A new report by Coinbase, the largest cryptocurrency exchange in the United States, has highlighted the uncertainty surrounding the impact of Bitcoin halving events on the asset’s performance. While the halving is seen as a positive development as it is believed to enhance Bitcoin’s prospective scarcity and support its supply-demand dynamics, it is difficult to disentangle the effects of exogenous factors such as U.S. dollar movements, interest rates, and global liquidity on the market’s behavior.
Bitcoin Halving Events and Market Behavior
Bitcoin’s halving events occur every four years or every 210,000 blocks. During the event, the rewards for BTC mining are reduced by 50%. The first halving occurred in 2012, and the fourth is expected to happen between April and May 2024. The upcoming halving will reduce BTC’s block rewards from 6.25 BTC to 3.125 BTC per block.
According to David Duong, Head of Institutional Research at Coinbase, evidence of the market’s reaction to the halving events is limited as there have only been three of them, and they all coincided with significant monetary and fiscal developments. For instance, during the second halving in 2016, Brexit stirred fiscal concerns in the EU and UK, leading to increased BTC purchases. In 2020, the third halving coincided with the COVID-19 pandemic, prompting central banks and governments to respond with unprecedented levels of stimulus, which drove global liquidity higher.
Duong suggests that removing the influence of global liquidity on BTC’s price behavior would reveal a clearer picture of the asset’s performance within different economic regimes. As the next halving approaches, it is important to note that the current surge in global liquidity will obscure the net effect on Bitcoin’s price behavior. The limited supporting evidence makes the relationship between halving events and Bitcoin’s performance somewhat speculative.
The report indicates that while halving events are viewed positively, it is difficult to disentangle the effects of exogenous factors on the market’s behavior. Evidence of the market’s reaction to halving events is limited, and it is essential to remove the influence of global liquidity to reveal a clearer picture of Bitcoin’s performance. Despite the uncertainty, the report suggests that the next halving in 2024 could have a positive impact on Bitcoin’s performance, but this relationship remains speculative.