The Bitcoin Halving and Price Volatility: What You Need to Know
Much of the recent Bitcoin volatility is a sign that traders are second-guessing whether they’ve priced in the upcoming halving—and it’s entirely normal, Beam CEO Andy Bromberg told Decrypt.
“What happens is people in the months before the having, the narrative about the price going up tends to pull things,” he said. “And then right before the halving, everyone has this crisis of faith and you get into this whipsaw volatility.”
That’s where Bromberg estimates the market is now. In just the past week, Bitcoin has soared past $73,000 to set a new all-time high and then sank below $62,000.
As of this writing, the Bitcoin price is just shy of $65,000 after having lost 3% in the past day, according to data from CoinGecko.
The Bitcoin Halving Explained
The Bitcoin halving, as its name suggests, cuts the rate at which new Bitcoin is rewarded to miners in half. It has occurred three times already since Bitcoin was first introduced in January 2009.
At the time of writing, it looks like the next halving will land on April 27. But because the halving is scheduled to occur after a certain number of blocks have been mined on the Bitcoin network, it’s hard to pin down.
It’s the same reason why the arrival time on a GPS will fluctuate during travel. It’s always being recalculated with the assumption that you (or your bike or car) will keep moving at your current speed for the rest of the trip. But of course, that’s not always true or possible.
At the start of last week, in the run-up to Bitcoin setting a new all-time high and understandably high Bitcoin volume, the NiceHash countdown showed that the halving would occur as soon as April 15.
The Bitcoin Halving and Price History
Usually when the rate at which new Bitcoin enters the market has been cut in half every four years, it kicks off a price rally.
- Leading up to the first halving, on November 28, 2012, the price of Bitcoin saw a significant increase. Since Bitcoin had first launched in January 2009, it had gone from being priced at less than a penny to $12.
- Then, in the months following the halving, the price continued to rise, ultimately surpassing $100 for the first time in April 2013. This was partially due to growing awareness and adoption of Bitcoin.
- In the months leading up to the second halving on July 9, 2016, the BTC price was relatively stable. But after the halving, the price of Bitcoin experienced a slow but steady rise, culminating in a dramatic increase to set an all-time high of $19,783.06 in December 2017.
- Before the third halving, on May 11, 2020, the price experienced volatility and a significant dip. The COVID-19 pandemic had led to social distancing orders and by March 2020 the uncertainty was taking a toll on the economy. Post-halving, the price began to recover and saw a substantial rally starting in late 2020 into 2021 when it soared to $69,000 and set a new all-time high.
The Unique Factors Impacting This Halving
Bromberg said there are a few reasons this halving is unlike any others.
“It’s unlikely the demand [for Bitcoin] is about to change,” he said. “Especially with ETFs. Now, there’s this whole new demand driver. We’ve been looking at these the inflows last few days, and it’s significant.”
Last week alone, the U.S. spot Bitcoin ETFs have bought up nearly 36,000 BTC, according to CoinGlass. This week things have been more subdued with four straight days of net outflows because of a flash crash on Monday.
There have been predictions that the halving and persistent demand created by the ETFs could create a liquidity crisis, but Bromberg isn’t convinced. Especially because many of the ETF investors don’t tend to be long-term, dogmatic holders. In his experience, they buy and sell shares as it suits their portfolio.
“I think broadly the Bitcoin markets, especially at this point, and especially with ETFs, and futures—those markets are deep and liquid,” he said. “There’s not really like a liquidity issue.”
Hot Take: What to Expect from the Halving
The upcoming Bitcoin halving has generated a great deal of excitement and speculation in the market. While volatility is expected as traders second-guess whether they’ve priced in the event, historical patterns suggest that a price rally could follow. However, this halving is unique due to factors such as increased demand from ETFs.
It’s important for crypto enthusiasts to stay informed and closely monitor market trends during this period of uncertainty. The Bitcoin halving presents opportunities for potential gains but also carries risks. As always, it’s crucial to approach investments with caution and conduct thorough research.
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