Bitcoin’s halving event, which occurs every four years or 210,000 blocks, has historically been accompanied by a price decline. However, this time, market observers are speculating whether the presence of spot Bitcoin exchange-traded funds (ETFs) will soften the impact of the halving. ETFs have the potential to attract institutional investors and bring in significant amounts of investment into Bitcoin.
The next Bitcoin halving is expected to take place in April 2024, marking the fourth halving in Bitcoin’s history. Halvings reduce the supply of new Bitcoin, ensuring its scarcity.
According to crypto analysis firm Rekt Capital, the halving process consists of several stages. The first stage is the pre-halving downside phase, where prices decline as investors anticipate the event. The second stage is the pre-halving rally, where prices increase significantly due to short-term investors seeking to benefit from the halving hype.
Currently, many market observers believe that Bitcoin has entered the third stage, which is a pre-halving retracement. This phase sees prices decline as investors anticipate sell pressure and exit their positions. This is where Bitcoin ETFs are expected to play a crucial role.
The fourth stage, reaccumulation, begins after the halving and can last up to five months. During this phase, hype diminishes, and many investors exit their positions due to stagnant price movements.
However, the fifth stage of the halving, the parabolic uptrend, occurs after the reaccumulation phase. This is where the Bitcoin price can recover from the previous stages and reach a new all-time high.
The impact of ETFs on the pre-halving retracement is significant. In January, the United States Securities and Exchange Commission (SEC) approved 11 Bitcoin ETFs to be listed and traded on registered traditional exchanges. This decision allowed traditional investors to include Bitcoin in their portfolios and increased demand for the cryptocurrency.
Data shows that the demand for Bitcoin ETFs is substantial. Global Bitcoin exchange-traded products surpassed 1 million Bitcoin in assets under management on March 4. On March 5, Bitcoin ETF products reached a cumulative $10 billion in trading volume, the highest level since their inception.
This surge in demand for Bitcoin ETFs, coupled with significant outflows from gold and other ETF products, suggests a potential shift in investment towards Bitcoin ETFs.
The connection between Bitcoin ETFs and the Bitcoin halving is evident in the third and fourth stages of the halving process. These stages typically see falling Bitcoin prices as investors who opened shorts to capitalize on the halving hype exit their positions. Miners also sell their Bitcoin holdings before their rewards are cut in half. These factors result in falling demand.
However, other factors can trigger price declines, such as whale selling or market dynamics. Institutional activity, particularly within Bitcoin ETFs, has played a significant role in shaping market sentiment.
Assuming the exponential growth of Bitcoin ETFs continues, it is possible that the inflows through these ETFs could counteract the falling prices in the third and fourth stages of the halving, providing a stronger base for the parabolic uptrend and potentially leading to even higher all-time highs.
However, some experts argue that Bitcoin ETFs may not provide the expected opportunity during the halving. They suggest that if the demand for Bitcoin ETFs does not continue positively, these ETFs could contribute to the selling pressure and amplify the price decline.
JPMorgan predicts a bearish scenario where Bitcoin could fall as low as $42,000 after the halving. Outflows from Grayscale Investments’ Bitcoin ETF also indicate decreasing interest in Bitcoin ETFs.
While it is not possible to be 100% certain about the impact of Bitcoin ETFs on the halving, the performance of these ETFs suggests a more optimistic outlook. Only time will tell the extent to which Bitcoin ETFs will be affected by the halving stages.