‘Total circulation will be 21,000,000 coins. It’ll be distributed to network nodes when they make blocks, with the amount cut in half every 4 years. first 4 years: 10,500,000 coins next 4 years: 5,250,000 coins next 4 years: 2,625,000 coins next 4 years: 1,312,500 coins etc…’—Satoshi Nakamoto
Every four years, the Bitcoin network undergoes a significant change known as "halving", a process that reduces the rewards for mining new blocks by half. This mechanism is built into Bitcoin’s protocol to control inflation and cap the total supply at 21 million coins. Halving events, therefore, are pivotal, highly anticipated occasions within the cryptocurrency community, often triggering speculation and market volatility.
The "stock-to-flow" ratio is a key concept used to measure the current supply of a commodity against the rate of new supply entering the market. For Bitcoin, each halving event markedly increases this ratio, underscoring its growing scarcity. This ratio is widely considered a crucial indicator of Bitcoin’s long-term valuation.
Crypto Tracker
Often, this metric is compared to that of precious metals, such as gold, enhancing Bitcoin's image as the "digital gold" and reinforcing its role as a store of value for the digital era.
Halving Dips & Surges: Historical Price Analysis
Bitcoin's price trajectory often responds dramatically to halving events. After the first halving on November 28th, 2012, when the mining reward dropped from 50 BTC to 25 BTC, Bitcoin's price skyrocketed from $12 to $1,075 within a year, a stunning 8,858% increase. This surge was coupled with a drop in Bitcoin's inflation rate from 25.75% to 12% by January 2013. The second halving on July 9th, 2016, exhibited a similar pattern.
The reward fell from 25 BTC to 12.5 BTC, and Bitcoin experienced a 294% price increase from $650 to $2,560 over the following year. Simultaneously, its inflation rate fell from 8.7% to 4.1% by August 2016. Most recently, the third halving (May 11, 2020) saw Bitcoin's mining reward drop to 6.25 BTC and its price climb from $8,727 to approximately $55,847 by May 11, 2021, a gain of 540%. Correspondingly, the inflation rate diminished from 3.7% to 1.8% by June 2020.
ET CONTRIBUTORSThese events suggest a pattern where Bitcoin halvings generally lead to diminishing returns, although the percentage gain following the third halving was greater than after the second. This anomaly was influenced by the Federal Reserve's increase in the M2 money supply, which effectively repriced BTC. However, this trend reversed when the Fed began its new cycle of rate hikes in March 2022, suppressing asset prices.
Sentimental Analysis: Current Developments and Future Projections
ET CONTRIBUTORS(Bitcoin balance available in exchanges. Source: Glass Node)
Bitcoin's price trajectory is a fascinating blend of historical trends, market events, and evolving investor sentiment. Recent developments offer compelling insights into the cryptocurrency's potential trajectory.
One of the most significant recent developments, the approval of US Bitcoin ETFs, has spurred substantial capital inflows, driving Bitcoin to unprecedented highs and fueling a bullish market outlook. However, it's important to remember that this bull market may still be in its nascent stages. Experts anticipate volatility and price retractions along the way.
Despite the bullish sentiment, recent geopolitical tensions following Iran's drone strikes towards Israel on April 13, 2024, triggered market turbulence. Bitcoin experienced a sharp decline, reaching its lowest level in a month. This event led to a sell-off, shedding about 8% of Bitcoin’s value in a brief period. Historically, though, such geopolitical conflicts have eventually fueled the cryptocurrency market.
Another key factor to consider is the upcoming 2024 halving event. This programmatic reduction in Bitcoin's supply could amplify demand. Yet, the materialization of this demand hinges on multiple variables, such as selling pressure, regulatory shifts, and the broader macroeconomic landscape. Looking forward, the anticipated first rate cut by the Federal Reserve in mid-2024 is expected to further positively influence Bitcoin’s price.
Interestingly, despite its inherent volatility, Bitcoin seems to be exhibiting signs of market maturity. There are fewer extreme price fluctuations compared to previous cycles, potentially making it a more appealing option for diverse investors. Further supporting this idea, a recent report by blockchain data analysis firm Glassnode highlights a significant decline in Bitcoin balances on exchanges. This trend aligns with the notion of investors adopting a long-term holding strategy. A shift towards such behavior could precipitate a supply shock, further contributing to upward price momentum.
Technical Analysis
Currently, Bitcoin is exhibiting a pre-halving retracement characterized by bearish signals and lateral market movements. A technical analysis of the weekly time frame reveals the formation of a Cup and Handle pattern in Bitcoin’s price chart. Traditionally, this pattern can proceed further downward movements. Notably, there is robust support within the $60,000 to $61,000 price range. Should this support level be breached, it is plausible to anticipate a retraction towards the $51,000 mark. In a worst-case scenario, prices could potentially decline to around $45,000 and it may indicate an interim bear market.
ET CONTRIBUTORSIn the daily time frame, Bitcoin's price action is exhibiting consolidation within a defined range, marked by the formation of a triple top pattern. This pattern is typically recognized as a bearish reversal indicator, emerging after a sustained uptrend. The appearance of the triple top on Bitcoin's daily chart may signal a potential shift in market sentiment from bullish to bearish.
Should Bitcoin break through the crucial support level at $60,000, we could witness a notable downtrend, with the price potentially falling to the $50,000- $51,000 range. This pivotal movement highlights the importance of closely monitoring these key technical levels, which serve as critical indicators for Bitcoin’s short-term market movements.
ET CONTRIBUTORSIn integrating the Exponential Moving Average (EMA) with a period of 200 into our analysis, we enhance our insight into potentially precarious scenarios. Should the price range breach and Bitcoin (BTC) descends into the specified $50,000-$51,000 zone—coinciding with the EMA (200)—we could anticipate significant turmoil within the Altcoin Market Capitalization. A failure by BTC to maintain support at the critical EMA (200) juncture may signal the onset of a temporary bear market, as previously indicated. Notably, BTC's descent below the EMA (200) is widely recognized as a conventional strategy for exiting bull markets.
ET CONTRIBUTORSConsidering various macroeconomic and microeconomic factors, there is a solid foundation for optimism about Bitcoin's potential to rebound and set new all-time highs. Projecting a target of $120,000 for Bitcoin in 2024 is well-grounded in the current market dynamics and historical performance trends. This outlook emphasizes the critical need to monitor key technical thresholds and market sentiments closely as Bitcoin approaches its next halving event.
The intricate array of factors surrounding Bitcoin's halving events reveals that these are not merely technical updates but pivotal market catalysts. Historical trends of price increases post-halving, alongside evolving market sentiments and technical patterns, provide deep insights into Bitcoin’s future potential. The recent approval of U.S. ETFs and shifts in the global economic landscape add new dimensions to market predictions, yet the fundamental economic principles of supply and demand remain the driving force behind Bitcoin's long-term viability.
As we look forward to the 2024 halving, it is clear that it brings both challenges and opportunities. Investors and market analysts are advised to maintain vigilant oversight of crucial technical levels and broader market indicators. Through meticulous analysis and a sophisticated understanding of Bitcoin's market mechanics, stakeholders are well-equipped to navigate the upcoming fluctuations and exploit the opportunities that emerge as Bitcoin further matures and becomes more integrated into the global financial system.
(The author is Research Analyst, Mudrex) (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
