The fourth Bitcoin Halving concluded last April 19, 2024. The halving was another success, and the market is now beginning to respond.
This reduced the block subsidy of Bitcoin in half, from 6.25 BTC to 3.125 BTC. This makes the currency issuance of BTC more deflationary with each halving event.
There are reasons why this halving is special, but it has to do with the events that coincide with it. This is shaping up to be unique due to several factors.
A New ATH Reached Before The Halving
During the run up to the halving in April, there was already momentum building up. The price reached a new all time high of $73,750.07 on March 14, 2024 (per Coinmarketcap). New highs are usually reached after the halving event.
The price of Bitcoin often jumps a few months after the halving. This time around the price was already surging a few months before the halving, which shows that there was something driving the market. Perhaps this was due to the news around the first ever Bitcoin ETFs.
Approval Of Spot BTC ETFs
A significant event prior to the halving was the SEC approval of spot Bitcoin ETFs. During the past halvings, BTC was driven mainly by retail buyers. With the spot ETFs comes institutional buyers at a larger scale.
Institutional interest can be seen with the success of Blackrock's ETFs reaching a record high in less time than it took the first gold ETF. This has also driven flows into other ETFs that the SEC approved.
Unlike futures ETFs, with spot ETFs there is exposure to the actual asset. That means that the ETF fund managers must purchase BTC over-the-counter or from the spot market.
The ETFs have brought new liquidity unlike that experienced before. The effect is overall good for the rest of the cryptocurrency market, as gains in Bitcoin are reinvested into other coins and tokens.
Changing Narrative On Cryptocurrency
The narrative on cryptocurrency has been quickly changing since the passing of the spot BTC ETF. Financial outlets in the media are now looking at Bitcoin as a serious asset for investing.
In the past the media often had a negative perception of Bitcoin. It was viewed as a speculative asset that is backed by an energy wasting network which is creating money from thin air. That is actually how fiat currency is also created, but the point is these narratives are being debunked and challenged by Bitcoin supporters.
There is now mainstream reporting of Bitcoin as a good store of value and likely hedge against inflation. More people will learn about Bitcoin and cryptocurrency, which can further their understanding and knowledge about digital assets.
Macroeconomic Uncertainty
In a post-COVID economy, there is plenty of macroeconomic uncertainty around the world. In the US, the Federal Reserves are fighting hard to curb inflation by issuing higher interest rates.
Inflation was brought about with relentless (and even careless) money printing that governments around the world resorted to during the COVID emergency in order to avoid economic collapse from lockdowns and slower growth. The effects are now being felt with the expansion of the money supply.
Inflation diminishes spending power due to increased prices of goods and services. It has also been driven by global conflicts (e.g. Ukraine/Russia War) that have led to increase in gas prices which in turn affect the prices of other commodities that are dependent on it. The effects can be felt worldwide in relation to international trade.
At the same time US debt continues to rise, now at $34 Trillion as of mid-2024. The problem becomes how it impacts investments. Investors are advised to consider equities and real assets (such as commodities and real estate) to counter higher inflation. This can be favorable to Bitcoin as an alternative investment to the traditional financial system.
Overall, global economic factors like inflation and potential recessions are pushing some institutions towards Bitcoin as a hedge asset. This increased institutional interest could further amplify the price impact of the halving.
Election Year Politics
The halvings in Bitcoin occur every 210,000 blocks which is approximately 4 years. The fourth halving coincides with a highly politicized US election year.
This has led politicians to look at Bitcoin and cryptocurrency in more favorable ways. This is because the trends show that there is greater adoption coming into these digital assets based on the market growth and institutional interest.
In the US, both political parties do not want to be seen as the anti-crypto party because they can see that there are voters who are cryptocurrency holders. Some politicians are now using their powers to help move crypto forward.
The FIT21 Act crypto bill was overwhelmingly passed by the US House of Representatives. This allows the CFTC to regulate crypto and not the SEC, unless it is a security and deemed not decentralized enough. Decentralization, by their definition, would mean that no entity or organization should control 20% or more of the digital asset or voting power on the ecosystem.
Another bill passed was by the state of Oklahoma which recognized rights of Bitcoin holders. Although we would assume or expect that holding digital assets is a human right, at least some lawmakers decided to make it clearer with the passage of this bill.
The political atmosphere in the US is significant to crypto because it is the world's largest market in finance (Source: US News "10 Largest Economies In The World" 2022 data). This can have huge benefits to crypto since there are also many holders and investors from the US.
New Innovations In The Bitcoin Protocol
New protocols in Bitcoin have also coincided with the fourth halving. These new innovations are called Ordinals and Runes.
The Runes protocol, which allows developers to issue fungible tokens on the Bitcoin blockchain, is one of the reasons the transaction fees on the Bitcoin network surged after the halving.
These new protocols introduce concepts that can bring new use cases for Bitcoin. It remains to be seen whether they will remain relevant into the future, but it depends on the success of these applications.
Hash Rates Reaching Higher Highs
One way to measure the activity on the Bitcoin network is the hash rate. It has been consistently increasing as the market cap and volume of Bitcoin transactions have been increasing, showing strong use of the blockchain.
The hash rate is the output from Bitcoin miners measured in hashes per second (h/sec). The higher the hash rate, the Bitcoin network is more secure as part of the Proof-of-Work (PoW) consensus mechanism.
Prior to the halving, the hash rate had been increasing based on historical charts. New all time highs have been reached during this halving showing that the Bitcoin network is being heavily used and processing billions of dollars worth of transactions.
The average daily hash rate has now reached the ExaHash territory or 1 quintillion (1 x 10^18) hashes per second (EH/sec). For example back in 1/11/2011 the average hash rate was at 131.93 GH/sec (GigaHashes per second). On 3/12/2024 ( a month before the halving) the hash rate was at 597.9 EH/sec. A recent all time high was reached on 5/24/2024 at 732.28 EH/sec.
Lower BTC Supply In Exchanges
More BTC is leaving digital exchanges and going into self-custody. According to a report by digital exchange ByBit:
"With only 2 million bitcoins left, if we assume a daily inflow of $500 million to Bitcoin Spot ETFs, the equivalent of around 7,142 bitcoins will leave exchange reserves daily"
According to another report:
"Bitcoin (BTC) is leaving exchanges at a rapid pace, with multibillion-dollar withdrawals occurring as BTC price action approaches all-time highs. On March 1, withdrawals reached around $2 billion, marking one of the largest withdrawals in over five years. This decrease in BTC reserves on exchanges is the lowest since March 2018, when BTC/USD traded at just $8,000."
This halving will make Bitcoin even more scarce, as demand outstrips the supply. The Bitcoin core protocol code has set a hard cap on the supply of Bitcoin to only 21 million coins.
With that scarcity, there is more incentive to hold. With demand growing for BTC, the effect on price can be to the upside.
Conclusion
The fourth halving is special because of the events discussed. They are actually having a positive impact on Bitcoin, not just in terms of prices, but also in terms of adoption.
The political and regulatory scene shows more tolerance for digital assets like Bitcoin. It is clear that Bitcoin is not a security and is viewed more as a commodity, giving investors both retail and institutional more confidence in holding Bitcoin in the long term.
It is also an election year in the US, and politicians will have to appease supporters who are favorable to crypto like Bitcoin. As a result there has been less negative news coming from the government.
This halving could be one of the best in Bitcoin history. There is wider adoption and acceptance, which can further drive growth and interest that will make Bitcoin a premium asset with realized value.
Disclaimer: This is not financial advice. The information provided is for reference and educational purposes only. Please DYOR to learn and understand more about investing in cryptocurrency.
