Could bitcoin's bumper rally just be getting started this year? That's the question on the minds of cryptocurrency traders ahead of the upcoming bitcoin 'halving', a change in the token's underlying blockchain technology that is designed to reduce the rate at which new bitcoins are created.
Previous bitcoin halvings in 2012, 2016 and 2020 were followed by massive rallies in its price: a year after the May 2020 bitcoin halving, bitcoin was up more than 545%.
The next halving is currently slated to occur on April 20, per data platform CoinGecko. But this time around, the market is split on whether bitcoin could be in for another meteoric rise.
At the halving, the amount of bitcoin available as rewards for miners is cut in half, making mining less profitable and slowing the production of new tokens. Some bitcoin enthusiasts say that bitcoin's enhanced scarcity gives it extra value.
In an April 8 report, Bitfinex analysts predicted bitcoin's price would soar about 160 per cent in the 12-14 months after this year's halving, which they said could push bitcoin to an all-time high of more than $150,000.
"This current cycle stands out from all the other previous cycles as the bitcoin price has already achieved a new all-time high - even before the halving. This anomaly could be interpreted as a bullish indicator, yet it also introduces a level of uncertainty into the market dynamics," the report said.
David Mercer, CEO of LMAX Group, which operates an institutional crypto exchange, is among the skeptics: "The view from the grown-up market is this: 2012, 2016, 2020, the halving preceded a massive bull run, so the evangelist will tell you, 2024 is going to be the same. We think not." The reason? Some analysts say the impact of the halving could have already been priced into bitcoin's recent move skyward. Bitcoin hit an all-time high in March at $73,803.25, and has risen more than 60% since Jan. 1 as investors cheered new U.S. spot bitcoin exchange-traded funds (ETFs) and bet on the entry of new institutional money into the asset class.
The bitcoin ETFs "brought in a tremendous amount of interest and net new flows into bitcoin preceding the halving event, whereas in the past, we've seen price levels right after the halving event bring in those new flows," said Thomas Perfumo, head of strategy at crypto exchange Kraken.
Priced in?
Halvings happen approximately every four years, though, according to some analysts, it's difficult to rely on historical precedent. They say that a combination of factors outside of the halving could have contributed to bitcoin's rally in 2020, including looser monetary policy and stay-at-home retail investors spending spare cash on cryptocurrencies.
"A sample size of three is not necessarily large enough to be conclusive. It is also important to note that other bullish events in the industry contributed to the gains," researchers at crypto analytics firm Kaiko said in a note.
Still, others say that the ETFs could just be one in a series of catalysts that could support bitcoin's price in the year following a halving. The U.S. Federal Reserve is widely expected to cut interest rates this year, which could boost risk assets such as cryptocurrencies.
"You have a simultaneous influx of new money into the asset class, finally, by way of the ETF ... then there's also the Fed, indicating that they plan on easing monetary policy later this year," said Ravi Doshi, head of markets at FalconX, a crypto prime broker.
"Assuming that inflation prints continue to stay muted, you have this recipe for significantly higher prices."
