As the initial excitement surrounding the advent of new spot Bitcoin (CRYPTO: BTC) exchange-traded funds (ETFs) gradually dwindles, all eyes are now turning toward the upcoming halving event in April. A crescendo of analysts foresees this event as a potential catalyst that could catapult the price of Bitcoin to unprecedented heights.
According to industry titan Grayscale (NYSEMKT: GBTC), the impact of this impending halving might surpass even the lofty outcomes of the three preceding ones. But is this prophecy grounded in reality? Here’s why this event could fall short of the heightened expectations set by crypto enthusiasts.
1. Learning from the Past: “Buy the rumor, sell the news”
Observing the recent saga of the spot Bitcoin ETFs reveals how the market has become increasingly adept at factoring in the implications of each new Bitcoin development. Dormant in the theory of efficient markets, which dictates that any asset’s market efficiently incorporates new information, this recent trend perfectly aligns with expectations.
A prime example arises with the Bitcoin ETFs. Market participants had a firm grasp on the imminent ETFs and the likely frontrunners for SEC approval. Thus, when the SEC finally greenlit the ETFs on Jan. 10, it hardly struck as a bombshell. The market had preemptively embraced this development, causing a surge in Bitcoin’s value from June 2023 to January 2024. Consequently, when the news arrived, Bitcoin’s value tapered off — contrary to popular anticipation. The initial gains had been overly optimistic in the short term.
Could this sequence repeat itself with the halving? Speculation was already rife by the end of the preceding year that the halving’s impact had been factored into Bitcoin’s value. This logic is sound, considering Bitcoin’s heightened visibility in Wall Street and among institutional investors.
The halving is no longer an enigmatic occurrence for these entities, unlike in 2012, 2016, or 2020. It follows a predictable pattern with a historical track record of cycles. Correspondingly, the crypto market’s efficiency has vaulted since just a few years back.
2. Examining the Analogy: Correlation Versus Causation
Noteworthy in the Grayscale report on the Bitcoin halving is an analysis delving into the broader macroeconomic landscape during each halving’s era.
Consider the May 2020 halving, concomitant with the pandemic upheaval. As a fresh wave of fiscal stimuli buttressed investment markets, some seized the moment to channel their stimulus funds into crypto investments. Thus, when Bitcoin soared to an all-time peak in November 2021, was it due to the halving or the overarching macroeconomic climate?
This scenario sheds light on the correlation-versus-causation dilemma engulfing investors. The triumvirate of Bitcoin surges during halving periods evokes the notion of causation, but this conviction may be misleading.
3. Betting Against Certainty: Past Performance and the Future
Amassing three rallying instances following three halving events furnishes no guarantee that a similar trajectory will unfold like clockwork. It’s akin to consecutively flipping a coin, registering heads thrice, and prematurely assuming an above 50% chance of heads on the fourth flip.
Verily, Bitcoin is scheduled for halving spans every four years until 2140. Can one sincerely envision Bitcoin breaching fresh all-time zeniths in the forthcoming 30 or so halving cycles? Inevitably, the halving’s impact may wane.
However, Grayscale flags some salient observations in its halving report. Notably, the unprecedented presence of new spot Bitcoin ETFs in this cycle, diverging from previous halving phases. This novelty is crucial as the ETFs’ demand for Bitcoin could counterbalance any selling pressure triggered by miners post-halving.
Amid the Noise: A Slow Burn Rather Than an Overnight Miracle
Though optimism shrouds the potential impact of the halving on Bitcoin prices, prudence is key. Historical data reveals that post-halving price hikes tend to materialize over 12 to 18 months. Reflect on the previous halving in May 2020, with Bitcoin’s ascendancy to $69,000 in November 2021 — a full 18 months post-halving. Hence, a sudden surge from Bitcoin’s present valuation at approximately $50,000 is improbable.
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Dominic Basulto holds positions in Bitcoin. The Motley Fool possesses and advocates for Bitcoin and Coinbase Global. The Motley Fool adheres to a disclosure policy.
The perspectives and opinions delineated herein belong to the author and may not necessarily mirror those of Nasdaq, Inc.
