Bitcoin's blowout 2024 continues, with the cryptocurrency hitting new peaks Monday. As ETF demand continues to drive bitcoin higher, the event called the halving — or "the halvening" by some industry insiders — continues to exert its gravitational pull on crypto markets.
The cryptocurrency saw a strong start to 2024, boosted by the U.S. Securities and Exchange Commission's approval of spot bitcoin ETFs. Crypto markets quickly left behind 2022's confidence-shaking scandals involving Three Arrows Capital and FTX.
ETF Approval Continues To Drive Bitcoin Rally
The long-awaited SEC approval continues to fuel confidence and optimism in bitcoin.
"The current market is being largely driven by ETF demand, speculation of miner rewards getting cut in half and the realization that the U.S. is going to pay (a huge amount) in debt service this year," Jim Roppel, founder of the Roppel Report, told Investor's Business Daily.
The arrival of spot bitcoin ETFs has unlocked institutional support for the cryptocurrency. Bitcoin-based spot ETFs allow mainstream investors to gain exposure to bitcoin, rather than futures, without needing to actually hold the cryptocurrency itself. Crypto bulls say that shift, from niche market to mass market, is a major driver fueling recent surges in bitcoin.
"The recent rally has primarily been driven by the ETFs that are now enabling billions of institutional capital to allocate to (bitcoin) for the first time," Will Clemente, founder of Reflexivity Research and a notable bitcoin bull, told Investor's Business Daily.
'Halvening' Draws Mixed Reactions From Market
Excitement around the halvening, expected to occur in April, is also another potential bitcoin booster. The milestone event ultimately increases the scarcity of bitcoin, a function built into the cryptocurrency's design. Halving events cut the rewards for bitcoin miners in half, in turn reducing the overall supply of bitcoin in the market.
But while some expect the halving to help lift crypto, the reality may be more mixed. "Some people think it's a big deal, some don't," said Clemente. "It's debated in the bitcoin community as to whether the halving drives bitcoin's market cycles or whether they are driven by liquidity and macro factors."
"I think it's a bit of both," he said.
Market interest in the halving remains high owing to bitcoin's boost during the last halving event in 2020. "The last post-halving rally (saw bitcoin rise) +632%, which was down about 75% from the prior post halving rally. So a 140% post-halving rally is a pitch shot," said Roppel.
Roppel notes that the ETF approvals could change the equation. "The prior rallies did not have ETF demand in play," he said. "The coming post-halving period could be more dramatic. "
Bitcoin Miners Brace For Looming Halving
For miners, the looming halving is also luring more bitcoin out of wallets and onto the markets. Crypto publication CoinDesk recently reported a fall in the number of bitcoin held in wallets connected to crypto miners. The lows, not seen since 2021, are an indication that miners are hoping to sell their reserves ahead of the halving.
The halving is also set to make mining bitcoin more expensive, discouraging miners and encouraging bitcoin holders to profit from transaction fees. This is by design. According to the Satoshi Nakamoto white paper laying out bitcoin's design, bitcoin mining works by verifying transactions that are added to the blockchain. Miners are rewarded with the bitcoin that results from a complete verification calculation.
By reducing the amount of reward available, the pace of bitcoin production is set to slow as it nears its target fixed maximum of about 21 million bitcoins. Halving events make mining more costly for miners in energy and resources, and the scarcity makes bitcoin more valuable, increasing the reward for miners that do survive.
"After the last halvening, miners who had old generation (mining) rigs initially got smoked," said Roppel. "But as bitcoin rallied into October, the rigs went up three times in value."
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