💥💥💥💥What will happen to BTC after the halving? 🚀🚀🚀

💥Quick Overview💥

1. As the fourth Bitcoin halving approaches, we believe that research on previous cycles should be interpreted with caution, as the small sample size makes it difficult to generalize their patterns to the upcoming future.

2. The US spot Bitcoin ETF has also reshaped the market dynamics of Bitcoin by establishing a new anchor point for BTC demand, which makes this cycle unique.

3. We believe that the current price action is just the beginning of a long-term bull market, and the upward trend in prices needs to go further to drive the supply and demand dynamics to balance.

We are more than a month away from Bitcoin's fourth halving. Like all previous halvings, it will reduce the Bitcoin issuance reward for miners in half, this time from 6.25 BTC per block to 3.125 BTC.

While studying past halving cycles can provide some insight into Bitcoin’s potential price action, we believe that the sample size of three events is too small and may not provide enough data support to structure a clear pattern or make clear predictions about the impact of the halving.

In addition, we believe that the market dynamics of Bitcoin have fundamentally changed with the advent of US spot BTC ETFs.

In just two months, its net inflows reached billions of dollars, which has irreversibly changed the landscape. Now that major institutional players have been able to invest through these tools, Bitcoin’s reaction to this halving may not necessarily be reflected in the performance of the previous three cycles. We believe that it is more important to understand the current technical supply and demand situation, which can help us better understand Bitcoin’s potential.

In fact, while the limit on the supply of new Bitcoin is an important consideration, it is only one of many factors. Since the beginning of 2020, the amount of Bitcoin available for trading (i.e., the difference between the circulating and illiquid supply) has been declining, which is a significant change compared to previous cycles.

But recent data shows that the active BTC supply (Bitcoin that has been moved in the past 3 months) has increased significantly by 1.3 million since the beginning of Q4 2023, while only about 150,000 new Bitcoins were mined during this period.While the market is better equipped to absorb this supply than in the past, we still think it’s prudent not to oversimplify the complex interplay of these market dynamics.

💥Background💥

Bitcoin miner rewards are halved every 210,000 blocks, which happens approximately every four years (the exact date and time depends on the network hash rate, the amount of computing power used to process transactions and mine new blocks, but this halving is expected to occur between April 16 and 20 of this year).

The halving will reduce total bitcoin issuance from about 900 bitcoins per day (implying an annual issuance rate of 1.8%) to about 450 bitcoins per day, implying an annual issuance rate of 1.8% to 0.9%. After the halving, bitcoin production will be around 135 million per month, or about 164,250 per year (the exact number depends on the actual hash rate).

Halvings will continue as planned until all 21 million bitcoins have been mined, which is expected to happen around 2140. We believe the potential significance of the halving is its ability to increase media attention to Bitcoin’s uniqueness: a fixed, deflationary supply schedule that culminates in a hard cap on supply.

This is often underestimated. With physical commodities, such as minerals, more resources can theoretically be put into mining and extracting more minerals, such as gold or copper, even though the barrier to entry may be high, but it will help meet demand when prices rise.

But Bitcoin supply is inelastic (i.e., not price sensitive) due to the preset block reward and difficulty adjustment mechanism. Moreover, Bitcoin is a growth story. The utility of the Bitcoin network scales with the number of users on the network, which directly affects the value of the token. In contrast, buying precious metals such as gold does not have the expectation of such growth.

💥History Doesn’t Repeat Itself, But…💥

Analyzing the impact of halving cycles on Bitcoin’s performance is limited because our experience is limited to three halving events. Therefore, studies of correlations between previous halving events and Bitcoin prices should be interpreted with caution, as the sample size is small and it is difficult to model them from historical analysis alone.

In fact, we believe that more halving cycles are needed to draw stronger conclusions about how Bitcoin “usually” reacts to halvings. Furthermore, correlation does not imply causation, and factors including market sentiment, adoption trends, and macroeconomic conditions can all contribute to price volatility.

In fact, we have previously argued that Bitcoin’s performance in previous halving events is likely context-dependent. This may explain why its price action has varied so much across cycles. As shown in Figure 1, Bitcoin’s price was relatively flat in the 60 days leading up to the first halving in November 2012, while it rose 45% and 73% in the same period leading up to the second and third halvings in July 2016 and May 2020, respectively.

In our view, the beneficial effects of the first halving did not really become apparent until January 2013, when the effects of the Federal Reserve’s quantitative easing program (QE3) intertwined with the U.S. debt ceiling crisis. We therefore believe that increased media coverage of halvings may have increased awareness of Bitcoin as an alternative store of value to counter widespread concerns about inflation. #热门话题 #BOME #WIF #BTC #pepe

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