With Bitcoin breaking its all-time high and record-high inflows into Bitcoin spot ETFs, the leading cryptocurrency has certainly taken the spotlight this year. Now, with the halving just around the corner, you may have come across many leading crypto figures, analysts, and media outlets betting big on a post-halving market uptrend. The question is, why?
The idea of a post-halving uptrend is not entirely baseless; 1) The stock-to-flow scarcity metric will substantially exceed that of gold post-halving, making Bitcoin the hardest asset around and potentially causing a demand shock, and 2) historical data shows us that Bitcoin’s value has increased after every halving event.
But a popular sentiment in the crypto market solely credits these uptrends to the halving itself – a perspective that seems rather myopic as it fails to capture the changing market dynamics behind Bitcoin’s rise to mainstream. Equally important is considering the counterarguments that question the halving’s impact, pointing to potential downside risks as other, stronger market forces now assert their influence on the market.
As media discussions around the halving are likely to increase in the weeks ahead, this topic certainly warrants a closer look.
The Bitcoin halving as a bullish catalyst. Where does this come from?
The halving, which occurs every four years, is an event where the fixed rewards for Bitcoin mining are cut in half. It is a central element in Bitcoin’s economic model, controlling and slowing the rate at which new Bitcoins enter the market. Since it is a predictable four-yearly event, it has almost become common practice to factor it into many Bitcoin forecasts and event-driven investment strategies.
However, predicting Bitcoin’s price accurately is a pretty difficult task in a market that is consistently subject to change. What drove markets in the past might not apply now under a new set of market conditions. These can include things like regulatory developments, macro changes, market liquidity and traded volumes, sector and investment trends, protocol upgrades, market accessibility, and so forth.
Still, the belief that the halving will trigger a Bitcoin uptrend remains a popular sentiment. Here’s why.
Source: CoinGecko
The chart above illustrates Bitcoin’s price trajectory following each halving event. At first glance, we can assume that what typically follows is a long period of significant growth. While this feeds into the bullish narrative, it simply ignores several key drivers that have shaped Bitcoin’s market dynamics over the years.
Here’s a breakdown of halving events below.
- The Genesis Halving
The first halving in 2012 (aka the Genesis Halving) was extremely relevant for Bitcoin. Not only did the halving introduce a significant supply shock, but its impact was also initially uncertain, with nothing “priced in”, and fears of miner capitulation as the network slashed mining rewards from 50 BTC to 25 BTC for the first time. Back then, Bitcoin relied on a much smaller cohort of miners in a much smaller market with far greater block rewards, granting them a much higher influence on the market.
But after the halving, the network continued to operate without any issues, which helped remove some of the initial scepticism surrounding Bitcoin’s viability and economic model – back then, many in the traditional finance space critiqued Bitcoin as “fool’s gold.”
Post-2012 halving, Bitcoin began gaining more attention outside of its initial IT circle. Platforms like Mt. Gox and Coinbase made it easier for retail to invest in Bitcoin, retailers like NameCheap and Virgin Galactic began accepting Bitcoin payments, while mining and trading activity in China was growing exponentially. During the Cyprus banking crisis in March 2013, Bitcoin’s reputation as a safe haven asset started to gain serious recognition, leading to a significant price surge.
As Bitcoin’s popularity grew, the subsequent halvings had a diminishing impact.
- 2016 Halving
By the time of the 2016 halving, when rewards were cut from 25 BTC to 12.5 BTC, numerous crypto exchanges like Bitfinex, Coinbase, Poloniex, Bittrex and Kraken were actively trading Bitcoin and altcoins. The halving led into the ICO frenzy, which was a major growth catalyst for the market between 2016 and 2018. Many of these ICOs drew parallels with speculative penny stocks, taking advantage of Ethereum’s ERC-20 token standard to bypass traditional venture capital funding. This period brought significant liquidity and media coverage to the crypto market, along with a new wave of investors, many of whom used Bitcoin as a gateway.
In early 2017, institutions began showing their interest in Bitcoin, and Grayscale’s Bitcoin Trust (GBTC) offered them a way to gain exposure to Bitcoin without having to hold the asset (GBTC shares were also selling at a 137 percent premium). Meanwhile, geopolitical tensions such as the Brexit negotiations, as well as Venezuela’s currency crisis and the weakening US dollar continued to drive demand and strengthened Bitcoin’s status as a safe haven asset.
