheson is aware that weakness in the stock market could negatively affect bitcoin prices in the short term. “I worry about a stock market correction, and BTC will probably get hit if that happens as investors sell all they can.”
Long-term expectations
“In the medium term, the trajectory is likely to be upward, whatever happens with the economy,” Acheson said. “If growth slows and interest rates fall, any liquidity boost will be good for risk assets like bitcoin. If growth continues and rates remain high, the currency dilution from the expansion of the deficit will enhance bitcoin’s role as a hedge asset.
She also expects new use cases for bitcoin, greater adoption by developing countries, and the approval of spot ETFs in new jurisdictions (such as Hong Kong) to continue this momentum.
However, she acknowledged that “the long-term cycle will eventually turn as investors hold onto profits and macroeconomic conditions change.”
“The long-term setup for bitcoin right now is exceptionally good,” Hougan said. “For the first time we have a supply shock and a demand shock at the same time. This could be the first time this has happened in the history of commodities. I think the impact could be quite significant.
“I’ve said before that we’ll see ‘six-figure bitcoin’ — meaning bitcoin trading north of $100,000 — sometime this year, and I still think that’s true,” Hougan added.
Can diversification boost MARA’s share price?
In addition to transaction fees, larger bitcoin miners have other ways to diversify their revenue streams to reduce the turbulence of the halving.
For example, Marathon has invested in initiatives “specific to bitcoin mining, such as firmware development, as well as advances that have broader applications such as cooling technologies that can be used for any data center,” Swick said.
“MARA is also actively piloting energy harvesting initiatives, such as landfill methane mining, in an effort to reduce our electricity costs. Likewise, we have experimented with heat reuse applications to offset the cost of this electricity by doing things like heating greenhouses or shrimp farms.”
Research from Coinshares suggests that bitcoin miners may turn to artificial intelligence (AI) to diversify their revenue streams. A little digital [BTBT]Hive Digital Technologies [HIVE] and Hut 8 [HUT] according to the report, all are said to be already generating a small amount of revenue from AI.
Marathon’s share price fell by 17.2% in the year to 24 April, but rose by 17.8% after the halving. The Greyscale Bitcoin Trust ETF [GBTC] was up 71% year-to-date and up 3.3% after halving. The Bitwise Bitcoin ETF [BITB] has risen 32.7% since its launch on January 11 and 1.3% after halving.
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