Buoyed by new Bitcoin ETFs issued by Blackrock and Grayscale, the largest cryptocurrency reached a price peak of $74,000 in March. The Bitcoin halving event, which occurred on April 19, was expected to increase momentum further, sending prices soaring into uncharted territory.
The forecasts were based on history, or more specifically, on a small set of historical data whose meaning is not clear. After the previous halving in 2020, prices took a year-long upward trajectory, recording a 559% gain. After the 2016 event, prices initially fell dramatically, but then continued to rise by 284% within a year.
The cryptocurrency price surge in 2017 sent prices rising to $2,506 in July, then reaching $19,000 by the end of that year. Going back to the first Bitcoin halving event in 2012, we saw that prices actually took the opportunity to move higher shortly after the event ended.
There is no definitive causal relationship between the halving events and Bitcoin’s upward movement that jumps and catches attention. Analysts say the upcoming uptrend after the events of 2020, 2016 and 2012 was supported by unique driving forces, so it is difficult to determine the contribution of the halving events. On the other side of the fence, there are those who insist that Bitcoin halvings actually have the potential to send the bulls running on their own.
But why, in fact, should we expect these events to do that? Even if it does, what factors might interfere with this dynamic in 2024? If you are ready to trade Bitcoin in the form of CFDs with iFOREX Europe, or if you are just a close follower of the cryptocurrency space, join us to get some answers.
The effect of halving on supply
After halving events occur, the number of new coins appearing in the network through Bitcoin “mining” is halved. In theory, lower supply and stable demand should push prices higher. Thus, there appears to be a basis for anticipating price increases following the halving events. “The theory,” explains Michael Dubrovsky of PoWx, “is that there will be less bitcoin available to buy if miners have less to sell.”
In our case in 2024, there was a particular channel of demand for Bitcoin that people believed would remain constant: demand for Bitcoin ETFs. According to JPMorgan’s Nikolaos Panigirzoglou, the assumption “that demand for Bitcoin via spot ETFs will continue at the same pace even as supply declines” was what justified the bullishness surrounding the April event.
However, this assumption may turn out to be unjustified. Blackrock’s new Bitcoin ETF with IBIT generated $18 billion in the 71 days through April 25, but inflows quickly slowed to a trickle after that date, when average daily inflows were already near zero. By then, Bitcoin prices had lost a whopping 15% since their March high.
If traders were to abandon Bitcoin ETFs soon after their initial wave of interest faded, the case for a rally after this year’s halving appears to have failed. The immediate market reaction to the April 19 halving event was, in fact, very lethargic.
The US economy appears strong
When April arrived, data from the US manufacturing sector showed that business was moving strongly. As for inflation, it did not decrease significantly from its level of 3.8% for an entire year. When the CPI (Consumer Price Index, which measures inflation in the United States) for April surprised strategists with its hot reading, many of them abandoned hopes of a Fed rate cut in the first half of 2024.
The economy was still moving too strongly for the Fed to risk such a move. Inflation might take hold in the economy if they did. Rising interest rates are bearish news for risk assets, and Bitcoin seems to fall into this category, so there was good reason for crypto prices to cool off. Thus, Bitcoin prices lost a whopping 7% in the first two days of April.
Wrapping things up
Both analysts at JPMorgan and LMAX Group noted that Bitcoin was in overbought conditions on the eve of the halving event, making the near-term bearish case even more compelling. Add this to the fact that venture capital money flowing into the sector has been weak recently, and it stands to reason that we are bracing for a serious correction in digital asset prices.
When you trade Bitcoin on iFOREX Europe’s built-in CFD trading platform, you can benefit from price corrections just as you benefit from price rises. Trading CFDs on cryptocurrencies means that instead of actually buying them, you enter into a contract on their price changes, either up or down. This allows you to take advantage of both bull and bear markets, as well as trade premium currencies that are priced at extremely high levels. Visit iFOREX Europe to learn more.
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