- 2020 Halving
By the time of the 2020 halving, when rewards were now cut from 12.5 to 6.25 BTC, trading volumes had increased tenfold, with new exchanges like Binance, Huobi, OKEx bringing significant liquidity to the market. This was also triggered by the “DeFi summer” of mid-2020, a period that brought remarkable growth to the DeFi sector, and by extension, the broader crypto market, including Bitcoin. Although this primarily boosted Ethereum and various DeFi (and CeFi) projects, it was clear that a new wave of investors and fresh capital had, once again, entered the crypto market.
Post-2020 halving was yet another period of uptrend, but a Bitcoin rally did not occur until several months later. Instead, the demand for Bitcoin was triggered by the interest from Wall Street giants, allocations from MicroStrategy, Tesla and Square, while payment institutions like PayPal began offering crypto exposure to its customers. At the same time, macro uncertainty caused by the COVID-19 pandemic, along with inflation concerns and direct stimulus payment programs, turned many towards Bitcoin as a hedge against potential currency debasement. Meanwhile, MassMutual, one of the largest US insurance companies invested USD 100 million worth of Bitcoin for its general investment fund, underpinning Bitcoin’s legitimacy as a store of value in the insurance and pension fund sector.
- A confluence of market drivers leading up to the 2024 halving
Against a bearish macro backdrop driven by consecutive US Fed interest rate hikes, 2022 was a turbulent period for crypto. This was followed by the Terra-Luna crash, a liquidity crisis in spring, and ending with the high-profile collapse of Sam Bankman-Fried’s FTX exchange and trading arm Alameda Research. This left many investors and especially Bitcoin miners in a tight spot, as Bitcoin plunged to USD 16,195 in November that year.
Post-FTX, Bitcoin began trending upwards from its cycle low. This uptrend was driven by fresh capital from investors and a strong price increase following Grayscale’s SEC victory over its Bitcoin spot ETF refiling in January 2023. Demand was further exacerbated by the US banking crisis in March – again, strengthening Bitcoin’s safe haven reputation as it began to decouple from traditional assets and outperform all other asset classes.
Source: The Block
With the upcoming halving set to reduce rewards from 6.25 BTC to 3.125 BTC, Bitcoin spot ETFs have emerged as another, if not the, primary catalyst behind Bitcoin’s strong market performance. Having accumulated 467,761 BTC since the SEC’s approval, Bitcoin’s market dynamics have obviously shifted – from the halving’s impact as a major supply shock to powerful market forces that have a far greater impact on Bitcoin, causing potential demand shocks.
Crypto market drivers beyond Bitcoin
Outside of Bitcoin, the broader market has also shown positive market sentiment and an all-around strong performance. Despite adding competition, many protocols are actually improving Bitcoin’s composability with other ecosystems, which also bring demand and additional benefits to its utility. Meanwhile, trends like DePIN, the proliferation of AI and Web3, the rising demand for high-performance blockchains, as well as real-world asset (RWA) tokenization, liquid staking, cross-chain interoperability and scalability solutions are also driving demand to the market. There is also renewed interest in Ethereum, after a relatively long period of underperformance, thanks to its DenCun upgrade and potential for an Ether spot ETF approval next quarter.
Source: CoinGecko
From the chart above, we can see that that the performance gap between Bitcoin and the rest of the market is closing, suggesting that any potential post-halving uptrend could also be driven by factors beyond Bitcoin.
So, what can we draw from this?
The upcoming halving is a critical period for Bitcoin miners, who have seen some relief thanks to Bitcoin’s strong market performance in recent months. However, this surge should be credited to the organic demand for Bitcoin’s spot ETFs and other catalysts unrelated to the halving itself. This is not to say that the halving is irrelevant (it is the very feature that gives Bitcoin its store of value properties), but it’s clear that market conditions have evolved considerably since the Genesis Halving.
Instead, examining a historical overview demonstrates the real market forces behind Bitcoin’s growth – like Bitcoin spot ETFs, emerging trends and protocol innovations, progressive regulatory developments, institutional interest, and its appeal against a backdrop of macro uncertainty and ongoing geopolitical tensions. So perhaps it is more accurate to suggest that these catalysts will be the real engines behind Bitcoin’s market movements post-halving. All of this remains to be seen, of course.
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