Is the halving already discounted or not in the price of bitcoin?


Key facts:
  • There are various opinions and analyzes that, in general, reach similar conclusions.

  • CoinShares explains that the halving impacts the price in two ways.

The rise of bitcoin (BTC) to new all-time high prices in the last week draws attention for occurring a month before the halving. In previous bullish cycles, the price had always reached a record about a year after such an event, which opens uncertainty about its current situation.

Has the market already discounted the halving in the price of bitcoin? Will it continue to rise in the months following said event as in past cycles, which is shown in the following graph, or will this time be different?

The candles show the price of bitcoin throughout history and the yellow lines show each halving it has had. Source: TradingView.

When the market discounts an event it means that expectations about its impact are already reflected in the price of a financial asset beforehand. That is because investors operate in anticipation of such an event, which means that after its realization the movement is limited.

However, CoinShares, an asset management and market analysis company, believes that the halving cannot be discounted. Beyond the fact that investors could act in anticipation of the event, he warns that this “impacts the price” in two ways.

“One way is obvious,” he clarifies in a report on the matter. The halving is the halving of the issuance of bitcoin that occurs every approximately four years until there are 21 million units of the currency. Therefore, he highlights that this event reduces sales pressure miners.

“Halvings effectively allow prices to remain at increasingly higher levels with constant flows of demand or, alternatively, at similar levels if flows were to fall at the same rate as issuance,” explains CoinShares. That is why it is a fundamental value of bitcoin that promotes its upward trend.

However, the company clarifies that “this is not really as impactful in the short term as you might think.” He maintains that “the effect is not at all immediate and only has an impact over time.”

The reason is that investors They can take advantage of this event to operate in the market based on expectations. For this reason, he indicates that in the short term “it is completely drowned by speculation,” pointing to this as the second way in which the halving impacts the price.

CoinShares: “the halving is a great marketing event”

Regarding the second form of impact, CoinShares maintains that “each halving is, effectively, a great marketing event.” “Every time it gets closer, the media picks it up with eternal fascination, shedding renewed light on bitcoin in the mainstream media,” he details.

“At this point, people who first heard about bitcoin in the previous bull run, but assumed it was dead, will find that it is in fact fine and tends to do much better than they had imagined. This is where the immediate effect is felt.”

For CoinShares, this is what is happening currentlywith BTC reaching new all-time high prices above $73,700 as seen below.

BTC reached the all-time high of USD 73,700 yesterday. Source: TradingView.

“Even if the coverage doesn’t always tend to be technically accurate, we believe this kind of renewed media attention is one of the critical trigger points for reigniting the cyclical speculative mania that tends to hit bitcoin roughly every 4 years.”

CoinShares, crypto asset investment company.

Consequently, this scenario becomes a driving force for classic bull market rallies until demand loses strength. “The result seems to be the same every time: prices at some point become parabolic, they advance and a brutal correction occurs,” he distinguishes.

This is renewed attention on bitcoin, “acting as a shot of adrenaline for the market, but fading quickly thereafter,” he summarizes.

On-chain data indicates that bitcoin will continue to rise

Taking into account what has been described, the impact of the halving on the price of bitcoin comes from both the reduction in its issuance, as well as the expectations generated by such a situation. Therefore, the second effect mentioned is the only thing that, in any case, the market can discount in anticipation of the event.

However, according to movements on-chainthis does not seem to be what is happening. The proportion of bitcoins moved in the last three months increased from 16% to 40% from October 2023 to March 2024.

According to data provider Glassnode, this “is a classic pattern of bitcoin bull markets,” but not late cycle. As the graph shows, this proportion has reached more than 60% when the price of the currency reached its highest cyclical level.

Bitcoin supply moved in the last three months. Source: Glassnode.

Added to this is that short-term investors have been acquiring BTC, while long-term investors take profits. For this reason, Glassnode considers that “the classic transfer of wealth from the cohort of hodlers (long-term investors) to speculators is already underway.” In this sense, new demand could continue to drive the rise.

In tune, the data platform on-chain Nodecharts indicated that they associate the current capital inflow “with a reaccumulation process, signaling a possible bullish momentum developing.”

Meanwhile, bitcoin exchange-traded funds (ETFs) launched two months ago in the United States continue to garner daily inflows. This causes them to acquire more holdings in the currency. In fact, per day they have exceeded up to ten times the amount of BTC mined, which promotes the rise. The mining network produces around 900 BTC per day, which will be reduced to 450 after the halving.

However, analysts such as the one known as Rekt Capital warn that bitcoin is approaching what it considers “the danger zone,” as seen below. That is because Historically, in the days close to the halving it has experienced price declines in the face of profit-taking motivated by the “sale of the news.”

Stages that bitcoin has historically gone through before the halving. Source: Rekt Capital.

Despite this, in past cycles, the strength of demand has always been reactivated in the subsequent months, leading the price to parabolic increases. Therefore, in your case, manifests that the market has not discounted the event, as it understands that the value of bitcoin will continue to attract demand.

It is essential to keep in mind that this article is not an investment recommendation, but only shows points of view from different market players. It is essential for every investor to do their own research and manage the associated risks.

Leave a Reply

Your email address will not be published. Required fields are marked *