The Bitcoin (BTC) halving, often seen as a bullish catalyst for price, may not be as positive as the market thinks thanks to the approval of spot exchange-traded funds (ETF).
The halving, which occurs every four years, reduces Bitcoin's supply growth by half, which has historically put upward pressure on the price of the largest digital asset. Previous halving cycles have taken Bitcoin to new highs, and this time strong demand from spot ETFs could add even more fuel to the rally.
“If we look at overall demand since ETFs were introduced, it has already created a huge supply shock,” said Brian Dixon, CEO of investment firm Off the Chain Capital. “Once the halving occurs and supply is further reduced, it is only logical to assume that the price will increase.”
On the face of it, this could be the case as the funds' demand is well above the 900 new BTC mined daily. And if that supply is cut in half, it could put even greater downward pressure on prices.
This time, however, things could be different.
Bitcoin price has risen 46% since January 11, when spot ETFs began trading in the US. Demand from these funds was so strong that the price of the digital asset rose to a new all-time high to keep up with the rush of Bitcoin purchases. But the market may be a bit out of touch with the hype.
“This is the first time that Bitcoin has broken its pre-halving all-time highs, so there is a bit of concern that the ETFs have driven demand higher and we may stay where we are for a while,” said David Lawant, head of research at FalconX.
Anthony Anderson, founder and CEO of Param Labs and Kiraverse, shared this sentiment. “Bitcoin ETFs were able to pre-empt the impact of the supply halving by purchasing massive BTC since the start of the year.”
According to Bloomberg Intelligence ETF analyst James Seyffart, the halving may also not impact ETF flows, at least not in the short term, due to already strong investor demand.
“We know that many miners use OTC desks to offload their BTC, and ETF issuers also use OTC desks to receive their Bitcoin as inflows flow into the fund. So, in theory, the possible halving of miners' Bitcoin sales could mean that ETF inflows will have a larger impact.” “But over the past few months, ETF inflows have far exceeded anything miners have provided from operations.” , he said.
“So if it does have an impact, I think it's unlikely to be something extremely impactful,” Seyffart added.
That's not to say the halving won't be a significant catalyst for Bitcoin and ETF flows in the long term. Finally, the success of ETFs appears to be closely correlated with the price of BTC and vice versa. The halving could even increase Bitcoin's appeal as an asset class for institutional investors. “I think the halving will be one of the best things for Bitcoin since the launch of ETFs,” said Bob Iacchino, co-founder of analytics firm Path Trading Partners. “At its core, it is an inflation protection mechanism, and inflation is rising again.”
In fact, the halving hype could help bring Bitcoin to the attention of many investors looking for alternative assets to hedge against global macroeconomic volatility.
“The [Halving] “This comes at a time when people are becoming somewhat uneasy about the risk that Bitcoin hedges against,” Lawant said, noting that many investors are starting to pay more attention to how they prepare their portfolio ahead of significant changes in Protecting the global economy and having spot ETFs and an asset class with shrinking supply “would have a positive impact on ETF flows.”
This supply shortage could also have a longer-term impact on ETF flows, as it will affect Bitcoin's “small supply in perpetuity,” Seyffart said. He added that the BTC supply cut was “permanent and forever,” even though the impact of the marginal supply from ETF inflows in the first three months was much greater than the halving could have had.
Whatever the case, the market may need to brace for volatile short-term trading in Bitcoin and possibly post-halving ETF flows, Anderson said, noting that net flows for the funds are likely to be at a long-term level similar pace to current.
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