How Bitcoin Halving Might or Might Not Affect ETF Holders

Bitcoin is on a torrid pace this year with much of that upside attributable to the January debuts of spot exchange traded fund in the U.S., but seasoned cryptocurrency investors know that some of the largest digital currency’s 2024 bullishness is also being generated by the quadrennial halving.

That event takes place this month and will be the fourth such instance since bitcoin’s inception more than 15 years ago. In simple terms, bitcoin halvings reduce the rewards accrued by miners. Typically, a miner that draws 210,000 blocks is entitled to a specific amount of bitcoin. That amount has declined from 25 coins per new block in November 2012 to 12.5 bitcoins on July 9, 2016 to 6.25 in May 2020 and will likely rest at 3.125 following the upcoming halving.

Halvings will continue until all 21 million bitcoin are mined. The current circulating supply is 19.66 million. Point is halvings are viewed through the context of limiting already limited supply. Thus, these events are considered bullish for bitcoin prices and history confirms as much.

“After the last halving in 2020 — which came after the 2017 bull market — Bitcoin gained 33% in the next three months, was up by more than 80% at the six-month mark, and more than 500% a year after the halving, according to crypto tax firm CoinLedger,” reported Jack Denton for Barron’s.

Different Dynamic this Year

Due to the aforementioned spot bitcoin ETFs coming to market in the U.S., the 2024 halving could bear different results than the prior three. Or perhaps not. This will be the first halving to occur with US-listed spot bitcoin ETFs widely available, but those products are already gobbling up supply of the digital currency. On any given day since those funds came to market, they have, in aggregate, bought more bitcoin than has been mined.

However, other regions of the world had spot bitcoin ETFs during prior halvings and Europe might serve as a template for what U.S. spot bitcoin ETF investors can expect in the wake of the upcoming halving.

“The current market dynamics are unique in the history of cryptocurrency, prompting a reassessment of the potential impacts of the halving, according to a study published last week by the research team of 21Shares, the first issuer of ETPs on crypto in Europe,” notes Morningstar’s Valerio Baseli. “The researchers said the halving effect has gradually diminished over time, with each leading to a decrease in growth rates in the value of bitcoin.”

On the other hand, bitcoin halving history is compelling for current owners and those holding related ETFs. This time around, those market participants will gladly accept some rhyming of history, but an outright repeat would be nice, too.

“Generally, these events have historically triggered supply shocks that have generated greater interest and speculation within the crypto community,” adds Baseli. “According to research by crypto tax consultancy CoinLedger, in the six months following the last two halvings, the value of BTC increased by 51% and 83%, respectively. Of course, the value of bitcoin then was far from what it is today; at the time of the 2016 halving, one BTC was worth $650, and in 2020 it was $8,572.”

Supply Matters

Much to the chagrin of supporters of asset classes that rival bitcoin, the digital currency is beholden to similar supply/demand dynamics and the new ETFs are amplifying that proposition.

While those funds are being purchased by advisors and scores of retail investors, the buyers of the bitcoin are ETF issuers, i.e. institutional investors. Their expanding footprint in the bitcoin market is driving favorable demand dynamics that could accentuate the effects of the upcoming halving.

“BTC spot ETFs demonstrated staggering trading volumes, signaling significant interest from traditional investors by reaching a new all-time high of over $1 billion of inflows in a single day on March 13, 2024,” notes 21Shares.

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