According to experts, the imminent halving of Bitcoin may not trigger as significant a price impact as historical cycles have demonstrated.
The surge in spot bitcoin exchange-traded funds (ETFs) has already propelled Bitcoin to new peaks by strengthening supply pressures.
Nonetheless, the lasting effects on both Bitcoin’s price and subsequent investments into ETFs should be favorable.
The anticipated halving of Bitcoin (BTC) – typically viewed as a bullish driver for its price – may not bring about the same positive outcome this time around due to the nod given to spot exchange-traded funds (ETF).
Halving, which occurs every four years, halves Bitcoin’s supply growth, historically leading to upward price pressure on the leading digital asset. Previous halving cycles have fueled Bitcoin to new highs, and this time, the sturdy demand from spot ETFs might provide added momentum to the rally.
“The launch of ETFs has already triggered a significant supply shock, evident in the overall demand. Upon halving and subsequent reduction in supply, it logic dictates that the price will appreciate,” commented Brian Dixon, CEO of investment firm Off the Chain Capital.
Discover more: Decoding Bitcoin Halving
At a glance, the demand from these funds has outstripped the 900 new BTC mined daily. As the supply is halved, it could further intensify price pressures.
Nonetheless, the dynamics may vary this time.
Since January 11, when spot ETFs commenced trading in the U.S., Bitcoin’s price had surged by 46%. The demand from these funds has been so robust that it propelled the digital asset’s price to new records to keep pace with the torrent of Bitcoin purchases. However, the market may have slightly rushed into the hype.
“This marks the first instance where Bitcoin has surpassed its all-time highs prior to halving, raising concerns that ETFs may have front-run the demand, potentially leading to a stagnant period,” explained David Lawant, Head of Research at FalconX.
Meanwhile, Anthony Anderson, founder and CEO of Param Labs and Kiraverse, shared a similar sentiment. “Bitcoin ETFs have preempted the impact of halving on supply by accumulating BTC extensively since the year began.”
Furthermore, halving may not immediately impact ETF flows due to the prevailing strong investor interest, at least in the short term, as outlined by James Seyffart, an ETF analyst at Bloomberg Intelligence.
“Many miners use OTC desks to offload BTC, and ETF issuers also leverage OTC desks for Bitcoin acquisitions when funds flow in. Therefore, the potential halving of miner BTC sales could amplify the impact of ETF inflows on the underlying market. However, in recent months, ETF inflows have substantially surpassed miner contributions from operations,” he elaborated.
“Hence, any potential impact would likely not be considerably significant in my opinion,” Seyffart added.
Despite this, halving is anticipated to be a significant driver for Bitcoin and ETF flows in the long run. Notably, the success of ETFs appears closely tied to Bitcoin’s price, and vice versa. Halving may enhance Bitcoin’s allure as an asset class for institutional investors. “I believe halving will usher in a new era for Bitcoin, complementing the introduction of ETFs,” expressed Bob Iacchino, co-founder of analytics firm Path Trading Partners. “It essentially serves as an inflation hedge, particularly amid resurging inflation rates.”
In fact, the buzz surrounding halving could help Bitcoin capture the attention of numerous investors seeking alternative assets to hedge against global macroeconomic volatility.
“This [Halving] is unfolding during a period where uncertainty looms over the necessity of Bitcoin as a hedge,” noted Lawant, highlighting the increasing investor focus on portfolio protection against potential global economic shifts, pointing out that having a spot ETF and an asset class with diminishing supply “would augment ETF flows.”
This supply scarcity might have a more enduring impact on ETF flows as it influences Bitcoin’s “marginal supply indefinitely,” Seyffart asserted. He underlined that despite the heightened impact of marginal supply from ETF inflows in recent months, the halving will result in a “permanent and perpetual” reduction in BTC supply.
Whatever unfolds, the market should brace for volatile short-term Bitcoin trading post-halving, potentially affecting ETF flows, as stated by Anderson, while in the long term, the net fund flows are expected to remain consistent with the current pace.
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