Will the Bitcoin Halving Create Millionaires Overnight?

Now that the initial euphoria around the new place Bitcoin (CRYPTO: BTC) exchange-traded funds (ETFs) have started to fade, it’s time to move on to the next big catalyst for Bitcoin: the halving event in April. According to a growing number of analysts, this could actually increase its price.

In fact, according to Bitcoin ETF issuer Grayscale (NYSEMKT:GBTC), the impact of this halving could exceed any of the three previous Bitcoin halvings. But is this really the case? There are three important reasons why this opportunity could disappoint crypto investors.

1. Buy the rumor, sell the news

As we saw with the spot Bitcoin ETFs, the market is getting a lot smarter about pricing in the impact of each new Bitcoin opportunity. If you subscribe to the efficient markets hypothesis, which states that the market efficiently prices new information about any asset, then this is exactly what you would expect.

In the case of the Bitcoin ETFs, the market has had a good handle on when they should come, as well as which firms are likely to get approval from the Securities and Exchange Commission (SEC). So it wasn’t a huge surprise when the SEC finally approved mock Bitcoin ETFs on January 10th.

The market has already priced in the effect of this move. In the six months from June 2023 to January 2024, the price of Bitcoin soared in anticipation. So, when the news finally came, Bitcoins prices actually went lower – not higher, as many people thought. As it turned out, the preliminary gains were a little too optimistic in the short term.

So, could the same thing happen again, this time with the halving? At the end of last year, some analysts had already begun to predict that some of the halving impact had already been priced in. This makes sense, given how much attention Bitcoin now has from Wall Street and large institutional investors.

The halving is no longer a surprise event for them as it might have been in 2012, 2016 or even 2020. This is a highly predictable thing with several cycles of historical precedent. And the crypto market is no longer as inefficient as it was just a few years ago.

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2. Correlation does not imply causation

Within the Grayscale report on the Bitcoin halving, one of the most interesting sections was an analysis of the overall macroeconomic situation during the time of each halving.

The halving events of 2012, 2016, and 2020 coincided with important macroeconomic events that may have had much more to do with the price of Bitcoin skyrocketing than the halving itself.

Take the May 2020 halving, for example. The market has dealt with the shock of the pandemic, and a new wave of government stimulus money has helped support investment markets. Some people took their stimulus checks and put them all in crypto. So when Bitcoin finally rose to an all-time high in November 2021, was it due to the halving, or to the broader macroeconomic situation?

All of this is to say that investors may be falling into the correlation/causation trap. They see three distinct periods when Bitcoin rallied, and the natural assumption is that there must be some sort of causality. Maybe there isn’t.

3. Past performance is no guarantee of future results

Finally, just because Bitcoin has come up three times after three halving events, doesn’t mean it’s going to happen again like clockwork. This is like flipping a coin three times, getting heads each time, and assuming that there is a greater than 50% chance of heads on the fourth flip.

And remember: Bitcoin is scheduled to undergo halving cycles every four years from now until 2140. Does anyone really think that Bitcoin will hit a new all-time high in each of the next 30 or so halving cycles? At some point the effect will probably wear off.

Granted, Grayscale makes several notable points in its report on the Bitcoin halving. For example, it says that the new spot Bitcoin ETFs are a factor that has never existed in previous halving cycles. This matters because demand for Bitcoin from these ETFs should absorb any selling pressure that may occur from Bitcoin miners as a result of the halving.

Don’t expect the price of Bitcoin to skyrocket overnight

Even if you think that the halving will have a significant impact on the price of Bitcoin, just remember that the price increases after a halving usually take 12 to 18 months. Consider the recent halving: It took place in May 2020, but Bitcoin didn’t reach its peak of $69,000 until November 2021 — a full 18 months later. Consequently, do not expect a sudden jump in the price of Bitcoin from its current level of around $50,000.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.

Will the Bitcoin Halving Create Millionaires Overnight? was originally published by The Motley Fool