One of the most significant events within the Bitcoin ecosystem is the Bitcoin halving, an event that reduces the reward for mining new blocks by half. The event next month occurs approximately every four years and has profound implications for the cryptocurrency industry.
The halving is a pivotal moment for the crypto industry, influencing everything from miners' revenue to overall market sentiment. Industries like mining, exchanges, and funds are just a few that can be impacted. Some ways the halving can affect such industries include:
- For miners, the immediate effect is a decrease in income unless there's a significant rise in Bitcoin's price. This can lead to a shakeout of less efficient miners and a temporary drop in the network's hash rate.
- From the perspective of a crypto business or an exchange, the reduced supply of new Bitcoin could lead to increased demand and bullish market sentiment, assuming demand remains constant or increases. Anticipation alone often leads to substantial price volatility before and after the halving event, with a bias to the upside.
- Fund managers and investors may want to take notice of the historical trend where Bitcoin has experienced significant price increases following past halvings. While past performance doesn’t always indicate future results, the halving is a cornerstone event that can't be ignored in any comprehensive crypto investment strategy.
Furthermore, for brokers and exchanges, effective ways to deal with the Bitcoin halving might involve planning to manage things like liquidity, trading volumes, and customer engagement.
It's official.
— Joe Burnett (🔑)³ (@IIICapital) March 9, 2024
$70,000 #bitcoin before the 2024 halving, before ZIRP, and before significant M2 growth—what does it mean?
~$800T of fiat assets are about to try to get an allocation to bitcoin, which is only $1.3T today, and much of that $1.3T is not for sale. pic.twitter.com/ZDvyWuZIIZ
One thing to keep in mind may be to ensure the exchange has sufficient liquidity to accommodate the increased trading activity that often follows the halving. This may involve optimizing trading algorithms, enhancing order-matching systems, and bolstering liquidity reserves.
Exchanges may also want to do all they can to keep customers informed about potential disruptions and changing market conditions around the time of the halving event. Engaging users through educational content, market insights, and promotional campaigns can help maintain interest and activity levels while fostering a sense of community within the platform.
Consider having a plan in place for when things go wrong, for example, if overwhelming activity causes the exchange to come offline for a time.
Coinbase is down again. pic.twitter.com/CA0eVJY05F
— Mister Crypto (@misterrcrypto) March 4, 2024
Things to Watch During the 2024 Halving
As we approach the 2024 halving event, investors may want to monitor developments that can help gauge where the market is heading.
There has already been a big surge in crypto-related activity, and the halving is still about a month away. This could be foreshadowing even bigger moves to come. The spot Bitcoin ETFs have been the most successful launch for an ETF in history, with over $10 billion in inflows in less than two months. Corporations like MicroStrategy continue buying BTC, while more institutions have begun offering the ETFs to their customers. Bank of America and Wells Fargo, for example, just announced that they will be supporting the ETFs.
Only 38 days left until the #Bitcoin halving.
— Mister Crypto (@misterrcrypto) March 9, 2024
We are getting really close! 😳 pic.twitter.com/uDGQPnVhPA
There are some specific metrics worth keeping an eye on during this halving cycle, such as:
- On-chain metrics: what are large holders or “whales” doing with their assets? How much Bitcoin is being held in long-term self-custodied storage that has not moved for many months or years?
- Exchange activity: Are coins being taken off of or transferred to exchanges? Large withdrawals tend to indicate bullish sentiment, while large deposits tend to indicate intentions of selling.
- ETF inflows and outflows: How fast does money continue moving into the ETFs? This can be a strong indicator of market sentiment and investor demand for bitcoin.
- Historical comparisons: How is this halving cycle playing out in comparison to past cycles? Many believe in diminishing returns for each new cycle. However, this time appears to be different, as BTC/USD has never come so close to making a new ATH before the halving has yet to take place.
- Bitcoin and the FOREX markets: How many currencies around the world are seeing all-time lows versus Bitcoin? Put differently, how many countries are experiencing all-time high prices for bitcoin? As of March 2024, bitcoin has already reached record highs when measured against more than a dozen different currencies.
There are several other variables to consider, but these are some of the most important.
"With #Bitcoin right now ... there is too much demand and not enough supply." - Matt Hougan, CIO Bitwise pic.twitter.com/1B0joUQ1Pp
— Michael Saylor⚡️ (@saylor) February 29, 2024
Conclusion
As mentioned in the previous article, the history of the halving has been one of significant impacts throughout the industry. This time promises to have even greater implications, as a great new influx of demand is coinciding with a decrease in supply.
