What’s Next for Bitcoin After the Decline?

Welcome to the fifth era of Bitcoin.

A new era of digital scarcity has arrived following the network program's reduction in new bitcoins. As of Friday's clockwork, the reward miners receive for validating Bitcoin transactions has been halved for the fourth time since the blockchain's inception.

The bitcoin halving will be called after 8pm ET on Friday. As a result, miners will earn 3.125 BTC per block created until sometime in 2028. This is part of the payment to miners for solving the cryptic puzzles that help keep the Bitcoin network secure until it halves in the 22nd century.

While formal, Bitcoin's halving—which was sparked by just seven lines of code from Bitcoin pseudonymous creator Satoshi Nakamoto—is the essence of the fortune. According to Galaxy Digital analyst Gabe Parker He explained. On Twitter (aka X), half of it is “Backbone. [Bitcoin’s] Clear, predictable monetary policy makes Bitcoin a very small asset.

As for the value of Bitcoin, what comes next is anyone's guess. But historically, Bitcoin's price has gained positive momentum on each halving, although not immediately.

However, the dynamic macroeconomic landscape, prior knowledge of how the halvings play, and investment vehicles that are new to Wall Street's understanding make them unique in Bitcoin history.

VanEck's head of digital assets research, Matthew Siegel, recently wrote that the “most explosive profits” typically occur 180 days after the halving. Blog post. On average, Bitcoin's price is up 427% 180 days from 30 days before the halving. Along those lines, Bitcoin jumped 116 percent from $6,800 to $14,850 in 2020, according to the blog post.

Remember 2020? It's worth noting that Bitcoin's third-half decline came at a time of very loose monetary policy as central banks grapple with a pandemic-era slowdown that could derail the global economy, said Desislava Aubert, research director at crypto analytics firm Caico. Decrypt.

“The Fed was easing,” she said, before tapering in the last half. “For me, the main difference from the recent halving is the macro environment in 2020.”

In the year As US consumer prices rise in 2022, the Federal Reserve steps in and raises interest rates at a breakneck pace to curb inflation. Right now, monetary conditions are relatively tight, and markets are moving on expectations of when and by how much the Fed will cut rates, Obert said.

“There are many fears. [the Fed] It could drop less than three times this year,” she said. “It would be bad for risk assets and probably for Bitcoin.”

Despite higher interest rates, Bitcoin set a new all-time high in March amid Wall Street's embrace of Bitcoin ETFs. Products that allow investors to gain bitcoin exposure in traditional brokerage accounts have anchored demand for bitcoin, attracting billions of dollars in revenue since January, Coinbase analysts David Dung and David Hahn said. He wrote In March.

“With major institutional players now able to gain exposure through these vehicles, Bitcoin's response to the upcoming halving may not necessarily reflect its performance in previous cycles,” they wrote, adding that stable demand for the products could lead to volatility.

The volatility that marked the previous halvings is likely to be less, also due to the greater experience of Bitcoin miners in navigating the event, said Caico's Aubert. Typically, some distressed miners are forced to sell Bitcoin as the cost of producing it doubles.

“I think the miners are better prepared this time,” she said. “They are building liquidity … and the sector has strengthened significantly over the past year.”

According to Charles Chong, director of strategy at crypto mining and staking foundry, the prospect of a slowdown among miners Decrypt As miners have more time to prepare. In a way, it shows just how complex their overall complexity has become.

“Although the overnight half-day reduction in revenue every four years is unparalleled in other sectors, the predictability of these events allows for strategic planning,” he said. “Generally speaking, halving requires improving operations.

Edited by Andrew Hayward.