The imminent arrival of the 4th phase of Bitcoin’s halving is a highly anticipated event in the cryptocurrency domain. Depending on your location, the countdown indicates that it could transpire towards the end of Friday evening in the Americas or Saturday morning in Asia or Europe.
Market indicators suggest that this event has been long awaited and should be factored into considerations well before its actual unfolding. Unlike the unpredictable sudden bursts of activity in the Middle East, the halving event presents a clear outcome—the halving of BTC rewards for miners completing a block, reducing it from 6.25 BTC to 3.125 BTC.
While this reduction will naturally result in decreased supply from miners, the question arises: does this alteration affect the overall market liquidity? In the subsequent sections, we will delve into this query and shed light on the challenges associated with the current geopolitical landscape and the observed volatile market conditions.
Every 210,000 blocks mined triggers the Bitcoin network’s protocol to halve the new rewards. As elucidated by Coinbase’s institutional research team, this adjustment will slash the daily minted supply from 900 Bitcoins to 450 Bitcoins. At the current market value of \(65,000 per BTC, this translates to approximately \)30,000,000 of new supply per day or $900,000,000 per month.
These figures, albeit significant, pale in comparison to the daily trading volumes seen across various crypto exchanges, particularly since the inception of BTC ETF trading, which catalyzed heightened interest in this asset class.
The tradable Bitcoin volume has been escalating during the recent bullish streak that gained momentum since early Q4 of 2023. According to Coinbase Institutional Research, the active BTC supply, representing Bitcoin moved within the past three months, surged to 1.3 million, contrasting with the mere 150,000 mined during that period.
In a statement to Finance Magnates, Coinbase’s Research Analyst, David Han, pointed out that the reduction in BTC mining issuance could introduce positive supply-side dynamics in the long run. Han expressed skepticism regarding the likelihood of an immediate supply crunch, emphasizing that the main contributors to increased BTC supply during bullish phases stem from long-term wallets becoming active rather than newly mined BTC.
The narrative surrounding halving events in the cryptocurrency community often anticipates a substantial surge in digital asset values. While historical data may support this belief, it’s essential to remember that correlation does not imply causation. The occurrence of two events in close succession does not necessarily establish a cause-and-effect relationship.
With only three halving events in the past and the fourth one on the horizon, we can observe correlations but not definitive cause-effect connections. While halving events may not perfectly align with central bank liquidity cycles, there are intriguing implications for risk management teams and traders to ponder.
As the halving event approaches, the spotlight shifts to central banks, poised to tackle inflationary challenges or inject more fiat liquidity into the monetary system. The emergence of Bitcoin ETFs has notably enhanced the liquidity landscape for the primary cryptocurrency, with net US spot ETF inflows offsetting the BTC mined in the previous six months.
The evolving dynamics within the cryptocurrency realm amidst geopolitical tensions and market fluctuations underscore the high-risk nature of these assets. While the impact of halving events may diminish over time, the interplay of geopolitical factors can continue to trigger volatility across cryptocurrency and traditional financial markets.
Ultimately, as the cryptocurrency landscape evolves, only time will reveal the lasting implications of these transformative events.