Halving Impact and Macro Shifts Create Tailwinds for Bitcoin

The fourth Bitcoin halving in April reduced the new bitcoin issuance rate to 3.125 BTC every ten minutes, sparking significant interest and speculation. Since then, Bitcoin has been down from its highs, with some investors concerned that the days of higher BTC prices are in the distant future.

We believe March’s new high (above $70,000) was a "head fake" driven by new spot Bitcoin ETFs. However, considering the halving event and ongoing supply/demand issues, we expect a brighter future for BTC and crypto as the year progresses.

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Why do some pundits think Bitcoin has topped? And why did the selloff occur? Unlike past halvings, Bitcoin's price soared to a new high of $73,750 with a market cap of $1.44 trillion on March 14, a month before the halving. The rapid increase from the start of the year, when it was as low as $39,000, scared speculative investors and those in it for the "halving trade," prompting them to cash out.

However, the retreat likely stemmed from macro factors, specifically hawkish comments by the Federal Reserve. These ignited a "risk-off" mentality as an interest rate cut became more unlikely in 2024, with a hike becoming possible. Since then, economic data has been weaker than expected, making a hike very unlikely for now. This shift has put the risk trade back on, setting an immediate floor in BTC prices, which have since recovered above $60,000. It also suggests a shift back to supply and demand factors for bitcoin, which appear favorable for higher prices.

There are several reasons to be bullish on Bitcoin and crypto.

First, the past three halvings have consistently led to new all-time highs in Bitcoin price in the months following the event. We believe this trend will accelerate as more institutional investors include BTC in their portfolios, further tightening the supply. This “rising tide" in BTC should lift all crypto boats.

Second, the launch of spot Bitcoin ETFs in January 2024 is a pivotal development. These ETFs, allowing investors to trade shares through existing retail brokerage accounts, promise wider availability through financial advisors. Firms such as Merrill Lynch, Morgan Stanley, and LPL are conducting due diligence on their platforms for availability. Approval on these platforms seems inevitable, enhancing accessibility and simplifying the investment process in Bitcoin, which will likely lead to much higher demand.

Third, regulatory developments in the global crypto markets will significantly influence Bitcoin's price dynamics. The potential passage of a U.S. bill establishing a regulatory framework for cryptocurrencies and Europe's Markets in Crypto-Assets (MiCA) regulation is crucial. They will help dispel the notion that BTC and crypto are mere "pet rocks," acknowledging them as stores of value with technological utility. This shift in perception can transform Bitcoin and crypto from speculative instruments to strategic investments and, potentially, a flight-to-quality investment.

Remember that a complex interplay of market dynamics, investor sentiment, technological advancements and macroeconomic events influences Bitcoin's price. I am bullish on BTC and crypto and will watch closely as the post-halving market continues.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.