Opinion: Halving is bullish, but betting on BTC may no longer be attractive

Bitcoin ’s current rally comes as two bullish narratives converge: the halving, which will cut new supply in half in less than eight weeks, and the fact that spot ETFs are already accumulating Bitcoin faster than it can be mined.

In addition to new demand for spot ETFs, the halving is often seen as a catalyst for a significant increase in the price of Bitcoin.

But in the past two cycles, it was cryptocurrencies that benefited the most, not Bitcoin. Starting from the year before each halving, Bitcoin’s peak gains were:

• A year after the halving in 2012, it grew by 50,000%.

• It grew by 8,500% in nearly a year and a half after the 2016 halving.

• 1,000% one and a half years after the 2020 halving.

An interesting observation for the mathematically minded is that the post-halving gain for Bitcoin is roughly the same as the previous cycle divided by 6 to 8 (50,000%/8,500%; 8,500%/1,000%). If history repeats itself, Bitcoin’s peak gain this time around will be less than 170%—and it has already realized most of its gains.

All of this is understandable, considering that Bitcoin’s market capitalization has surpassed $1 trillion. It is impossible for the price of Bitcoin to increase 500 times in two years, as it did in 2012, when its market capitalization was less than $200 million.

Bitcoin (BTC) currently accounts for about half of the entire cryptocurrency market, but there are tens of thousands of other cryptocurrencies, and overall, they tend to "ride on the wave" when Bitcoin rallies are the strongest.

In fact, tokens other than Bitcoin have always been able to gain more from Bitcoin bull runs. In the year before the 2016 halving, the total value of cryptocurrencies excluding Bitcoin was $64.9 million.

A year after the halving event, at the peak of the 2017-2018 bull run, that figure had grown more than 6,000-fold to $421 billion, largely due to the rise of XRP , Ethereum , and Bitcoin Cash .

Similarly, in the last cycle of cryptocurrencies (2019-2021), cryptocurrencies other than Bitcoin were valued at $71.6 billion a year before the 2020 halving.

A year and a half later, when Bitcoin was near its all-time high, all other cryptocurrencies were worth $1.7 trillion — an increase of more than 2,000%, outpacing Bitcoin’s 1,000% growth.

The four-year cycle is not unique to Bitcoin

Once again, this article emphasizes that the sample size for the three halvings is too small to draw any meaningful analysis.

Such a small sample size means that factors other than halvings may also play a role in forming Bitcoin’s seemingly regular four-year market cycle.

The global liquidity cycle tracks the amount of cash moving through the global economy, and it may be even more closely correlated with Bitcoin's rise than the halving.

It turns out that global liquidity also operates in four-year cycles.

As with the halving, it is still unscientific to prove that a wave of global liquidity caused the explosive growth of Bitcoin. It is likely a mixed effect of the two: as global liquidity deepens, supply decreases, spilling over to speculative asset classes such as cryptocurrencies, thereby pushing up demand.

Excluding one day of net outflows from spot ETFs last week, U.S. physically-backed Bitcoin funds purchased a total of nearly 6,350 Bitcoins ($362 million) per trading day on average.

Bitcoin miners mine an average of 147 blocks a day, and each block is rewarded with 6.25 BTC ($356,600), which is how the network distributes new coins.

As a result, miners extract less than 9.2 million bitcoins ($52.5 million) from the blockchain each day. Bitcoin funds led by BlackRock, Fidelity and Ark/21Shares have purchased nearly six times as much on behalf of shareholders.

Many aspects of the Bitcoin market outpace the supply of Bitcoin. This year, an average of about 35,000 BTC ($2 billion) has flowed into cryptocurrency exchanges every day, indicating that the potential sales of Bitcoin are 37 times higher than the amount mined each day.

Even taking into account Bitcoin’s recent price increase, if only a small fraction of the Bitcoin miners send to exchanges ends up selling, then the price won’t immediately go parabolic, assuming there is enough supply to meet demand.

Still, with the halving just around the corner — expected on April 19 or 20 — it’s easy to see how they’ve captured the imagination of the market at large. Crypto-native companies like Bitwise , Bitfinex and CoinShares have already tried to demystify them, as have financial institutions like JPMorgan Chase and Standard Chartered.

On a practical level, the Bitcoin halving will fundamentally overhaul the economics of Bitcoin mining, with CoinShares predicting that several major operators will struggle if Bitcoin doesn’t stay above $40,000 (which it has so far).

Standard Chartered, which has become known for its bold crypto price predictions in recent years, is maintaining its target of $100,000 per coin by the end of the year, in part because of how much the halving could tip supply and demand in the latter direction.

It’s easy to chart Bitcoin’s price action after previous halvings (there have only been three halvings, in 2012, 2016, and 2020). After all, Bitcoin’s biggest bull runs peaked between a year and a year and a half after the halvings.

Aside from proving that “past performance is no guarantee of future results,” it’s anyone’s guess why this time is different.

Whatever effect the halving has (or doesn’t have) on price, retrospective data shows that despite massive capital injections every four years, the cyclical effects of the Bitcoin market are weakening over time.